When you ask people how they’re doing, you often get a knee-jerk “fine” or “good” without much introspection. But lately, when you ask people about the economy, they have clear feelings.
Over the past several years, the economy has been remarkable, in a literal sense; there has been a lot to talk about. Inflation rose to levels we hadn’t seen in about 40 years, and home prices climbed roughly 50%. The Federal Reserve stepped in to fight inflation. Interest rates reached territory they hadn’t touched in 20 years or more, but they did so without triggering a recession. Economic growth has remained high and the labor market strong. All of these factors have resulted in a cacophony of narratives about the economy, which is very likely playing a role in people’s perceptions.
A new survey from NerdWallet, conducted online by The Harris Poll among more than 2,000 U.S. adults, reveals a disconnect that illustrates these perceptions well. When asked how they feel about a variety of economic and financial topics now compared with 12 months ago, Americans were nearly twice as likely to feel worse than better about the state of the U.S. economy in general. Yet they were slightly more likely to feel better than worse about the state of their own personal finances.
Over the past 12 months, the survey period we asked about, the economy has actually remained strong, and the post-pandemic recovery has carried on better than expected. Consumers continue spending, which is typically taken as a sign of confidence. It may be tempting to disregard negative sentiment if we can’t confirm it’s rooted in current economic reality. But that sentiment may provide clues to yet-unseen problems and potentially drive behavior changes that could have significant economic impact.
Half of Americans are feeling worse about the economy
People’s perceptions are colored by their background, personality traits and exposure to information, among many other things. And these perceptions don’t always reflect demonstrable reality, particularly when you ask about how people feel. Asking about perceptions and focusing on an emotional component can give people explicit permission to detach their experience from what the actual evidence might show. And often, it’s likely our feelings that govern our behaviors, whether we’re talking about managing relationships or spending money.
About half (49%) of Americans say they feel worse about the state of the U.S. economy in general now compared to 12 months ago, according to the NerdWallet survey conducted in April. Just 26% feel better. Among the questions asked, this one garnered the strongest opinions — it had the lowest rate of people who neither felt better nor worse.
Twelve months before this survey, the economic indicators most people would encounter in daily living were pretty close to where they are now. Unemployment was a low 3.4%; now, it’s still low by historical standards, at 3.9%. Gas prices were relatively the same: $3.71 per gallon on average then and $3.73 now. One major improvement over that one-year period can be found in price growth, however. Inflation in April 2023 was near 5%. Now, it’s closer to 3.5%. In fact, wages are now growing faster than prices.
When asked to look more locally — how they feel about the state of their personal finances now versus 12 months ago — one-third (33%) of Americans feel better and 29% feel worse. Parents of minor children are more likely (39%) than non-parents (31%) to feel better.
What’s driving the disconnect?
The disconnect between how people feel about the economy at large and how they feel about their household finances seems counterintuitive. By most official measures, the economy is strong. If feelings or perspectives run contrary to that, one source of the negative sentiment could be personal experience. In other words, if I feel bad about the economy when the economy is doing well, maybe it’s because my personal financial situation is not so great. But a modest segment of Americans hold these two seemingly disparate feelings simultaneously: 18% of those who feel worse about the economy now than they did 12 months ago say they feel better about their personal finances over the same period.
There are many other possible explanations for the perception of a worsening economy, including:
1. We could be measuring the economy wrong (maybe it’s not doing as well as we think). The COVID-19 pandemic didn’t just shake the economy, it shook economic data too. This explanation might not be the most likely, however, as the people responsible for economic data are experts in their field. If someone’s going to get it right, it’s likely them. Data collection, benchmarking and seasonal adjustments have all been impacted and continue to be accounted for.
2. Exposure to negative stories in the news or social media could be coloring people’s outlook on the economy’s health. The last high inflation period was a relative lifetime ago, in the 1980s. Then, our primary sources of economic information came at regularly scheduled and limited intervals: in the morning newspaper or in front of the evening newscast, for example. Now, economic data is everywhere you look, translated by both experts and social media influencers alike. This consistent attention to the economy’s measurements could be having an outsized impact on our perception of its well-being.
3. The housing market could be playing an outsized role in overall economic perspectives. If there’s one section of the economy that is undoubtedly difficult, it’s the housing market. Under current conditions — high home prices, a paltry number of homes available for sale and high borrowing costs — even if someone has taken steps to position themselves to buy, they’ll be met with difficulties. Healthy household finances can only get you so far if you’re trying to buy a home in this unfriendly market, and confronting these roadblocks on the path to a long-term financial goal can be very discouraging.
4. We’re aware that even though we might be doing better personally, others aren’t so fortunate. Aggregate measures of the economy conceal a lot of nuance. Unemployment is low on a national scale, but people are still unemployed. Wage growth is outpacing inflation, but not everyone is receiving raises. Even if you personally aren’t experiencing any downside to this economy, knowing that others are may color your views. This isn’t necessarily a bad thing — empathy across the economy can drive meaningful community involvement and policies that improve the well-being of others.
What we shouldn’t do is assume that people just don’t understand the economy and write off the disconnect as immaterial. At some point, how we feel about the economy can impact how we act. It can affect decisions such as whether now’s a good time to buy a new car, invest in the stock market or start a new business. For business owners, it can impact hiring and investment decisions. And all of these spending and saving decisions can ultimately impact the health of the economy, feeding into official data. Consumer expenditures account for about two-thirds of total GDP, for example. So how we feel about things, no matter the driving force, can impact economic reality. And that makes this sentiment worth listening to.
Investing can feel like riding a rollercoaster, especially when you’re trying to keep up with market fluctuations. One popular technique that long-term investors use to smooth out this ride is dollar-cost averaging (DCA).
This investment strategy offers a methodical approach to investing that can eliminate the guesswork and stress of trying to time the market. Let’s dive into the world of DCA and see how it might serve your personal finance goals.
Basics of Dollar-Cost Averaging
Dollar-cost averaging is a simple but effective investment strategy. The basic idea is to invest a fixed dollar amount at regular intervals into a particular investment, such as a stock or mutual fund, regardless of its share price. Over time, this approach can result in a lower average price per share compared to making a lump sum investment at a higher price.
Here’s how to dollar-cost average: Suppose you decide to invest $500 into an index fund every month. The share price of the fund fluctuates from month to month, sometimes high, sometimes low. By investing regularly, you buy more shares when the price is low and fewer shares when the price is high. Over time, this can lead to a lower average purchase price.
A Deeper Dive Into How Dollar-Cost Averaging Works
One way to get a better grasp of how dollar-cost averaging works is to look at a hypothetical scenario. Suppose you decide to invest $200 in a mutual fund every month. In January, the share price is $20, so you buy 10 shares.
In February, the share price drops to $10, so your $200 buys you 20 shares. In March, the price goes up to $25, so you can only afford 8 shares. Despite the market’s fluctuations, your regular investment allowed you to purchase more shares when the price was low and fewer shares when the price was high, resulting in a lower average purchase price.
Benefits of Dollar-Cost Averaging
The key advantage of the dollar-cost averaging approach is that it mitigates market volatility. Instead of trying to time the market and potentially making ill-timed investment decisions, DCA allows you to follow a fixed schedule and make regular investments.
This strategy can be especially beneficial in declining markets. When stock prices fall, your fixed dollar amount can purchase more shares. If the stock market recovers, you would have bought those shares at lower prices, potentially leading to gains. This way, DCA can turn market declines into opportunities.
Another benefit of dollar-cost averaging is that it can promote disciplined investing. By investing a fixed amount at regular intervals, you are more likely to stick with your investing strategy, even when the market is turbulent.
The Psychology Behind Dollar-Cost Averaging
Dollar-cost averaging isn’t just about mathematical probabilities and financial strategy—it’s also deeply intertwined with investor psychology. Investing can be an emotional roller coaster, especially during periods of significant market volatility. When stock prices swing wildly, investors often let their emotions guide their decisions, which can lead to costly mistakes.
For instance, a sudden market downturn might provoke feelings of fear and uncertainty. In response to these emotions, some investors may resort to panic selling, hastily offloading their investments to stave off further losses. This can be detrimental to their long-term financial goals because they might miss out on potential gains when the market eventually rebounds.
On the flip side, during a bullish market when prices are high, feelings of greed and fear of missing out (FOMO) might take over. These emotions can lead to impulsive buying, where investors pour money into the market hoping to ride the wave. But if the market corrects or crashes, these investors stand to lose a significant portion of their investment.
This is where the dollar-cost averaging approach comes into play. The discipline of investing a fixed amount at regular intervals removes the need to time the market and reduces the influence of emotions on investment decisions. It provides a systematic investment plan that is followed regardless of whether the market is up or down. This disciplined approach can prevent impulsive decisions, providing a level of emotional comfort and stability.
Limitations and Risks of Dollar-Cost Averaging
While dollar-cost averaging offers many benefits, it’s not without its potential drawbacks. One potential downside is that if the market consistently rises, a dollar-cost averaging strategy could yield lower returns compared to lump sum investing. In bullish markets, a lump sum invested early would have more time to grow.
Another risk is that despite the potential to achieve a lower average price per share, DCA doesn’t guarantee profits or protect against losses. If the market continually declines, you may lose money, especially if you need to withdraw your investment before the market has a chance to recover.
Finally, for dollar-cost averaging to work effectively, it requires regular and continuous investments. This may pose a challenge if you have a tight budget or unpredictable cash flow.
Dollar-Cost Averaging vs. Lump Sum Investing
Lump sum investing is another common strategy where an investor puts a large sum of money into the market at once. This approach can yield higher returns during a bull market because your entire investment is exposed to the market’s growth from the beginning.
However, timing the lump sum investment correctly can be challenging, even for professional investors. Misjudging the market can lead to buying high, which could result in lower returns or even losses. It’s also worth noting that investing a large sum all at once can be a significant risk if the market takes a downturn shortly after.
Choosing between dollar-cost averaging and lump sum investing largely depends on factors like your risk tolerance, investment horizon, and the amount of money you have to invest.
Implementing Dollar-Cost Averaging in Your Investment Strategy
If you’re interested in implementing a dollar-cost averaging strategy, you’ll need to consider several factors:
Choosing an investment: First, choose a suitable investment option. This could be individual stocks, mutual funds, or exchange-traded funds (ETFs). It’s wise to diversify across different asset classes to reduce risk.
Budget: Decide how much money you can invest regularly. This could be a fixed dollar amount you set aside from your paycheck every month. The key is to ensure it’s an amount you can commit to over time.
Frequency: Determine how often you want to invest. This could be monthly, quarterly, or any interval that fits your financial situation. The main point is to stick to a regular schedule.
Duration: Consider how long you plan to keep investing. This would typically be linked to your financial goals. Are you saving for retirement, a down payment on a home, or your child’s college education? Your end goal can help you determine how long you dollar-cost average.
Dollar-Cost Averaging in Different Market Conditions
Dollar-cost averaging can prove beneficial in various market conditions:
Bullish markets: In a steadily rising market, a DCA strategy may underperform a lump sum investing approach. However, the benefit is that you’re not risking a large sum of money at once and aren’t trying to time the market.
Bearish markets: In declining markets, DCA comes into its own by allowing you to buy more shares at lower prices. This can reduce the average cost of your investment over time.
Volatile markets: Market volatility can make it difficult to time your investments. With DCA, you’re investing at regular intervals, which means you’re less likely to be swayed by short-term market swings.
Dollar-Cost Averaging With Robo-Advisors and Investment Apps
Nowadays, you don’t need to manually make investments at regular intervals. Many financial institutions offer automatic trading plans, and several robo-advisors and investment apps also provide automated DCA services.
These tools can automatically deduct a set amount from your bank or brokerage account and invest it according to your preferences, making DCA even more straightforward.
Conclusion
Dollar-cost averaging helps you manage fluctuations in the market, mitigate the risks of market timing, and potentially lower your average purchase price. It offers a systematic and disciplined approach to investing. However, like any investment strategy, it’s not without risks. Always consider your financial goals, risk tolerance, and investment horizon before deciding to implement DCA.
Remember, past performance is not indicative of future results, and it’s important to evaluate your investment options carefully. While this article provides a thorough understanding of how dollar-cost averaging works, it does not provide investment advice. You should consider seeking advice from professional advisory or brokerage services that can provide personalized advice based on your circumstances.
Frequently Asked Questions
Can I use dollar-cost averaging in my retirement account?
Yes, DCA fits perfectly in retirement accounts like 401(k)s or IRAs. You’re typically contributing a set amount regularly, which is DCA in practice. Over time, this can help smooth out the impact of market volatility on your retirement savings.
Do I need a large sum of money to start dollar-cost averaging?
No, the advantage of DCA is that it allows you to start investing with any amount you’re comfortable with. You simply invest a fixed amount at regular intervals, which could be as little as a few dollars every month.
How does dollar-cost averaging help me build wealth over time?
DCA can contribute to wealth building by potentially lowering the average cost of your investments over time. By buying more shares when prices are low and fewer when they’re high, you might lower your average cost per share, setting the stage for potential gains in the long run.
Can dollar-cost averaging protect me from all investment losses?
While DCA can help mitigate the effects of volatile markets, it does not guarantee protection from all investment losses. The value of your investments can still go down, particularly if the entire market is in a prolonged downturn. It’s important to have a diversified portfolio and a strategy that aligns with your risk tolerance.
Is dollar-cost averaging only suitable for stocks?
Not at all. While often associated with buying stocks, you can apply dollar-cost averaging to other types of investments as well, like mutual funds, index funds, exchange-traded funds (ETFs), or even Bitcoin. The key is that the asset’s price changes over time.
How often should I make investments if I’m using a dollar-cost averaging strategy?
The frequency of investments in a DCA strategy can vary based on your personal finance situation and goals. Common intervals include monthly and bi-weekly, often aligned with pay periods. The key is to be consistent and stick to your predetermined schedule.
Inside: Making money is one thing, but saving it is another. Learn how to save 10000 in a year using the following steps. Plus download your free printable!
The number of people who do not save money is growing at a rapid pace. The economy has changed and many families are struggling to make ends meet, even with two incomes.
That is why saving $10,000 in one year can seem like an impossible goal for some people.
You can save $10,000 in a year.
This has been proven over and over here at Money Bliss.
This has happened because my readers dedicated themselves to one of our money savings challenges.
A lot of people are interested in saving more money right now, but not everyone can afford to save a lot of money. You do not need a ton of income to be successful, you just need to dedicate yourself to new habits of saving.
The thing is – money doesn’t grow on trees, and I wouldn’t recommend waiting for one either if you want your savings plan to be successful.
Are you ready to be the next Money Bliss success story to save 10000 dollars in a year?
If so, then you are in the right place. Let’s create your 10000 saving plan.
How to Save $10000 in One Year
It’s not as difficult to save $10,000 in one year as you may think. All it takes is a few small changes, creating a plan, and some careful budgeting.
The first step is to start saving money.
This can be done by paying yourself first. Decide on the amount you want to save each pay period. Then, you prioritize your savings before all of your expenses and money runs out
Next, you have to decide where to save your money.
Will you put the money into an online savings account where the temptation goes away?
Or invest in your future with a Roth IRA and/or 401k?
Where can you grow your savings over time?
Do not underestimate the power of your employer match contribution. If they offer this option for retirement savings or another type of investment account like Roth IRA or 401K, take advantage by contributing the maximum your plan allows each pay period.
Finally, you have to make sure you are living below your means with your increased saving rate.
These are all the fine details to make sure you learn how to save $10,000 in one year with cutting expenses.
Don’t forget to set up automatic transfers for all of your savings so they’ll be taken care of even when you don’t do it!
Shortly, you will find savings tips to help you save $10,000. The exact steps you need to do to save your first $10K or whether you want to do it again.
Breakdown How to Save 10000 Dollars in a Year:
But, first how much do you have to save to hit that 10K milestone in a year?
To save $10,000 in one year, you must set aside an average of $833.33 per month for 12 months.
Don’t quit reading now and walk away! You are reading this post for a reason. So, you will reach your saving challenge goal.
Let’s break that monthly number down into bit-size chunks.
Daily:
$27.40
Weekly:
$192.31
Bi-Weekly:
$384.62
Monthly:
$833.33
Bi-Monthly:
$416.67
Quarterly:
$2,500.00
Places to Save $10K in a Year
Your goal for the year is to save $10,000.
First, decide where you want to put this dollar bump in savings.
Everyone is at a stage in their financial journey, so what you choose will be completely different than someone else.
Here are some ideas:
Also, you may likely divide up your $10K savings into more than one bucket!
What are the ways you plan on saving $10,000?
Tips to help you Save $10000
According to the Federal Reserve, only half of Americans have retirement accounts.1
This means that most people will retire broke. Yikes!
The only way to achieve a comfortable lifestyle is by saving, investing, and planning for your future.
You can save $10,000 in one year if you make a goal and try your best. It will take some effort as it is not easy to do so, but the rewards are worth it.
If there’s anything that we know for certain about living life well, then this is: “you must be willing to work hard.”
So, what are some practical steps that you can take to save money? Let’s start with the first one.
1. Mindset
The purpose of this personal challenge is to help you save $10,000 in one year.
To save $10,000, you probably cannot continue doing what you are already doing when it comes to saving money.
You need to change your money mindset and your money habits.
There are a few key steps you need to take in order to save money. The first step is to have a proper mindset towards your savings – figure out where all of your money is going, then figure out whether or to what degree you’re living as you can afford it.
The next step is you believe that you are capable of saving money. That is the bigger part of the battle for most. It is believing that are incapable of saving that much money.
If you haven’t heard of a vision board, then you must create one ASAP. And don’t forget those money affirmations.
2. Automate Savings
Automating savings is a great way to save money.
It can be done by setting up automatic transfers from your checking account or even transferring funds from your paycheck into an emergency fund that you will never touch.
This allows for more freedom in spending without having to think about if you saved your goal for that pay period.
With direct deposit, you will save money automatically and the temptation to spend drastically goes down.
If direct deposit is unavailable, you could set up an automatic transfer with your bank.
3. Focus on Saving Goal
All of your money decisions revolve around your goal of saving 10000 dollars.
That is the smart financial goal you have created for yourself. Now, that is your #1 focus.
Here is how to believe you will save $10k before you start:
Tell yourself over and over that you will save $10K by (insert your date).
Post reminders about your goal.
Put a sticky note on your debit or credit cards and/or cash envelopes.
Find an accountability partner.
Review your habits that make saving more different.
All in all, you have to stay dedicated and commit to your saving goal.
4. Budgeting
Budgeting allows you to save money and reduce stress.
It is important to take the time and create a budget that works for your needs to minimize spending and maximize savings.
When you sit down and take a hard look at your budget, it is easier to make cuts and prioritize what needs the most attention.
In this case, your goal for the next year is to save 10000 dollars!
Don’t skip this step! You must pay yourself first to reach your 10k goal.
5. Biggest Expenses
We are talking about your biggest fixed expenses – housing, transportation, and food.
Big moves are difficult, but they produce big results. Downsizing or moving to a cheaper place is drastic, but it can save you thousands of dollars in the long run.
Other options include renting out space in your home on Airbnb, negotiating with your landlord, and taking other measures to reduce housing expenses.
Although it is now more uncommon for families to have only one car, that is a great way to save money on a depreciating asset and ongoing maintenance costs.
Refinancing a car payment or trading in your set of wheels for an affordable ride will help you keep up with the latest trends without breaking the bank. You could also save on gas by doing your own maintenance.
In order to save some money, you should start meal planning and save money on food. You can also eat out less and use coupons or cash back apps for your grocery shopping.
Buying in bulk is a great way to get cheaper prices on certain items, but it might be too much of a hassle if you’re unsure about what kind of foods work best with each other–and there’s always the possibility that they’ll go bad before their expiration date!!
6. Increase Your Income
When you increase your income, the sky is virtually your limit. There are various ways to accomplish this goal but each way comes with its own set of risks and rewards.
The best way to increase your income is by taking on a second job. Even better, negotiate or find a new job that pays more and increases your income.
The next possible way to make money is from a side hustle or an online business, such as Amazon FBA, Etsy, eBay flipper, Rover, or affiliate marketing. This will allow you to be your own boss and work from home.
Check out the best ways to make money online for beginners.
People who want to save $10,000 in a year should increase their income. To do that, you must find ways to earn more money.
Don’t forget that you always want your money to make money! This is called passive income.
It is possible to make more money on your business than you make more money in your current job or career.
7. Track Progress
It’s important to track progress with goals. This will help you see the journey and milestones of your savings.
To track progress, download our free $10000 printable and check off boxes as you hit milestones.
Before you can reach $10,000 in savings, you must first reach smaller amounts such as $500, $1,000, or $5,000.
8. Celebrate Milestones
You can decide what to reward yourself with, but it’s important to celebrate each win by rewarding yourself somehow.
Plan your milestones and rewards in advance.
That way you have the motivation to keep going and know that you can afford your milestone.
Some examples:
$500 = Ice cream treat out
$1000 = Take out from your favorite place
$2500 = Something you want, but haven’t wanted to splurge.
$5000 = Halfway point! Celebrate with dinner out.
$7500 = Plan an experience gift like ziplining or rock climbing.
$10000 = A hotel night and dinner to celebrate with your significant other or friends.
Now, come out with your own milestones and rewards that match your lifestyle and desires.
Bonus Tip – Get Out of Debt
Saving money becomes way easier once you have paid off all debts (excluding mortgage).
This can be accomplished by prioritizing your loans, paying down the highest-interest loan, and then moving on to the next one.
Once you’re free from debts, it’s time for some simple adjustments in your spending habits that will help save thousands over a year.
Debt will always hold you back on your financial journey until you enjoy a debt free life!
How to save $10000 fast
So, you want to save $10,000 in a year?
Many of the methods listed above will help you save $10,000. But, let’s add ways to get your results faster!
You can do it!
At first glance, this might seem like an impossible task but with these tips and tricks, it’s not too hard to set your budget up so that you’ll be able to afford everything from a vacation abroad in your future.
The key is finding ways around spending money on things such as coffee, clothes, and other small luxuries so you can save the most money.
Here is a list of ways to save $10,000 in one year:
Cut your spending on coffee by 90%
Eliminate cable TV from your life for a month
Stop using taxis or public transportation when possible
Avoiding credit card debt.
Living with roommates instead of buying a house.
Get rid of all unnecessary subscriptions
Stop buying coffee at Starbucks or other coffee shops
Don’t buy anything with coupons unless it’s something you really need
Stop eating out
Cook your own food at home
Figure out what you spend the most on in a month and cut back by 20%
Sell any unused items you have in your home
Spend $5 per meal. Frugal meals are good!
Creates grocery list to limit eating out
Live like a thrifty person
Try a no spend challenge
Compare what is happening with your savings goals
Eliminate fees
Be careful with your money. Stop buying things that you don’t need and start living more simply. Do you really need that new iPhone?
Think about purchases over $25, specifically whether or not it’s worth it
Save for a set purchase instead of buying things as you go
Limit all impulse buys
For more ideas, check out our 200+ Frugal Living Tips.
There are some faster methods above that will get the job done quicker than just saving for 12 months.
Saving money isn’t as hard as you think it is. All it takes is some creativity and a little bit of willpower.
How to Save $10000 in a Year with Envelopes
Envelopes are a great way to save money. They allow you to collect interest on the cash you have saved in your account. Envelopes make it easy for people without much financial knowledge to save.
Since you are saving such a large amount of money, it is best to use an online budgeting app that works well with the envelope method.
To save money, you need to know how much you have saved with the 10k in 100 days challenge.
Tracking your progress is a good way of doing this and can be done by using envelopes with the amount inside that corresponds to what total savings count towards each goal.
Download Your 10000 Dollars Printable
Saving up $10,000 can be difficult and it’s not easy to know what to do. The tricky part is learning how to sustain those savings for the long run.
To help you show you how to save on a consistent basis, you can download one of our free $10000 printables.
When you sign up, you will have access to these free money saving challenge printables!
How to Save 10000 in 6 Months
Okay, you are determined to speed up your $10k savings!
That is awesome!
All you have to do is double how much you are saving each pay period.
To save $10,000 in 6 months, you must set aside an average of $1,666.67 per month for 6 months.
Daily:
$54.65
Weekly:
$384.62
Bi-Weekly:
$769.23
Monthly:
$1,666.67
Bi-Monthly:
$833.33
Quarterly:
$5,000.00
How to Save $10000 in 3 Months
Saving $10,000 in 3 months is a difficult task but not impossible. Here are some suggestions:
-Start saving money as soon as you can and work your way up to $10,000.
-House hacking is a must. Buy a house and rent out the rooms for extra income. Live with parents. Another great option is house sit and be paid for your housing!
-Rent out your car (or sell it) in order to save on gas costs.
If your goal is to aggressively save $10000 in three months, then you must drastically reduce all expenses.
To save $10,000 in three months, you must set aside an average of $3,33.33 per month for three months or in a period of 90 days.
Daily:
$111.11
Weekly:
$833.33
Bi-Weekly:
$1,666.67
Monthly:
$3,333.33
Bi-Monthly:
$1,666.67
Quarterly:
$10,000.00
How to Save $10000 in 2 Years
Saving 10000 dollars in a year is a little more aggressive than you believe possible. That is completely okay.
It does not matter how long it takes you to save $10000 as long as you complete the saving money challenge!
To save $10,000 in two years, you should start by saving at least 10% of your income every month. Then you can invest that money into index funds or other investment options to maximize your wealth.
To save $10,000 in 2 years you must set aside an average of $416.67 per month for two years or $5000 per year.
Daily:
$13.70
Weekly:
$96.15
Bi-Weekly:
$192.31
Monthly:
$416.67
Bi-Monthly:
$208.33
Quarterly:
$1,250.00
Are you Ready to Save 10000 Dollars?
A money saving challenge is a competition with the goal of finding ways to save money.
The best way to save money is through baby steps.
To start, you can take a look at your current financial situation and identify the areas of opportunity for savings. For example, if you’re struggling with debt or have an expensive monthly budget, then it’s time to find ways to reduce spending in these areas.
Once you’ve identified some opportunities for savings and created a plan accordingly, make sure that your progress doesn’t slow down by using tools like automatic saving plans and paperless billing.
Money saved in the long run will be worth it and you should participate in any of our money saving challenges.
The key point about saving money is not having too many goals as it will make it difficult to prioritize which ones are more important than others when trying to save more.
This is a simple guide for saving money, and it’s designed to help you save $10,000 in a year. Next up, is learning how to save 20000 in a year.
We have included tips on how to save money, but more importantly, change your finances for the long term.
Related Money Saving Challenges:
Source
Federal Reserve. “Changes in U.S. Family Finances from 2019 to 2022.” https://www.federalreserve.gov/publications/october-2023-changes-in-us-family-finances-from-2019-to-2022.htm. Accessed January 22, 2024.
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Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
“MOASS,” or, the “Mother of All Short Squeezes,” was largely unknown to investors prior to 2021. But a saga involving so-called “meme stocks,” most notably GameStop stock, changed that, and MOASS entered the investing lexicon. In short, that specific scenario, bringing the Mother of All Short Squeezes, as a strategy, to investors’ attention, involved a rag-tag band of day traders taking on the hedge fund giants, with a short-sale “squeeze” that greatly impacted some of those giants.
Meme stocks, including GameStop and AMC Theatres, saw further short squeeze action in mid-May 2024, too. But the episode in 2021 shined a light on investors, short-sales, trading squeeze strategies, and digital trading on a massive scale, all of which fell under the MOASS umbrella.
Key Points
• MOASS stands for “Mother of All Short Squeezes,” a phenomenon where stock prices skyrocket due to mass buying.
• It gained prominence with the GameStop stock saga, where day traders challenged large hedge funds.
• The strategy involves a high volume of purchases to drive up stock prices, countering short sellers.
• Effective execution of MOASS can lead to significant profits for traders who initiate the squeeze.
• The approach carries high risks, especially for those who join late or cannot sell off at peak prices.
Table of Contents
Short Squeeze Basics
A short squeeze is an orchestrated effort to drive up shares of a stock that’s being heavily shorted. MOASS, meaning the Mother of All Short Squeezes, as noted, is a trading strategy in which a high volume of buyers drive up shares of stocks that were being “shorted” by other investors.
A short squeeze trading strategy needs two components to work — a short seller or, more preferably, several short sellers on one side and a group of disciplined contrarian investors who unroll a short squeeze and buy shares of the stock being shorted.
💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.
How the MOASS Works
In order to understand how a short squeeze — or a massive short squeeze — works, you first need to understand short selling.
Short sellers aim to profit from the fall in a stock’s price. They do so by borrowing and selling shares of a stock that they believe will decline in value. Then, when the stock price falls, a short seller buys the stock at the reduced price, returns the shares, and pockets the profit.
If the short seller makes the right call, meaning the price does fall, they earn the difference between the price when they entered the short position and the lower stock price at which they bought to cover.
If the short seller makes the wrong call, and the price goes up, the investor must buy the stock at a price higher than when they entered the short position, thereby losing money — and negating any potential for a profit.
As short sellers wind up leaving their short positions when they execute a buy order on the stock, those “short-squeeze” buy positions get noticed by other day traders, who also jump in to purchase the stock. That, in turn, drives the stock’s price even higher, since there are fewer shares of the stocks available to purchase.
Short-sellers, highly alarmed by the rising share price, also issue buy orders on the stock to exit the short sale strategy and reduce their investment risk, which completes the cycle and puts the short squeeze in full effect. This can result in the short sales losing money and the MOASS day traders making a profit on the rising stock price.
Recommended: Understanding Low Float Stocks
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GameStop: The Prime Example of MOASS
Perhaps the best example of MOASS in action is the GameStop saga in early 2021. At the time, several hedge fund firms had “shorted” GameStop stock, which essentially meant betting the share price of the stock would decline. That didn’t happen with GameStop shares. Some context is important to understand, too, as many retail stocks, like GameStop, had been heavily affected by the pandemic at the time.
But GameStop shares bucked the trend.
A group of day traders hanging out on a Reddit investing forum called “Wallstreetbets” banded together and started buying up shares of GameStop stock. The gambit worked, with GameStop shares skyrocketing from $19 per share to around $350 per share. The retail investors had successfully “squeezed” the short sellers, causing several hedge funds to lose hundreds of millions of dollars on their short positions on GameStop.
If the short squeeze works, the share price will continue to rise and the short investors, many of whom have fixed deadlines built into their short sales positions, will have to sell their shares and cut their losses, thereby driving the stock price even higher. That rewards the short squeeze investor, who profits from the rising share price, especially as other buyers enter the fray and drive the share price up even higher.
Once victory was declared with the GameStop short squeeze, the Reddit traders turned their attention to other so-called meme stocks where short selling activity was particularly high. That group included AMC Entertainment Holdings, Koss Corporation, and Blackberry, which all saw share volumes rise after the MOASS traders entered the fray.
Thus, a series of short squeezes that target more and more short sellers is really what MOASS is all about: squeezing enough short-sellers to achieve critical mass in the trading markets, and making huge profits in the process.
Also, as mentioned, a similar situation played out in May 2024, when certain stocks (including GameStop and AMC Theatres) were at the center of another short squeeze, though smaller in scale than the 2021 events.
Recommended: Pros and Cons of Momentum Trading
MOASS Trading Tips
Investors who want to participate in the next short squeeze effort should be careful. So-called “meme” stock trading can be fraught with risk, especially if you’re left holding the bag after other short-squeezers sell out of their positions before you do.
Take these risk considerations with you before participating in a mass short squeeze play.
Consider Minimal Purchases to Limit Losses
While the adrenaline level can be high when participating in a short squeeze trading event, tamp down emotions by limiting the amount of money you invest in a GameStop-type situation. As the old gambling adage says, never risk money you can’t afford to lose. That goes double when chasing the thrill of a MOASS scenario.
Should You Expect to Lose Money?
There’s a significant chance that you’ll lose money at some point with a short squeeze play.
Nothing is guaranteed in the stock market and that’s especially the case as short-sellers have learned their lesson after meme-stock related events in recent years, and grow more cautious about their investing habits. MOASS trading patterns can be something of a roller coaster ride for investors, and the odds that your ride will dip along the way are high. That can translate into days or even weeks of your short-squeeze buying strategy where your investment returns are written in red ink.
💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).
MOASS Tip: Have a Plan to Sell Quickly
Short squeeze investing isn’t exactly an orderly process and you need to put your interest first ahead of other MOASS investors. Why? Because volatility can be high and prices can swing at a moment’s notice when trading MOASS-themed stocks. Additionally, nobody really has any idea how high a price can go with a short squeeze in play, and nobody really knows if a stock will rise higher at all.
That’s why it’s a good idea to have a fixed “sell price” in mind when engaging in a short squeeze situation — a stop loss order to automatically sell the stock at a specific price can be a good idea in this scenario.
If you buy a targeted MOASS stock at $50 and it goes to $70, there’s no way of knowing if the stock will go any higher — it might and it might not. Worse, the price could slide back to $30 when buyers lose interest in the stock.
Having a good investment exit strategy in a short squeeze scenario, can help minimize investment losses and capitalize on a stock increase when and if it happens.
The Takeaway
“MOASS” means the “Mother of All Short Squeezes,” and perhaps the best example of it in action involved so-called “meme stocks” in 2021. Short squeeze trading strategies can bring a great deal of portfolio-shaking volatility to the investment table, and there are plenty of heavily shorted stocks that could be the next MOASS, but it’s impossible to know which one could trigger a squeeze.
That means MOASS may not be the best strategy for long-term investors or those with an aversion to risk. A short squeeze takes a significant amount of discipline, patience, and attention on the part of the investors, with continual risk in play until the squeeze is played out.
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Do you want to learn how to turn $10,000 into $100,000? Growing $10,000 into $100,000 might seem kind of impossible or far-fetched, but with the right mindset and plans, it could be a reality. Whether you want to make extra income, run a full-time business, or if you are just looking to learn how to…
Do you want to learn how to turn $10,000 into $100,000?
Growing $10,000 into $100,000 might seem kind of impossible or far-fetched, but with the right mindset and plans, it could be a reality.
Whether you want to make extra income, run a full-time business, or if you are just looking to learn how to turn your $10K into $100K quickly, there are many options that may interest you.
Best Ways To Turn $10,000 Into $100,000
Below are the best ways to turn $10,000 into $100,000.
Recommended reading: How To Turn $1,000 Into $10,000
1. Start an online business
Starting an online business could be a game-changer in growing your $10,000 to $100,000.
I started an online business years ago, and it has paid me well over $100,000 over the years, so I know that this is possible.
Here are some ideas for online businesses:
Here are some ideas for in-person businesses that you advertise for online but still get to work from home or on your own schedule:
Sell dog treats – Sell baked dog treats that you make. Learn more at How I Earned Up to $4,000 Per Month Baking Dog Treats (With Zero Baking Experience!).
Car detailing – Sell a mobile car-cleaning service where you go to the customer.
Meal prep – Help people eat healthily with pre-prepared meals that you deliver or they pick up.
Lawn care – Sell gardening or landscape services.
Dog walking – Take care of pets for busy owners. Learn more at 7 Best Dog Walking Apps To Make Extra Money.
Tutoring – Share your knowledge in a subject and teach others online or in person.
Local tour guide – Use your local knowledge to guide visitors around your town.
Starting a business doesn’t have to be expensive either. Typically, all you need for most of the businesses listed above is small affordable pieces of equipment or a few supplies (like a laptop or cleaning tools).
2. Start a blog
Starting a blog can be a great option if you’re looking to grow your $10,000 into $100,000.
A blog is a website where you can share your thoughts, knowledge, or experiences. You write posts that people can read, interact with, and share. And yes, you can make money from blogging!
I make money online by blogging, and I actually didn’t spend any money to start. It took me about 2 years to begin earning $10,000 every month.
And, I have now earned over $5,000,000 with my blog over the years.
I began my website, Making Sense of Cents, in 2011, and I started my blog without much planning, just wanting to share my own money journey, not even realizing that people could make money with websites.
So, how do you earn money through a blog? Here are some ways:
Ad revenue – Place ads on your blog and earn every time a reader clicks or views the ad.
Affiliate marketing – Recommend products and earn a commission if your readers buy through your links.
Selling products – Create and sell your ebooks or courses.
Services – Sell your expertise as a service such as consulting or coaching.
Blogging is a process that requires patience, but with consistent effort, making $100,000 from your blog may be possible.
You can learn how to start a blog with my free How To Start a Blog Course (sign up by clicking here).
3. Invest in real estate
There are many ways to turn $10,000 into $100,000 in real estate.
I’ve done some real estate side hustles myself, and I know many others who do too. Getting into real estate doesn’t have to cost a lot, and there are several side hustles in real estate that you can start even if you’re new or have limited money to work with.
These include:
House hacking – Buy a home, live in part of it, and rent out the rest. This could include renting out a duplex (and living in the other half) or even just a spare room in your house. This way, the rent you receive helps pay your mortgage. Look for multi-unit properties where you can live in one part and rent out the others.
Long-term rental property – You could buy a property and rent it out to long-term renters, such as for a year or longer.
REITs (Real Estate Investment Trusts) – Invest in REITs, which are companies that own and manage real estate properties. By investing in REITs, you can spread your money across different properties without having to manage them yourself.
Airbnb rentals – Rent out a spare room or your entire place to travelers through Airbnb. Make your space cozy and welcoming to attract guests. Make sure to check local laws about renting out your place and set a competitive price.
Rent out storage space – Rent out any unused land or space for storage. Whether it’s a parking spot, closet, basement, attic, or any unused area, people are willing to pay for storage. List your space on platforms like Neighbor to earn extra income.
Flip homes – While flipping homes usually requires more than $10,000 to start, it’s a popular way to turn a small investment into a larger profit. If you’re skilled and enjoy renovation projects, buy a house, fix it up, and sell it for a higher price.
Recommended reading: 23 Best Real Estate Side Hustles To Make Extra Money
4. Invest in the stock market
Investing in stocks means buying a piece of a company like Walmart, Apple, or Amazon. The price of individual stocks can go up or down, and if it goes up, you might turn $10,000 into $100,000.
I, for example, prefer long-term investing. I diversify my investment portfolio, meaning I spread it out across different companies. This way, if one company doesn’t do well, I don’t lose all my money.
One way to diversify is by investing in funds like exchange-traded funds or mutual funds. These are collections of stocks bundled together, which can lower your risk compared to investing in individual stocks.
How quickly you can turn $10,000 into $100,000 depends on the market and the stocks or funds you choose. It could take a year or decades. Patience is key.
This is a screenshot I took from Investor.gov of their compound interest calculator.
If you are wanting to invest in the stock market, with an average return of 8%, it might take about 30 years to reach $100,000 without additional contributions. You may be able to shave some years off that by automatically reinvesting dividends, though (if you are invested in dividend stocks). This is great, though, and shows the power of compound interest.
Note: Some people choose short-term investing to make money quickly in the stock market. However, this approach requires thorough research on your investment decisions, understanding various fees, knowing your risk tolerance, and more before opening a brokerage account. While the right strategy can sometimes lead to profits, the wrong one can mean that you lose a lot of money.
Recommended reading: How To Start Investing For Beginners With Little Money
5. Flip items for resale
Turning $10,000 into $100,000 might seem impossible, but one way to work toward this goal is by flipping items for profit. You can start by looking around your home for things you no longer use or even items that people are trying to get rid of.
You might be surprised by how much money you can make by selling items like old phones, laptops, clothes, and even furniture that you no longer need.
I’ve personally flipped many items for resale over the years, and it can be a good way to earn extra cash!
Here are some ideas:
Sell electronics and furniture – Websites like Craigslist and Facebook Marketplace are great for selling bigger items like furniture because you can arrange easy local pickups.
Fashion and accessories – Platforms like eBay or Facebook Marketplace are good for selling clothes, especially if they’re branded. These sites help you reach a wide audience and make shipping easy. For jewelry you don’t wear, sites like Worthy can help you find them a new home.
Yard sales – Yard sales can be a fast way to earn money, especially if you have many items to sell. While you might not make as much money for each item, the total can still add up nicely!
If you want to take it a step further, you can start buying items to flip for a profit. Look for furniture that needs a bit of cleaning, high-end clothing that needs repair, or appliances that need new parts. Fix them up and sell them for a higher price.
I have a friend who does this for a living, and some of their best flips include:
Buying an item for $10 and selling it for $200 just 6 minutes later.
Purchasing a security tower for $6,200 and selling it for $25,000 just one month later.
Buying a prosthetic leg for $30 at a flea market and selling it for $1,000 on eBay the next day.
They’ve even found a free chair and eventually did so many flips directly from that free chair and made over $100,000! You can learn more at How We’ve Turned A Free Chair Into $103,000.
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This free workshop will teach you how to get into the flipping business. It will teach you how to resell furniture, electronics, appliances, and anything else you can find.
6. Buy an established business
One way to possibly turn $10,000 into $100,000 is by buying a business.
Investing $10,000 in buying an existing business could potentially grow your investment to $100,000. When you buy a business, you’re entering into an established cash flow and you don’t have to start from scratch because the business already has customers, a recognized name, and ongoing operations.
And, you might find a business where you can see clear ways to improve it, which means that you can improve your investment.
This is actually close to the line of work I was in before I started Making Sense of Cents – I was an investment analyst and valued businesses (among other investments) for a living. So, I saw a lot of businesses be bought and sold over the years.
Here are some steps to start with when it comes to buying a business:
Look around – Search for businesses on sale.
Ask questions – Why is the owner selling?
Research – Look for businesses that match your interests and talents. You will do better in a business you like!
Talk money – See if the numbers make sense.
Get help – A business adviser can help you understand the details.
Make a deal – If it looks good, start the buying process.
Buying a business is a BIG decision, but with the right one, your $10,000 investment could turn into $100,000. I do highly recommend getting professional advice from a financial advisor before making a business or asset purchase to make sure you make a smart choice.
Recommended reading: Are Laundromats Profitable? How Much Do Laundromats Make?
7. Sell on Etsy
Etsy can be a great place for you to turn your $10,000 into $100,000 by selling items online.
You can start your own Etsy store with products you make or find. People love buying unique things like handmade crafts, vintage items, and custom art.
Selling digital products is one of my favorite ways to make money because it requires much less than $10,000 to start. Creating digital products is a way to possibly even earn passive income. By designing products that people can download and use, you enter a market with very low overhead costs.
Some digital product ideas include templates for social media branding, weekly routine printables, printable wall art, and more.
Do you want to make money selling printables online? This free training will give you great ideas on what you can sell, how to get started, the costs, and how to make sales.
8. Peer-to-peer lending
When you have $10,000 that you want to grow, you might want to consider peer-to-peer (P2P) lending. This is when you lend your money online and receive it back with interest. It’s similar to being a bank, but you’re lending to individual people instead.
Starting with peer-to-peer lending works like this:
Find a reputable P2P platform that suits your needs.
Deposit your $10,000 to fund loans.
Before committing, make sure to read and understand all terms and conditions, such as the potential earnings, risks, and interest rates.
The interest you earn from these peer-to-peer loans becomes your profit over time.
Remember, investing involves risks, and loans may not be repaid, which can affect your return.
9. Invest in crypto
Cryptocurrency, like Bitcoin, is not something that I personally invest in, but it can be a way to possibly grow your money.
Remember:
To use money you’re okay with risking
That there’s no guaranteed win
To always play it safe with your hard-earned cash
This digital money can sometimes be like a roller coaster – sometimes it goes up, sometimes it goes down. But if you make wise decisions, it could help grow your cash.
10. Flip websites for profit
Flipping websites can be a way to increase your $10,000 into a much larger amount. It’s similar to renovating and selling houses, but it’s done online.
I know several people who have bought websites with the goal to flip too!
You can start by searching for a website to purchase, such as by searching listings on Flippa. Look for sites with potential but require improvement. They should cover a solid topic but may need improvements in things like content, design, or improving page views.
Recommended reading: How I’ve Made $80,000 Selling Blogs
11. Start a YouTube channel
Starting a YouTube channel can be a fun and creative method to grow your $10,000 investment. It will most likely cost you less than $10,000 to start a YouTube channel, but there are ways to spend that amount of money to get started faster (such as buying a course on YouTube or buying expensive camera equipment).
Let’s simplify the process into easy steps:
Choose a topic – Pick something you love or know a lot about.
Create your channel – Sign up on YouTube and set up a channel for free.
Make videos – Use a camera or smartphone to record your videos.
Grow your channel – Post regularly, share your videos on social media, and more.
Monetize your channel – When you get 1,000 subscribers and 4,000 hours of watch time, you can apply for the YouTube Partner Program.
Recommended reading: 22 Ways To Make Money Online Without Paying Anything
12. Turn $10K into $100K through education
One great way to turn your money into more is to learn through higher education, whether that be college, a certificate, or learn a trade.
You can start by looking for jobs with a strong outlook and high salaries, and even by using online resources or talking to a career advisor to find the best fit for you.
Then, you’ll want to pick a reputable college or trade school. You’ll want to factor in the cost and the potential return on your investment. Community colleges or public schools can be more affordable, for example.
Now, there are many costs when it comes to going back to school. There is tuition, books, lab fees, parking, and more. It most likely may end up costing you more than $10,000 to go back to school, but if you choose a solid career path and are smart with your college costs, then it could be a wise step.
Frequently Asked Questions
Below are answers to common questions about how to turn $10,000 into $100,000.
How long does it take to turn $10,000 into $100,000?
The time it takes to turn $10,000 into $100,000 depends on your investment strategy and the rate of return. If you are wanting to invest in the stock market, with an average return of 8%, it might take about 30 years to reach $100,000 without additional contributions. But, if you buy an existing business, go back to school and get a higher-paying career, or start your own business, then you may be able to turn $10,000 into $100,000 even quicker.
What is the fastest way to turn $10K into $100K?
The fastest way to multiply your money could be high-risk investments like day trading stocks or real estate flipping. Remember, high rewards come with high risks, so be careful with any fast-growing strategies.
How to turn $10K into $100K in a month?
Turning $10K into $100K in a month is extremely risky and unlikely. Most investments that promise such quick returns are highly speculative, so you could lose your money just as fast. I highly recommend that you be careful if someone tells you that they can help you turn $10,000 into $100,000 in one month.
How to turn $10K into $100K in a year?
Turning $10K into $100K within a year involves high risk and aggressive investment approaches as well, but it is possible. This may include buying an existing business and really putting in some hard work to improve it.
How to turn $10K into $100K in 2 years?
Yes, you can be able to turn $10,000 into $100,000 in 2 years. This could be through ways such as starting your own online business (such as by selling digital products or a blog), buying an existing business, or even going back to school to get a higher-paying job.
How to turn $10K into $100K in 5 years?
Yes, you can potentially turn $10,000 into $100,000 in 5 years. This could be achieved through different methods such as starting your own online business (like selling digital products or creating a blog), purchasing an existing business, or even furthering your education to find a higher-paying job.
Can you turn $10K into a million?
Yes, you may be able to turn $10,000 into $1,000,000, but this will most likely take a lot of time. So, patience is key!
How to Turn $10,000 into $100,000 – Summary
I hope you enjoyed this article on how to turn $10,000 into $100,000.
To make more money from your $10,000 investment, you may want to think about using the internet to start a business. Websites like Etsy can help you sell handmade items, or you can make money from a blog or YouTube channel. You can also try traditional ways of investing, like buying stocks or real estate. You can be very involved, like flipping houses, or less involved, like putting money into peer-to-peer lending or high-interest savings accounts.
As you can see, there are many different investment options and business models depending on your financial goals and risk tolerance.
Interest rates are fees that you pay while borrowing money until you completely repay a loan.
Interest rates are calculated with the formula A=P(1+rt), which can help you find the total interest on a loan.
Having a higher credit score can help you qualify for lower interest rates.
In essence, interest rates work by determining how much a borrower must pay a lender while using a loan. Learning about things like interest and APR can help you understand how much you’ll have to pay for a loan in total—and how much you can charge when lending your funds to someone else.
This guide will explore how interest rates are calculated and how they apply to different types of loans. We’ll also share some of Credit.com’s helpful financial tools, including our interactive calculators.
What Is Interest?
When borrowers lend their money to another person or organization, they charge interest until the loan is repaid in full. The precise amount of interest that you’ll pay for a loan depends on several factors, including the total amount you initially borrow and the time it takes you to repay the loan.
When it comes to money in savings accounts, interest works to your benefit—financial institutions will pay you for the privilege of using your funds.
How Are Interest Rates Calculated?
Simple interest and compound interest are two common methods that lenders use when charging borrowers.
You can find out how much simple interest you might have to pay on a loan with the formula A = P (1 + rt).
A – the total amount that a loan costs when fees are taken into account
P – the principal amount that you initially borrow when you take out a loan
r – the rate of interest that a lender charges annually
t – the overall time it takes you to repay a loan. This is calculated in years
Here’s an example of the formula at play:
The principal amount you borrow is $5,000.
The bank sets your interest rate at 3%.
It takes you five years to pay back the loan.
In this case, A is $5,750.
Using this information, the formula should be $5,750 = $5,000 x (1 + 0.03 x 5).
Compound interest calculates interest growth (like in a savings account) based on the principal amount and all previous interest payments over a set period. The formula to find compound interest is CI = P( 1 + r/n)nt.
CI – your total compound interest
P – the principal amount
r – the annual interest rate
n – the number of times your interest compounds in a year—this can be daily (365), monthly (12), or annually (1)
t – the total amount of time that passes on a loan or investment
Compound interest on a loan can be exponentially costly, while compound interest on an investment or savings account can generate great profit over time.
Here’s an example of how compound interest can build income in a savings account:
The principal amount you invest is $5,000.
Your interest rate is 4%, or 0.04 in decimal form.
The interest on your account is compounded annually (1).
You commit to a 10-year investment plan.
Plug those numbers into the formula, and you’ll get $5,000 ( 1 + 0.04/1) x 1 x 10, which will equal $7,401.22 in compound interest.
Keep in mind that we didn’t factor in additional contributions with this example. Investors who add more funds to their accounts each month can increase their earnings from compound interest.
What Is the Difference Between APR and APY?
APR represents your annual percentage rate, though people may simply say interest instead of using this term. This works for credit cards but not all types of loans. For most loans, APR also includes fees that are slightly more costly than the base interest rate.
Annual percentage yield (APY) refers to the amount of interest you’ll earn on an investment each year. When shopping around for compound interest savings accounts, the APY is your estimated rate of return.
How Is APR Calculated?
Similar to simple interest, there’s a formula to calculate APR:
APR = ((Interest + Fees / Principal amount) / Number of days in your loan term)) x 365 x 100.
When calculating APR, it’s important to add interest and fees together beforeyou divide your principal amount. After that, you’d divide the resulting amount by the number of days in your loan term, then you’d multiply the resulting number by 365 (to represent each day of the year) by 100.
How Is Your Interest Rate Determined When You Borrow Money?
Your credit history, the lender’s unique policies, and the base rate influenced by the Federal Reserve determine how much interest you’ll initially receive.
Market factors influence your base rate. This includes economic trends and changes made by the Federal Reserve.
Each bank sets lending rates and policies that apply to all of its patrons.
If you have a higher credit score, you have a better chance of earning a lower interest rate.
Why Is Your Credit Score Important?
Lenders use credit scores to gauge which applicants will most likely repay a loan. Having a good or excellent credit score shows lenders that you tend to repay your loans on time and that you don’t borrow more than you can afford to repay.
Poor credit, however, can cause lenders to doubt your ability to repay any funds that they give you. To make up for this doubt, lenders might give you higher interest rates to discourage you from borrowing too much money or being late with your payments.
Different Types of Interest Rates
Interest rates have different nuances depending on the type of loan they’re tied to. For example, home mortgage rates factor in fees and taxes, while interest rates for credit cards are a bit more straightforward. Below, we’ve tallied up several examples.
Credit Card Interest Rates
Credit card interest is calculated based on factors like the balance on your card and the transaction you’re initiating. Moreover, lenders might charge penalty APR if a cardholder repeatedly misses payments or exceeds their credit limit.
The best way to figure out how interest affects your credit card is by learning your account’s daily periodic rate (DPR). You can find your DPR by taking your APR, converting it into a decimal, and then dividing by 365.
Mortgage Interest Rates
A works differently than a credit card’s interest rate largely due to the various items that factor into it. Mortgage insurance, property taxes, and realtor fees can all influence the APR on your home.
It’s best to check your credit score and report before buying a home, as your credit health will greatly affect your mortgage APR. Other factors that impact your rate include:
The state you live in
What type of property you want to buy
How much you’re putting down
The type of lending you qualify for
Auto Loan Interest Rates
It’s helpful to make sure you understand all of the common terms about auto loans before you sign any documents. Most auto loans also follow the simple interest formula we explored earlier. However, the fine print can include items like paperwork fees and title fees that can result in surprise expenses.
It’s possible to negotiate some of the fees that dealerships present before signing any paperwork. Arming yourself with knowledge, a sizeable down payment, and a strong credit score all grant valuable bargaining power during the negotiation process.
Fixed Interest Rates vs. Variable Interest Rates
Banks may offer fixed interest rates or variable interest rates on their loans and credit cards. With a fixed interest rate, the APR on your loan can’t change unless your financial institution notifies you and then adjusts it.
Variable interest rates can fluctuate based on changes to the economy and the “prime rate” the Federal Reserve sets for financial institutions. Fixed interest rates are more predictable, but they can occasionally cost more than the prime rate. Variable rates ebb and flow, but they can occasionally be lower than the prime rate.
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After two years of limited demand, private equity and insurance companies are increasing their allocations to single family residential mortgages. This increased flow of funds appears to be driven by strengthening macro factors that favor residential mortgages over other yield assets such as commercial real estate (CRE) and commercial (C&I) loans. These strong fund flows are resulting in tighter credit spreads, higher prices, and an increased focus on sourcing new originations.
Mortgage investors are pointing to several factors leading to increased demand for mortgages in the current environment, including: the end of the current rate-hike cycle, government subsidies for borrowers, favorable capital treatment by financial regulators, higher liquidity and finance-ability for mortgage assets, and superior risk-adjusted returns in a market where mortgage investors can find low LTV loans that carry yields 2.0-4.0% over SOFR.
This increased demand is resulting in tighter credit spreads for private label, non-QM RMBS securitizations; increased prices for a broad range of mortgage loans including seconds, home equity agreements, bridge loans, and alternative documentation loans; and strategic transactions between investors and originators.
Federal Support and Market Stability
As the Federal Reserve concludes its recent rate-hiking cycle and adopts a “higher for longer” stance, residential mortgages are emerging as superior risk-adjusted assets. This market stability is compelling several long-term investors, including banks and insurance companies, to increase their mortgage allocations as they reduce allocations to commercial real estate and business lending.
The federal subsidies for American consumers – including through student debt forgiveness and recent proposals to subsidize monthly mortgage payments – appear to be providing significant credit enhancement for mortgage loans. Homeowners benefiting from these subsidies are more capable of meeting their payment obligations, thus reducing the credit risk for lenders. Moreover, the prolonged high-interest-rate environment is leading to lower refinancing rates, which extends the duration of cash flows that investors can expect from these assets. With the Federal Reserve likely to lower rates in the future, the value of these extended cash flows is anticipated to rise, making long-term investments in residential mortgages even more appealing.
Regulatory and Comparative Advantages
Single-family residential loans are receiving attractive treatment under banking and insurance regulations, including new accounting policies relating to risk-based capital charges.
As residential loans are receiving more attractive risk-based capital charges than other categories of loans – such as CRE – insurance companies and banking are realizing that residential mortgages are a more efficient capital allocation compared to other asset classes. This is resulting in new balance sheet strategies for institutional investors.
The current stress in the CRE and C&I loan markets further highlights the advantages of residential mortgages. CRE loans, which face higher risk ratings and lack government support, present a higher risk for a similar yield compared to SFR mortgages. C&I loans are also under pressure due to potential increases in unemployment and reduced corporate profitability as the Federal Reserve combats inflation. These loans often require higher capital reserves, making residential mortgages more attractive by comparison.
Liquidity and Financing Innovations
In an era where liquidity is paramount, residential single-family rental (SFR) mortgages are demonstrating superior liquidity within a +$4 trillion market. With the recent liquidity runs experienced by several banks, Banks and insurance companies are particularly interested in the attractive liquidity characteristics of newly originated, adjustable-rate mortgages. Institutions can finance their SFR mortgage loans through the Federal Home Loan Banks (FHLB) system and major money center banks, further enhancing their liquidity positions.
While traditionally residential mortgages have historically been available for direct investment only by larger institutions with full servicing capabilities, market innovations are making it easier for community and regional banks and smaller institutional investors to access residential mortgages. For instance, The Change Company, the country’s largest non-qualified mortgage (non-QM) originator, offers its mortgage production for sale directly to banks and smaller institutions through its online portal, xChange (xchangefi.com). This platform enables over 400 financial institutions to browse and purchase loans in single loan transactions or by selecting individual loans to place into a small portfolio for purchase. xChange offers to service these loans and provide the investors a low-cost way to invest in residential mortgage loans. Eliminating barriers to entry for investors who lack the resources to establish a full capital markets desk is drawing new investors and additional capital into the market.
Key Takeaways
The convergence of federal support, favorable regulatory treatment, and current market dynamics is resulting in a strong flow of funds into residential mortgages. This increased interest is being led by private equity investors and insurance companies. There are also early signs suggesting that banks and credit unions are increasingly allocating capital to residential mortgages and away from CRE, credit card, auto, and commercial loans.
Many investors appear to believe the mortgage market currently presents a unique opportunity to capitalize on low risk-based capital charges, attractive yields, extended cash flows, and enhanced liquidity. As other traditional loan products like CRE and C&I loans face increased risks and regulatory burdens, the strategic shift towards residential mortgages is resulting in increased demand and more attractive pricing for non-QM mortgages.
In this evolving market landscape, residential mortgages are increasingly becoming a strategic imperative for several growth-oriented institutions aiming to optimize their portfolios and navigate the complexities of the current economic environment. With innovative marketplace platforms like xChange facilitating easier access to these assets, residential mortgages are becoming more accessible and attractive now to a broader range of investors.
Debt can be both beneficial and harmful. It can help you buy a home, pursue higher education, or start a business. However, excessive debt can lead to financial stress and mental health issues like depression and anxiety. This article will help you distinguish between good and bad debt to make informed financial decisions.
Key Takeaways
Good debt helps improve your financial future by investing in appreciating assets or enhancing your earning potential, such as through education, real estate, or starting a business.
Bad debt finances depreciating assets or unnecessary luxuries, such as cars, clothes, and other consumer goods, leading to financial strain due to high-interest rates and reduced value over time.
Some debts fall into a gray area and can be beneficial or detrimental depending on how they are managed, such as consolidating high-interest debt into a lower-interest loan or borrowing to invest with calculated risk.
Good Debt vs. Bad Debt
Good debt typically involves borrowing for investments that grow in value or generate income over time, like education or real estate. Bad debt usually involves borrowing for depreciating assets or unnecessary expenses, like luxury items or cars. However, accumulating too much debt, even if it starts as good debt, can become a problem if your monthly debt payments become unmanageable.
Isn’t all debt bad?
Not all debt is bad. Debt becomes problematic when it’s unnecessary or avoidable. The mindset of trying to ‘keep up with the Joneses’ or believing ‘only the best will do’ can lead to unwise borrowing.
However, some types of debt can provide significant benefits, such as financing a home or investing in education. These types of debt can offer a good return on investment and help you improve your financial situation. It’s crucial to understand the difference between beneficial and harmful debt.
What is good debt?
Good debt is debt that helps you make money or have a home to live in. It could be beneficial In a literal sense (a return on investment) or figuratively (enhancing your skills and earning potential). Either way, good debt allows you to invest in yourself and your future.
Here are a few examples of good debt.
Education
Investing in your education is a strategic move that can enhance your future success. By gaining knowledge and skills, you increase your chances of securing better jobs and advancing in your career.
Many people experience a return on their educational investment within a few years, though this varies by industry. Before committing to a college or secondary education, thoroughly research the field you wish to enter. Consider average salaries, potential for career advancement, and typical career ceilings.
The value of student loan debt hinges on the earning potential associated with the degree you pursue. Make informed decisions to ensure your educational investment pays off.
Starting a Business
It takes money to make money, and starting a business is a prime example of this principle. Most businesses require an initial investment, and often it’s substantial. You can use a loan to launch your business and facilitate its growth.
Starting a business involves risks, just like any other investment. Conduct thorough research on your industry to understand what strategies have succeeded or failed for others. Evaluate the risks and decide if taking out a loan is a wise choice for your situation.
Be cautious of high-interest loans, such as payday loans or unsecured personal loans, as they can lead to financial strain due to their high repayment costs. It’s important to know how much you’re borrowing. Loans come with an annual percentage rate (APR), which represents the interest rate as a percentage of the principal amount borrowed. This rate determines how much you will pay for the borrowed money over time.
Real Estate
A great example of good debt vs. bad debt is real estate because you’ll see a return on your investment directly. Borrowing money to invest in real estate earns you equity in the property. Equity is the difference between the property’s value and how much you owe in debt.
Typically, real estate appreciates, but there’s always the risk of losing value, such as what occurred during the 2008 housing crisis. As long as you pay down your mortgage as planned or even ahead of schedule, you’ll build equity faster.
Investing in real estate can be for personal use, such as a primary residence, or for investment purposes, such as commercial or rental properties.
Like any investment, do your research and make sure you’re making a good choice before taking on real estate debt. Investing in an area where the property values don’t appreciate or buying a rental home in an area that isn’t rented often can lead to bad real estate debt.
What is bad debt?
People tend to assume that all debt is bad, but bad debt specifically refers to debt used to finance depreciating assets. Unlike investments in appreciating assets, this type of debt involves spending on items that lose value over time.
Here are a few examples of bad debt:
Cars
You need a car to get from Point A to Point B. That’s a given. However, you don’t need a luxury car or a car you can’t afford to pay for without financing. It’s best to pay cash for a car if you can because it’s a depreciating asset.
When you borrow money to buy a car, you pay interest on the loan and lose money on the value of the car. Most cars lose 20% of their value during the first year after you drive them off the lot.
When you don’t have the money to buy a car outright or your money isn’t enough to buy a reliable car, look for the best financing terms. Many manufacturers offer low interest rates or 0% APR for borrowers with great credit.
If you anticipate buying a car soon, it’s time to work on your credit before taking out a car loan to get the best deal. Auto loans require you to factor in different things before taking them.
Clothes and Other Necessities
Buying clothes is a necessity, but borrowing money for them is not advisable. Clothes often have inflated prices and do not increase in value, meaning you pay more than their actual worth. Consider shopping at overstock sales or second-hand stores, where items are often much cheaper than in retail stores.
Borrowing money for everyday expenses like food, household goods, and other consumer items is also not a wise financial decision. Using a credit card for convenience is fine, but it’s important to pay off the balance in full each month. Failing to do so can lead to accumulating high-interest debt, making it difficult to escape the debt cycle.
Luxury
You should not borrow money to purchase luxury items. Why not? Just look at the name—luxury. You don’t ‘need’ these items, but you buy them anyway.
There’s nothing wrong with spoiling yourself occasionally, but not at the expense of your future. Rather than racking up credit card debt to buy luxurious items, determine what you want and save for it. Set a timeline and divide the amount you’ll need by the number of months until you potentially buy it. Save that amount of money each month, and you should reach your goal within your desired timeline.
Yes, this requires a great deal of patience. But, when you purchase luxury items with debt, you rack up interest charges and end up paying much more for them than they’re worth.
What debts fall in the gray area?
Some debts don’t fit neatly into ‘good’ or ‘bad’ categories and depend on the circumstances. Here are a couple of examples.
Borrowing to Pay Off Debt
Paying off high-interest credit card debt with a low-interest loan can be a good idea, but here’s when it becomes a bad debt. If you consolidate your debt into a 0% or low-interest rate loan but do not allocate the “extra” money saved towards your debt, you’ll end up in the same situation.
The key is to pay the same amount of money to the debt but with a lower set monthly payment and interest rate. More of your payment will go towards the loan’s principal, paying it down faster. This means you’ll pay less interest over the life of the loan and have more money in your pocket in the future.
If you continue to make the minimum payments using your “saved” money, then it’s a bad debt, as it won’t benefit you.
Borrowing to Invest
Investing on margin may be possible for experienced investors with the right credentials. While leveraging in this way can be profitable, it’s not guaranteed. If the investment fails, you’ll lose more than you borrowed, resulting in significant debt.
However, if your investment performs well and generates profit after repaying the margin, then borrowing to invest can be considered a successful financial strategy.
Final Thoughts
Recognize the difference between good and bad debt. Use debt wisely by investing in appreciating assets, making timely payments, and avoiding high-interest loans. Develop a financial plan to manage debt and achieve your goals.
Managing debt wisely is essential for financial success. Prioritize timely payments, avoid high-interest loans, and focus on investments that enhance your financial health. By understanding and differentiating between good and bad debt, you can make informed decisions and achieve your financial goals.
Frequently Asked Questions
How can I determine if my education loan is good debt?
Education loans can be considered good debt if they lead to a degree or certification that significantly enhances your earning potential. Before taking out a loan, research the average salaries in your chosen field and the employment rates for graduates. If the potential income increase outweighs the cost of the loan, it can be considered good debt.
Are there any strategies for managing bad debt?
Yes, there are several strategies to manage bad debt. These include creating a budget to track and limit spending, consolidating high-interest debts into a lower-interest loan, prioritizing paying off high-interest debt first, and avoiding accumulating additional debt by making smarter spending choices.
What are some warning signs that my debt is becoming unmanageable?
Warning signs that debt is becoming unmanageable include missing payments, using one credit card to pay off another, maxing out credit cards, being unable to save money, and experiencing stress or anxiety about finances. If you notice these signs, it might be time to seek financial advice or consider debt counseling.
Can consolidating debt improve my credit score?
Consolidating debt can improve your credit score if it helps you make timely payments and reduces your overall credit utilization ratio. However, it’s essential to avoid accumulating new debt and to use the consolidation loan responsibly by sticking to a repayment plan.
Is it ever a good idea to borrow money for luxury items?
Borrowing money for luxury items is generally not advisable as it leads to bad debt. Luxury items do not appreciate in value and often result in high-interest payments if financed through credit cards or loans. It’s better to save up for luxury purchases and pay in cash to avoid unnecessary debt and interest charges.
How can I ensure that borrowing to start a business is good debt?
To ensure that borrowing to start a business is good debt, conduct thorough market research, create a detailed business plan, and have a clear understanding of your industry. Assess the potential return on investment and ensure that you can make loan payments without compromising your financial stability. Consider seeking advice from financial advisors or mentors in your industry.
What steps can I take to avoid falling into bad debt?
To avoid falling into bad debt, create and stick to a budget, live within your means, save for purchases instead of using credit, and avoid high-interest loans. Additionally, focus on building an emergency fund to cover unexpected expenses and regularly review your financial situation to make adjustments as needed.
Mutual funds provide a collection of many investments in a single basket, while stocks allow you to own shares in individual companies.
Either type of asset can help you reach your investing goals — and of course it’s possible to own mutual funds shares as well as stocks. But there are advantages and disadvantages to mutual funds vs. stocks.
Key Points
• Mutual funds offer a diversified portfolio in a single investment, whereas stocks are shares in individual companies.
• Mutual funds can be actively or passively managed, with some tracking market indexes.
• Stocks provide direct ownership in a company, offering potential for higher returns and greater risk.
• Mutual funds are managed by professionals, making them a good option for those who prefer not to manage their investments.
• The choice between mutual funds and stocks depends on individual financial goals, risk tolerance, and investment strategy.
What’s the Difference Between Mutual Funds and Stocks?
The biggest difference between a mutual fund and a stock lies in what you own: a mutual fund is a type of pooled investment fund, and a stock refers to shares of ownership in a single company.
Mutual funds can hold multiple investments in a single vehicle (e.g. stocks, bonds, or other assets). Sometimes a mutual fund can hold a mix of stocks, bonds, and short-term debt; these are called blended funds.
Different Types of Mutual Funds
Another difference between mutual funds vs. stocks: Mutual funds can be structured in a variety of ways. Often, a mutual fund manager is responsible for choosing the investments the fund holds, according to the fund’s objectives and investment strategy. But not all funds are actively managed funds; some are passively managed and track a market index (see bleow).
Some types of mutual funds include:
• Equity funds: These funds can hold the stocks of hundreds of companies. An equity fund typically has a specific focus, e.g. large-cap companies, tech companies, and so on.
• Bond funds: These provide access to various types of bonds. Similar to equity funds, bond funds can offer exposure to different sectors, e.g. green bonds, short-term bonds, corporate bonds, etc.
• Target-date funds: Often used in retirement plans, target-date funds use algorithms to adjust their holdings over time to become more conservative.
• Index funds: Index funds are designed to track or mirror a specific market index, e.g. the S&P 500, the Russell 2000, and so on. These are considered passive vehicles vs. mutual funds that are led by a team of portfolio managers.
• Exchange-traded funds (ETFs): ETFs are similar to mutual funds in that they hold a variety of different securities, but shares of these funds trade throughout the day on an exchange similar to stocks.
What Are Stocks?
Simply put, a stock represents an ownership share in a single company. There’s no fund manager here; you decide which stocks you want to buy or which ones you want to sell, often using a brokerage account. You might buy 10 shares of one company, 50 shares of a second, and 100 shares of a third — it’s up to you.
Just as there are different types of mutual funds, there are different types of stocks that reflect the underlying company. For example, your portfolio might include:
• Value stocks: Companies that are trading lower than their potential value, based on fundamentals.
• Growth stocks: Companies with a track record of steady growth.
• Dividend stocks: Companies that payout a portion of their earnings to shareholders in the form of dividends. Note that value stocks often pay dividends, but growth stocks tend to reinvest their profits (per their name) toward growth and expansion.
Here’s another way to think of the differences between mutual funds and stocks. If a mutual fund is a carton of eggs, a stock is one egg in that carton.
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Pros and Cons of Mutual Funds
Investing in mutual funds can be a good option for beginners who are ready to wade into the market but aren’t savvy about individual stocks just yet. There are, however, some downsides to keep in mind.
Pros
Cons
Diversification is simplified
Some funds may underperform
Easy access to the markets
Higher minimum investments
May be cheaper than stocks
Not all funds are low-cost
Pros of Mutual Funds:
• Mutual funds make portfolio diversification easier. Diversifying your portfolio can help manage risk. When you buy a mutual fund, you get immediate diversification since the fund may hold a variety of securities or alternative investments.
• Someone else makes the decisions. Choosing the right investments for a portfolio can be complicated for many investors, but a mutual fund takes care of the selection process. In the case of an active fund, the fund manager is in charge of buying or selling investments within the fund. A passive fund tracks an index, as mentioned above. Either way, all you have to do is invest your money.
• Costs may be lower. When you invest in mutual funds, you’ll pay what’s called an expense ratio. This is a fee that represents the cost of owning the fund annually. While some funds are more expensive than others, there are plenty of low-cost options which means you get to keep more of your investment earnings.
Cons of Mutual Funds:
• Performance isn’t guaranteed. While some actively managed mutual funds attempt to beat the market, others are structured to match the performance of an index. The main thing to know, however, is that results are never guaranteed, and your fund investments may fall short of expectations.
• Minimum investments may be high. Some mutual funds have a low barrier to entry, and you can get started with a relatively small amount of money, especially if you invest via automatic deposits. Others, however, may require you to have a high minimum investment requirement (e.g. $5,000), which could be challenging if you’re a beginner. With stocks, on the other hand, it’s possible to buy fractional shares with as little as $1.
• Potentially higher costs. Mutual fund expense ratios can vary widely, and some can be much more expensive than others. In general, active funds charge higher fees. In addition, some brokerages charge load fees to buy or sell funds which can add to your overall costs. It’s important to understand what you’re paying for your investments, as fees can eat into returns over time.
Pros and Cons of Individual Stocks
Investing in stocks might appeal to you if you’d like more control over where your money goes. But just as with mutual funds, there are some potential drawbacks to consider.
Pros
Cons
High return potential
Higher risk
Greater flexibility
More difficult to diversify
Low costs
More time-consuming
Pros of Individual Stocks:
• Potentially earn higher returns. Owning individual stocks could lead to better results in your portfolio compared with mutual funds. It’s important to remember, however, that not all stocks offer the same rate of return, and performance of any stock (or any investment) is never guaranteed.
• You’re in control. Investing in stocks means you have total control of what to buy and sell, and when to make trades. You’re not relying on a fund manager to make decisions for you. That’s something you might appreciate if you prefer a DIY or active approach to investing.
• Trading costs may be low. When you buy and sell stocks, your brokerage can charge a commission fee each time. However, more brokerages are moving to a $0 commission-fee model for stock trades which can cut your investing costs down dramatically.
Cons of Individual Stocks:
• Stocks are volatile. Mutual funds are often viewed as being less risky than stocks since you’re diversified across a range of securities. If you’re putting a large chunk of your portfolio into a smaller pool of stocks or just one company, you could be at risk of a major loss if volatility hits that part of the market.
• Diversification is harder. When you invest in individual stocks, you may have to buy more of them to create a diversified portfolio. With a mutual fund, you don’t have to do that since you’re getting exposure to multiple investments in one fund.
• Stock trading can be time intensive. Taking a buy-and-hold approach to stocks means you don’t have to pay as much attention to your portfolio. You can buy stocks, and then hang onto them for the long term. However, if you’re more interested in active trading then you’ll need to spend more of your day keeping up with stock trends and monitoring the markets so you don’t miss any opportunities to make gains.
💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.
Choosing Between Mutual Funds and Stocks
There’s no rule that says you must choose between mutual funds vs. stocks. Deciding which one to invest in can depend on your time horizon for investing, risk tolerance, and goals. And you might decide that both make sense in your portfolio.
Here’s a simple breakdown of how to compare the two when deciding where to invest.
Consider mutual funds if you…
Consider stocks if you…
Want a simple way to build a portfolio under the guidance of an experienced fund manager who knows the market.
Prefer to have more control of which companies you invest in, and when you buy or sell those investments.
Are more comfortable with the idea of generating returns over time vs. chasing the highest rewards of the moment.
Want to leverage investments to produce the highest returns possible, even if it means taking a little more risk in your portfolio.
Don’t have the time or inclination to spend hours researching different investments or conducting in-depth market analyses.
Are comfortable researching stocks on your own, and understand how to apply different types of technical analysis to evaluate them.
The Takeaway
Investing is one way to build wealth, but both mutual funds and stocks can help investors realize their financial goals — but in different ways. Weighing the pros and cons of mutual funds vs. stocks as well as your personal preferences for investing can help you decide how to build a portfolio that meets your needs.
Ready to expand your portfolio’s growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi’s easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it’s important to consider your portfolio goals and risk tolerance to determine if they’re right for you.
Invest in alts to take your portfolio beyond stocks and bonds.
FAQ
Which is riskier, stocks or mutual funds?
Both stocks and mutual funds expose investors to the risk of loss, though the degree of risk can vary by investment. Mutual funds may help to distribute risk thanks to a diverse mix of underlying investments, while individual stocks can concentrate risk. However, it’s important to remember that you can lose money with either.
Which investment is best for beginners, mutual funds or stocks?
Mutual funds can be a good place for beginning investors to get started since they offer basic diversification. The key to choosing a mutual fund as a beginner is to consider the underlying investments in light of your own asset allocation, the fund’s track record, and the fees you’ll pay.
Are mutual funds worth it?
Mutual funds can be a worthwhile investment because they provide a cost-effective way to access a range of sectors that may align with your goals. For example, if you want to invest in big companies in the U.S., you can buy shares of a large-cap fund. If you want to invest in the environment, you can invest in a green bond fund or green tech equity fund.
Photo credit: iStock/Eva-Katalin
An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing. Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor’s risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds. Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.
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Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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A CAT owner has revealed the home decor trick she put into action that amplified her pets’ litter box arrangement.
Her DIY hack turned an old TV stand into the perfect hidden bathroom for her cat.
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A Reddit user is not a fan of visible litterboxes so they DIY’d an old TV stand (pictured above)Credit: Reddit
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A DIY hack turned an ugly, old TV stand into a hidden ladies’ room for her catsCredit: Reddit
Reddit user Successful-Snow-562 showcased on the platform how they transformed an old piece of furniture into the perfect animal bathroom stall.
“Come with me to turn this ugly old TV stand into a litter box hideaway,” they wrote in the caption.
They admitted that they are not a fan of visible litter boxes, so they had to figure out an alternative.
They explained that they were gifted a secondhand TV stand that they didn’t need.
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It didn’t work for them, so they turned the disheveled dark brown TV stand into an updated white “classy ladies’ room” with chalk paint.
They showed before and after photos as well as some behind-the-scenes design moments.
They said more styling will take place as they get more comfortable in their home.
“I want my place to be very ‘weird single auntie,'” they added in a comment.
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At the time of the post, they had only been living there for less than two months and still had lots of decorating and renovating to do.
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The litterbox is perfectly concealed within the TV standCredit: Reddit
She used the shade Miniature Rose by Behr for the stand, which costs less than $30 at The Home Depot.
In a photo, she showed how the cat litterbox is perfect concealed and hidden within, so her pets can do their business without being bothered.
Many people were proud of the project and praised her for it.
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“Ah! So inspirational! I’ve been looking for something like this since one of the only places for our second litter box is in the living room,” one commented.
“Besides being mostly ugly, all the ones that I’ve seen available are $$$. Literally never occurred to me to make one!”
” Yard sale season is just getting started here, now I have something to keep an eye out for!”
Other Redditors respected her crafting skills but didn’t think it was for them.
One said they were “completely the opposite when it comes to litter boxes.”
“I need to be able to see them to know if my cats are using the boxes normally. Covered litter boxes don’t work well for my cats, and my litter boxes are too big to be hidden in furniture,” they explained.
But they admitted that the Redditor’s project was one of the “nicest-looking hideaways they have ever seen and complimented the “beautiful” color.
Another said that “the transformation turned out quite nice,” but offered some unsolicited advice.
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“If I may make a suggestion, since there’s already an outlet there, perhaps add a nightlight so kitty doesn’t have to do their business in complete darkness during the night,” they recommended.
The Redditor was on top of it and replied that it was “already done” and there would be no “spooky dookies” on her property.
Budget interior design tips
Interior designer Judy Hoang shared her furniture tips with The U.S. Sun.
Thrift furniture and paint it to match your decor.
Test if an item is fit for its purpose before thrifting.
Shop at Target or HomeGoods for rugs, lamps, desks, and pillows.
Invest in classic timeless pieces.
Set up smart home lighting to save money.
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She used the shade Miniature Rose by Behr and added a nightlightCredit: Reddit