The Federal Reserve is likely to temporarily pause its aggressive interest rate hikes when it meets next week, experts predict. But consumers may not see any relief.
The central bank has raised interest rates 10 times since last year — the fastest pace of tightening since the early 1980s — only to see inflation stay well above its 2% target.
“We are living in uncharted territory,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. “The combination of rising interest rates and elevated inflation, while not uncommon from a historical perspective, is an unfamiliar experience for many consumers.”
“A pause is not going to make things better,” he added.
Although the Fed’s rate-hiking cycle has started to cool inflation, higher prices have caused real wages to decline. That’s squeezed household budgets, pushing more people into debt just when borrowing rates reach record highs.
Even with a pause, “interest rates are the highest they’ve been in years, borrowing costs have gone up dramatically and that isn’t going to change,” said Greg McBride, chief financial analyst at Bankrate.com.
Here’s a breakdown of how the benchmark rate has already impacted the rates consumers pay:
The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.
For starters, most credit cards come with a variable rate, which hasa direct connection to the Fed’s benchmark rate.
After the previous rate hikes, the average credit card rate is now more than 20% — an all-time high, while balances are higher and nearly half of credit card holders carry the debt from month to month, according to a Bankrate report.
Although 15-year and 30-year mortgage rates are fixed, and tied to Treasury yields and the economy, anyone shopping for a new home has lost considerable purchasing power, partly because of inflation and the Fed’s policy moves.
The average rate for a 30-year, fixed-rate mortgage currently sits at 6.9%, according to Bankrate, up from 5.27% one year ago and only slightly below October’s high of 7.12%.
Now, the average rate for a HELOC is up to 8.3%, the highest in 22 years, according to Bankrate. “While typically thought of as a low-cost way to borrow, it no longer is,” McBride said.
Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But as of July, undergraduate students who take out new direct federal student loans will see interest rates rise to 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
For now, anyone with existing federal education debt will benefit from rates at 0% until the payment pause ends, which the U.S. Department of Education expects could happen in the fall.
Private student loans tend to have a variable rate tied to the Libor, prime or Treasury bill rates — and that means that those borrowers are already paying more in interest. How much more, however, varies with the benchmark.
Thanks, in part, to lower overhead expenses, top-yielding online savings account rates are now over 5%, the highest since 2008’s financial crisis, according to Bankrate.
However, if the Fed skips a rate hike at its June meeting, then those deposit rate increases are likely to slow, according to Ken Tumin, founder of DepositAccounts.com.
The head of Australia’s largest casino group says CBDs are facing a crisis, as he called for workers to return to the office.
Ahead of an Economic Outlook forum to be hosted by Sky News and the The Australian at Sydney’s Crown on Friday, Crown Resorts chief executive Ciarán Carruthers said he wants workers out of their homes to boost consumer and business confidence and revitalise CBDs.
His plea came as new ABS figures this week reveal Australia’s economy slowed to just 0.2 per cent in the March quarter, coinciding with the RBA’s decision to hike rates to its highest figure in decades.
Crown is one of the country’s biggest employers, and the biggest single site employer in Victoria. With its $2.2 billion VIP casino and resort in freshly developed Barangaroo in Sydney, and its operations in Perth, the company employs more than 23,000 staff.
“We are still behind where we were pre-pandemic and part of that is the CBD hasn’t returned to full vibrancy as yet. Work from home has certainly given us a challenge,” Mr Carruthers told The Australian.
Crown chief executive Ciaran Carrathurs said the quiet city was having an impact on domestic and international tourism. Picture NCA NewsWire / Gaye Gerard Credit: News Corp Australia
“From Thursday afternoon through to Tuesday the city’s significantly quieter and I think that’s also having an impact on both domestic and international tourism.
“The city is just not as vibrant as many of our tourists have…
One deciding factor was candidates’ messages around Social Security and Medicare, which helped sway voters, particularly those ages 50 and up, according to an analysis from AARP following the Nov. 8 election.
Now, as the 2024 presidential election approaches, and GOP hopefuls line up for their party’s nomination, they face new pressure to decide where they stand, particularly with Social Security.
Former President Donald Trump and Florida Gov. Ron DeSantis — who thus far are in the lead in the Republican polls — have so far pledged not to touch the program.
“Under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security to help pay for Joe Biden’s reckless spending spree,” Trump said in January.
In March, DeSantis told Fox News, “We’re not going to mess with Social Security as Republicans.”
Their position matches that of President Joe Biden, who during the State of the Union prompted both sides of the aisle to agree the program is “off the books.”
While that stance is popular with the public, some experts say it is ill-advised.
“It’s fundamentally irresponsible to say we’re not going to touch it when everybody who’s ever looked at the finances of the program recognizes that it’s going bankrupt,” said Whit Ayres, president of North Star Opinion Research, a center-right political polling operation.
The situation presents an opportunity for a hero to emerge, one who can put the program on sound financial footing, Ayres said.
One longshot Republican hopeful — former Cranston, Rhode Island, mayor Steve Laffey — plans to enter the race with his own bold plan to reconstruct Social Security as the first priority on his agenda.
“Our biggest problem is this: We as Americans simply don’t directly confront our problems,” Laffey said.
Social Security is the “ultimate example of that,” he said.
A crucial inflection point, particularly for Social Security, is coming, according to the program’s trustees.
Social Security’s combined funds will only be able to pay full benefits until 2034. At that point, just 80% of benefits will be payable if nothing is done sooner.
Lawmakers on both sides of the aisle would need to agree on fixes for the program. These could include benefit cuts, such as raising the retirement age, tax increases or a combination of both.
But with Democrats vowing to protect benefits and Republicans swearing off tax increases, that has thus far left little room for compromise.
Both Social Security and Medicare fall under the category of mandatory spending, which altogether represents more than two-thirds of the nation’s budget, according to the Tax Foundation.
Consequently, it is impossible to address the nation’s spending without addressing those programs, according to Tax Foundation economist Alex Durante.
“The longer we push this out, it becomes more difficult to try to protect everyone that receives the benefits,” Durante said. “It’s important that we tackle this sooner rather than later.”
The Social Security plan Laffey would implement throws out the traditional approaches of tax increases or benefit cuts.
Instead, he wants to gradually phase out the FICA tax completely. Currently, workers and employers each pay 6.2% on up to $160,200 in wages toward Social Security.
That would be replaced by new Personal Security System accounts, to which workers would contribute 10% of their pay. Those balances would be invested in a weighted index of global stocks, bonds and other securities.
The plan comes from Laurence Kotlikoff, a Boston University economics professor who has devoted much of his career to helping people get the most from Social Security and demystifying the program’s many rules.
Kotlikoff himself ran for president in 2012 and 2016 as a third-party candidate. In subsequent election cycles, he has urged Laffey to run.
The two met when Laffey was working on “Fixing America,” a 2012 documentary about Americans’ perspectives on fixing the country’s problems post-financial crisis. Laffey wrote and co-produced the documentary, for which he interviewed Kotlikoff.
Laffey, a former Morgan Keegan executive, has mostly been out of politics after serving two terms as mayor of Cranston, Rhode Island.
He ran for a U.S. Senate seat in Rhode Island in 2006and then in 2014 pursued the Republican nomination for a U.S. House seat representing Colorado, where he now lives. He was unsuccessful in both races.
Republican 2024 presidential hopeful Steve Laffey arrives for an interview at a local TV station in Cranston, Rhode Island, on March 17, 2023.
Ed Jones | Afp | Getty Images
Laffey launched a campaign for mayor at a time when Cranston had the lowest bond rating in America, he said. The big accomplishment he boasts as Cranston mayor is bringing the city’s bond rating up. The city’s S&P rating climbed to an A- in 2006 from a B in 2002, according to a spokesman for Laffey.
The Social Security plan would be a fully funded system, where you get your money back in the form of an inflation-indexed annuity, according to Kotlikoff.
“It’s a modern version of Social Security,” Kotlikoff said.
The goal would be to give beneficiaries a bigger return on the money than they get now.
It also aims to address the program’s current inequities. The government would make matching contributions on behalf of lower earners, the disabled and unemployed. Spouses would share their contributions to the program equally.
The investment strategies would be computerized and custodied by the federal government, not by Wall Street. Everyone would get the same rate of return, Kotlikoff noted.
The expectation is that over a 40-year time horizon the accounts would be able to make up for down years and ultimately provide workers with more money than today’s Social Security program.
The hope is a worker who is 20 years old in 2025 may eventually stand to get $10,000 per month, rather than $2,000, which would be a “lot better,” Laffey said.
The plan coincides with Laffey’s plans to overhaul government spending, such as changing the Federal Reserve’s inflation target to zero, rather than the current goal of 2%, in order to force Congress to work within its budget.
Because any changes to Social Security involve strict emotions, the big question is whether lawmakers and Americans would be ready to embrace a new direction for the program.
The idea of rethinking the way Social Security funds are invested has come up before.
While in office, President George W. Bush had proposed letting Americans save part of their Social Security taxes in personal retirement accounts, referred to as “partial privatization.”
Andrew Biggs, who worked in the White House on Social Security reform at the time and who is now a senior fellow at the American Enterprise Institute, remembers the proposal did not come close to succeeding, even as Social Security still had surpluses and Republicans controlled both houses of Congress.
Consequently, privatization — where personal accounts are funded out of part of the existing payroll tax — would be a long shot, he said.
“If Bush couldn’t do it then, despite a great effort, that’s not happening now,” Biggs said.
But personal accounts funded on top of the existing Social Security program, such as ensuring everyone signs up for a retirement plan at work, could be “more possible,” he said.
Another challenge may be getting Americans to embrace the idea.
The only people who like personalized accounts are affluent, college-educated white men, said Celinda Lake, a Democratic pollster and president at Lake Research Partners, who has conducted focus groups with married couples on the subject.
Women of all ages, who are very worried about the future of the program for their own economic security, are less likely to embrace the idea, she said.
Biden and Trump campaign signs are displayed as voters line up to cast their ballots during early voting at the Alafaya Branch Library in Orlando, Florida, Oct. 30, 2020.
Getty Images
For candidates, taking such a position can also jeopardize their primary and general election viability, Lake said.
Yet Ayres, of North Star Opinion Research, sees an opportunity for reforms much like President Ronald Reagan helped usher in, which put Social Security on sound financial footing for half a century, he said.
That likely won’t come from an “unworkable” overhaul of the program, Ayres said, but instead more marginal changes, such as raising the retirement age by several months and increasing the cap on Social Security earnings.
Like Reagan’s efforts, it would also require bipartisan commissions, he said.
As with the newly inked debt ceiling deal, “both sides are going to have to give a little bit,” Ayres said.
“Just putting your head in the sand and waiting for it to go bankrupt is a fundamentally irresponsible position,” he said.
Editor’s Note: APRs listed in this article are up-to-date as of the time of publication. They may fluctuate (up or down) as the Fed rate changes. Select will update as changes are made public.
Personal loans are a form of installment credit that must be paid back in regular increments over a set period of time. Many people use personal loans as an affordable alternative to credit cards because they often have lower interest rates and consumers can use them to cover a wide range of expenses. These loans typically range from $1,000 to $50,000, but you may be able to borrow smaller or larger amounts of money with some lenders.
CNBC Select evaluated dozens of lenders to round up the best personal loans of 2023. We looked at key factors like interest rates, fees, loan amounts and term lengths offered, plus other features including how your funds are distributed, autopay discounts, customer service and how fast you can get your funds. (Read more about our methodology below.)
Debt consolidation, home improvement, auto financing, medical expenses, and others
Loan amounts
Terms
24 to 144 months* dependent on loan purpose
Credit needed
Origination fee
Early payoff penalty
Late fee
Pros
Same-day funding available through ACH or wire transfer (conditions apply)
Loan amounts up to $100,000
No origination fees, no early payoff fees, no late fees
LightStream plants a tree for every loan
Cons
Requires several years of credit history
No option to pay your creditors directly
Not available for student loans or business loans
No option for pre-approval on website (but pre-qualification is available on some third-party lending platforms)
Who’s this for? LightStream, the online lending arm of SunTrust Bank, offers low-interest loans with flexible terms for people with good credit or higher.LightStream is known for providing loans for nearly every purposeexcept for higher education and small business. You could get a LightStream personal loan to buy a new car, remodel the bathroom, consolidate debt, or cover medical expenses, according to the company’s website.
You can receive your funds on the same day, if you apply on a banking business day, your application is approved and you electronically sign your loan agreement and verify your direct deposit banking account information by 2:30 p.m. ET.
LightStream offers the lowest APRs of any lender on this list, including a discount when you sign up for autopay. Interest rates vary by loan purpose, and you can view all ranges on LightStream’s website before you apply. This is subject to change as the Fed rates fluctuate.
If you select the invoicing option for repayment, your APR will be 0.50% higher than if you sign up for autopay. The APR is fixed, which means your monthly payment will stay the same for the lifetime of the loan. Terms range from 24 to 144 months, dependent on loan purpose — the longest-term option among the loans on our best-of list.
LightStream does not charge any origination fees, administration fees or early payoff fees.
5% of monthly payment amount or $15, whichever is greater (with 15-day grace period)
Pros
Peer-to-peer lending platform makes it easy to check multiple offers
Loan approval comes with Happy Money membership and customer support
No early payoff fees
No late fees
Fast and easy application
U.S.-based customer service
Cons
Higher loan minimums ($5,000)
Must submit soft inquiry to see origination fees and other details
How Payoff is designed to help you stay motivated:
Offers borrowers a dedicated “Empowerment Science” team that is available to take questions and provide encouragement
Free personality tests, stress assessments and cash flow trackers to help borrowers understand their money management style and nail down better habits
Free FICO tools help members track their progress*
*Based on a study of Happy Money Members between February 2020 to August 2020, members who use a Happy Money Loan to eliminate at least $5,000 of credit card balances reportedly see an average FICO Score boost of 40 points. (Results may vary and are not guaranteed.)
Who’s this for? A Happy Money personal loan is a good choice if you’re looking to consolidate your credit card debt and pay it down over time at a lower interest rate.
Happy Money’s mission is to help consumers get out of credit card debt once and for all, which is why its loans are geared specifically toward debt consolidation. You can’t use a Happy Money loan for home renovations, major purchases, education, etc.
Borrowers can take out loan amounts between $5,000 and $40,000, and the loan terms range from 24 to 60 months. There’s a soft inquiry tool on its website, which allows you to look at possible loan options based on your credit report without impacting your credit score.
Happy Money doesn’t charge late payment fees, or early payoff penalties if you decide to pay off your debt faster than you initially intended, but there is an origination fee of up to 5% based on your credit score and application. The higher your score, the lower your origination fee and interest rates are likely to be.
Unlike some lenders, Happy Money allows you to deposit the money you borrow into your linked bank account or send it directly to your creditors. Another perk you get from taking out a Happy Money loan is access to various financial literacy tools, such as free FICO score updates, a team that performs quarterly check-ins with you during your first year of working with Happy Money and tools to help members improve their relationship with money through personality, stress and cash flow assessments.
If you have high-interest debt on one or more card, and you want to save money by refinancing to a lower APR, SoFi offers a simple sign-up and application process, plus a user-friendly app to manage your payments.
Another unique aspect of SoFi lending is that you can choose between a variable or fixed APR, whereas most other personal loans come with a fixed interest rate.Variable rates can go up and down over the lifetime of your loan, which means you could potentially save if the APR goes down (but it’s important to remember that the APR can also go up). However, fixed rates guarantee you’ll have the same monthly payment for the duration of the loan’s term, which makes it easier to budget for repayment.
By setting up automaticelectronic payments, you can earn a 0.25% discount on your APR. You can also set up online bill pay to SoFi through your bank, or you can send in a paper check.
Once you apply for and get approved for a SoFi personal loan, your funds should generally be available within a few days of signing your agreement. You can both apply for and manage your loan on SoFi’s mobile app.
While taking on a sizable loan can be nerve-wracking, SoFi offers some help if you lose your job: You can temporarily pause your monthly bill (with the option to make interest-only payments) while you look for new employment. You may still incur interest, but your payment history will remain unharmed. You can read more about SoFi’s Unemployment Protection program in its FAQs.
Debt consolidation, home improvement, medical expenses, auto financing and more
Loan amounts
Terms
Credit needed
Origination fee
Early payoff penalty
Late fee
Pros
Credit union membership available to anyone
Loans as low as $600
Can pick up a physical at a branch
May apply with a co-borrower
Cons
Funds come as a physical check
Must be a member to get funds (no membership needed to apply)
Must pay for expedited shipping to get your funds next day
Maximum loan amount of $50,000
Late fee of $29
Who’s this for? PenFed is a federal credit union that offers membership to the general public and provides a number of personal loan options for debt consolidation, home improvement, medical expenses, auto financing and more.
While most lenders have a $1,000 minimum for loans, you can get a $600 loan from PenFed with terms ranging from one to five years. You don’t need to be a member to apply, but you will need to sign up for a PenFed membership and keep $5 in a qualifying savings account to receive your funds.
While PenFed loans are a good option for smaller amounts, one drawback is that funds come in the form of a paper check. If there is a PenFed location near you, you can pick up your check directly from the bank. However, if you don’t live close to a branch, you have to pay for expedited shipping to get your check the next day.
Unlike some lenders, PenFed doesn’t offer a discount for autopay.
Debt consolidation, home improvement, wedding or vacation
Loan amounts
Terms
36, 48, 60, 72 and 84 months
Credit needed
Origination fee
Early payoff penalty
Late fee
Pros
No origination fees, no early payoff fees
Same-day decision (in most cases)
Option to pay creditors directly
7 different payment options from mailing a check to pay by phone or app
Cons
Late fee of $39
No autopay discount
No cosigners or joint applications
Who’s this for? Discover Personal Loans can be used for consolidating debt, home improvement, weddings and vacations. You can receive your money as early as the next business day provided that your application was submitted without any errors (and the loan was funded on a weekday). Otherwise, your funds will take no later than a week.
While there are no origination fees,Discover does charge a late fee of $39 if you fail to repay your loan on time each month. There’s no penalty for paying your loan off early or making extra payments in the same month to cut down on the interest.
If you’re getting a debt consolidation loan, Discover can pay your creditors directly. Once you’re approved for and accept your personal loan, you can link the credit card accounts so Discover will send the money directly. You just need to provide information such as account numbers, the amount you’d like paid and payment address information.
Any money remaining after paying your creditors can be deposited directly into your preferred bank account.
Debt consolidation, credit card refinancing, home improvement, wedding, moving or medical
Loan amounts
Terms
Credit needed
Credit score of 300 on at least one credit report (but will accept applicants whose credit history is so insufficient they don’t have a credit score)
Origination fee
0% to 10% of the target amount
Early payoff penalty
Late fee
The greater of 5% of last amount due or $15, whichever is greater
Pros
Open to borrowers with fair credit (minimum 300 score)
Will accept applicants who have insufficient credit history and don’t have a credit score
No early payoff fees
99% of personal loan funds are sent the next business day after completing required paperwork before 5 p.m. Monday through Friday
Cons
High late fees
Origination fee of 0% to 10% of the target amount (automatically withheld from the loan before it’s delivered to you)
$10 fee to request paper copies of loan agreement (no fee for eSigned virtual copies)
Must have a Social Security number
Who’s this for? Upstart is ideal for individuals with a low credit score or even no credit history. It is one of the few companies that look at factors beyond your credit score when determining eligibility. It also allows you to apply with a co-applicant, so if you don’t have sufficient credit, you still have the opportunity to receive a lower interest rate.
Upstart considers factors like education, employment, credit history and work experience. If you want to find out your APR before you apply, Upstart will perform a soft credit check. Once you apply for the loan, the company will perform a hard credit inquiry which will temporarily ding your credit score.
You can choose a three-year or five-year loan and borrow anywhere from $1,000 to $50,000. Plus, Upstart has fast service — you’ll get your money the next business day if you accept the loan before 5 p.m. EST Monday through Friday.
One other major draw for Upstart is that this lender doesn’t charge any prepayment penalties. However, if you’re more than 10 days late on a payment, you’ll owe 5% of the unpaid amount or $15, whichever is greater. You’ll also have to pay an origination fee of up to 12% of the loan amount.
Personal loans are a form of installment credit that can be a more affordable way to finance the big expenses in your life. You can use a personal loan to fund a number of expenses, from debt consolidation to home renovations, weddings, travel and medical expenses.
Before taking out a loan, make sure you have a plan for how you will use it and pay it off. Ask yourself how much you need, how many months you need to repay it comfortably and how you plan to budget for the new monthly expense. (Learn more about what to consider when taking out a loan.)
Most loan terms range anywhere from six months to seven years. The longer the term, the lower your monthly payments will be, but they usually also have higher interest rates, so it’s best to elect for the shortest term you can afford. When deciding on a loan term, consider how much you will end up paying in interest overall.
Once you’re approved for a personal loan, the cash is usually delivered directly to your checking account. However, if you opt for a debt consolidation loan, you can sometimes have your lender pay your credit card accounts directly. Any extra cash left over will be deposited into your bank account.
Your monthly loan bill will include your installment payment plus interest charges. If you think you may want to pay off the loan earlier than planned, be sure to check if the lender charges an early payoff or prepayment penalty. Sometimes lenders charge a fee if you make extra payments to pay your debt down quicker, since they are losing out on that prospective interest. The fee could be a flat rate, a percentage of your loan amount or the rest of the interest you would have owed them. None of the lenders on our list have early payoff penalties.
Once you receive the money from your loan, you have to pay back the lender in monthly installments, usually starting within 30 days.
When your personal loan is paid off, the credit line is closed and you can no longer access it.
Most personal loans come with fixed-rate APRs, so your monthly payment stays the same for the loan’s lifetime. In a few cases, you can take out a variable-rate personal loan. If you go that route, make sure you’re comfortable with your monthly payments changing if rates go up or down.
Personal loan APRs average slightly above 10%, while the average credit card interest rate is nearly 20%. Given that the average rate of return in the stock market tends to be around 10% when adjusted for inflation, the best personal loan interest rates would be below 10%. That way, you know that you could still earn more than you’re paying in interest.
However, it’s not always easy to qualify for personal loans with interest rates lower than 10% APR. Your interest rate will be decided based on your credit score, credit history and income, as well as other factors like the loan’s size and term.
Some lenders charge origination, or sign-up, fees, but none of the loans on this list do. All personal loans charge interest, which you pay over the lifetime of the loan. The lenders on our list do not charge borrowers for paying off loans early, so you can save money on interest by making bigger payments and paying your loan off faster.
As you shop for a low-interest loan or credit card, remember that banks are looking for reliable borrowers who make timely payments. Financial institutions will look at your credit score, income, payment history and, in some cases, cash reserves when deciding what APR to give you.
To get approved for any kind of credit product (credit card, loan, mortgage, etc.), you’ll first submit an application and agree to let the lender pull your credit report. This helps lenders understand how much debt you owe, what your current monthly payments are and how much additional debt you have the capacity to take on.
Once you submit your application, you may be approved for a variety of loan options. Each will have a different length of time to pay the loan back (your term) and a different interest rate. Your interest rate will be decided based on your credit score, credit history and income, as well as other factors like the loan’s size and term. Generally, loans with longer terms have higher interest rates than loans you bay back over a shorter period of time.
The loan’s term is the length of time you have to pay off the loan. Terms are usually between six months and seven years. Typically, the longer the term, the smaller the monthly payments and the higher the interest rates.
Lenders offer a wide range of loan sizes, from $500 to $100,000. Before you apply, consider how much you can afford to make as a monthly payment, as you’ll have to pay back the full amount of the loan, plus interest.
Here are some common personal loan terms you need to know before applying.
Co-applicants or joint applications: A co-applicant is a broad term for another person who helps you qualify by attaching their name (and financial details) to your application. A co-applicant can be a co-signer or a co-borrower. Having a co-applicant can be helpful when your credit score isn’t so great, or if you’re a young borrower who doesn’t have much credit history. If your co-applicant has a good credit score, you might be offered better terms, including qualifying for a lower APR and/or a bigger loan. At the same time, both applicants’ credit scores will be affected if you don’t pay back your loan, so be sure that your co-applicant is someone you feel comfortable sharing financial responsibility with.
Co-signers: A co-signer agrees to help you qualify for the loan, but they are only responsible for making payments if you are unable to. The co-signer does not receive the loan, nor do they necessarily make decisions about how it is used. However, the co-signers credit will be negatively affected if the main borrower misses payments or defaults.
Co-borrower: Unlike a co-signer, a co-borrower is responsible for paying back the loan and deciding how it is used. Co-borrowers are usually involved in decisions about how the loan is used. Some lenders will only consider two co-borrowers who share a home or business address, as this is a firm indicator that they are sharing the responsibility of money in mutually beneficial ways. Both co-borrowers’ credit scores are on the hook if either one stops making payments or defaults.
Direct payments: Some lenders offer direct payments when you select debt consolidation as the reason for taking out a personal loan. With direct payments, the lender pays your creditors directly, and then deposits any leftover funds into your checking or savings account. Until you see your account balance is fully paid off, it’s best to keep making payments so that you don’t get hit with additional late fees and interest charges.
Early payoff penalty: Before you accept a loan, look to see if the lender charges an early payoff or prepayment penalty. Because lenders expect to get paid interest for the full term of your loan, they could charge you a fee if you make extra payments to pay your debt down quicker. The fees could equal either the remaining interest you would have owed, a percentage of your payoff balance or a flat rate.
Origination fee: An origination fee is a one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs. It is usually between 1% and 5%, but sometimes it is charged as a flat-rate fee. For example, if you took out a loan for $20,000 and there was a 5% origination fee, you would only receive $19,000 when you got your funds. Your lender would get $1,000 of the loan off the top, and you’d still have to pay back the full $20,000 plus interest. It’s best to avoid origination fees if possible. Having a good to excellent credit score helps you qualify for loans that don’t have origination or administration fees.
Unsecured versus secured loans: Most personal loans are unsecured, meaning they are not tied to collateral. However, if your credit score is less-than-stellar and you’re finding it hard to qualify for the best loans, you can sometimesuse a car, house or other assets to act as collateral in case you default on your payments. When you put an asset up as collateral, you are giving your lender permission to repossess it if you don’t pay back your debts on time and in full.
To determine which personal loans are the best, CNBC Select analyzed dozens of U.S. personal loans offered by both online and brick-and-mortar banks, including large credit unions, that come with no origination or signup fees, fixed-rate APRs and flexible loan amounts and terms to suit an array of financing needs.
When narrowing down and ranking the best personal loans, we focused on the following features:
No (or low) origination or signup fee: The majority of lenders on our best-of list don’t charge borrowers an upfront fee for processing your loan. For the ones that do, the fee is relatively low and only applies if you have a low credit score.
Fixed-rate APR: Variable rates can go up and down over the lifetime of your loan. With a fixed rate APR, you lock in an interest rate for the duration of the loan’s term, which means your monthly payment won’t vary, making your budget easier to plan.
Flexible minimum and maximum loan amounts/terms: Each lender provides a variety of financing options that you can customize based on your monthly budget and how long you need to pay back your loan.
No early payoff penalties: The lenders on our list do not charge borrowers for paying off loans early.
Streamlined application process: We considered whether lenders offered same-day approval decisions and a fast online application process.
Customer support: Every loan on our list provides customer service available via telephone, email or secure online messaging. We also opted for lenders with an online resource hub or advice center to help you educate yourself about the personal loan process and your finances.
Fund disbursement: The loans on our list deliver funds promptly through either electronic wire transfer to your checking account or in the form of a paper check. Some lenders (which we noted) offer the ability to pay your creditors directly.
Autopay discounts: We noted the lenders that reward you for enrolling in autopay by lowering your APR by 0.25% to 0.50%.
Creditor payment limits and loan sizes: The above lenders provide loans in an array of sizes, from $500 to $100,000. Each lender advertises its respective payment limits and loan sizes, and completing a preapproval process can give you an idea of what your interest rate and monthly payment would be for such an amount.
After reviewing the above features, we sorted our recommendations by best for overall financing needs, debt consolidation and refinancing, small loans, next-day funding and lower credit scores.
Note that the rates and fee structures advertised for personal loans are subject to fluctuate in accordance with the Fed rate. However, once you accept your loan agreement, a fixed-rate APR will guarantee interest rate and monthly payment will remain consistent throughout the entire term of the loan. Your APR, monthly payment and loan amount depend on your credit history and creditworthiness. To take out a loan, lenders will conduct a hard credit inquiry and request a full application, which could require proof of income, identity verification, proof of address and more.
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*Your LightStream loan terms, including APR, may differ based on loan purpose, amount, term length, and your credit profile. Excellent credit is required to qualify for lowest rates. Rate is quoted with AutoPay discount. AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 7.99% APR with a term of three years would result in 36 monthly payments of $313.32.
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What drives companies to offer equity compensation? We’ve heard the speech … it fosters employee motivation and performance, it helps with employee retention, it’s an alignment of interests, it increases employee loyalty, etc. While all these are true, one big reason that gets less coverage is taxes. Equity compensation has a direct effect on employees’ financial planning, which is why it’s important that employees understand not only the tax implications but also how to exercise their stock and how to evaluate their options before accepting.
We are coming to a point in time when startup employees who received equity-based compensations as part of their payment package should be paying attention. For many, the option to sell some of their shares through the secondary market has become available; their vested shares are now monetarily beneficial. Plus, there’s a growing number of buyback programs instituted by companies at the moment. As equity compensation becomes more normalized, it’s important we all understand its benefits, potential downsides and implications.
Questions employees should be asking when accepting stock or stock options include: What type of equity am I receiving, and what are the tax implications? How do I know if I’m getting a fair price? What is the best way to split salary, equity and bonus? Our ultimate guide will hopefully clear things up.
We must understand the different types of equity that can be granted and their tax implications (bear in mind that there might be differences depending on the jurisdiction, and it’s always recommended to speak with a tax professional or financial advisor).
Qualified Incentive Stock Options (ISOs): ISOs are the most attractive for tax purposes for employees. Employees do not recognize taxable income when they exercise ISOs, but they may be subject to alternative minimum tax (AMT) in certain cases.
Non-Qualified Stock Options (NQSOs): NQSOs do not offer the same tax advantages as ISOs. When employees exercise NQSOs, they typically recognize ordinary income based on the difference between the fair market value of the stock and the exercise price.
Restricted Stock Units (RSUs): RSUs are a form of equity compensation where employees receive units that represent the right to receive company stock in the future. RSUs generally have a vesting period, and once they vest, employees receive the underlying company shares. At the time of vesting, the fair market value of the stock received is typically considered taxable income.
The following are not as common but are always good to know about:
Restricted stock awards: Restricted stock awards involve granting employees actual shares of company stock, subject to certain restrictions. These restrictions often include a vesting period or performance milestones that must be met.
Employee Stock Purchase Plans (ESPPs): ESPPs allow employees to purchase company stock at a discounted price.
Phantom stock: Phantom stock is a type of equity compensation where employees are granted units or cash bonuses that are tied to the company’s stock value.
Employee Stock Ownership Plans (ESOPs):ESOPs are company-sponsored retirement plans that invest primarily in company stock.
ISOs and NQSOs are the most common types of equity plans, but each one has different exercise price limitations.
The exercise price, or the strike price, refers to the pre-established price at which an equity contract may be executed. This is set when the option price is created so it will have an effect throughout the life of the option. It’s important because it will determine the gains you make in the future.
The exercise price of ISOs must be equal to or higher than the fair market value (FMV) of the stock on the grant date.
The exercise price of NQSOs can be set at any value determined by the company, but it must be at least equal to the FMV of the stock on the grant date.
The real question is … how do I know I’m getting a fair price? There’s an infinite number of variables and combinations we could consider, but valuations are part art and part science. Some experts believe the three most important factors to consider are: current market conditions, the specific terms of your equity and the overall valuation of the company. Employees should know these things so that they’re equipped with the necessary information to negotiate.
Stay informed about the market conditions and trends affecting the industry in which your company operates; economic climate, industry performance, investor sentiment, competitors, etc.
Look for information on recent transactions involving similar companies or companies in your industry. Pricing benchmarks are usually very helpful.
Evaluate the financial health and performance of your company; revenue growth, profitability, client growth and other key metrics that impact the value of your equity.
Different types of equity compensation have different characteristics and potential values.
Evaluate the growth prospects and potential future success of your company.
Overall, is it good to receive equity compensation?
Employees usually get very excited when offered equity compensation, but very few realize that this is not what’s best for everyone. How do you know how to find the best combination of salary, equity and bonuses? It all depends on your personal financial goals and financial plans. It has mostly to do with liquidity and timing. For example, your salary is more liquid than equity compensation. However, in the long term, equity can have a higher value than what you would have received salary-wise. Life circumstances usually dictate how much salary one is willing to sacrifice for more equity and vice versa. There’s not a single right size for all, but it’s good to know where you stand before you negotiate your compensation package.
Remember that compensation structures can vary significantly across industries, companies and roles. Assess your individual circumstances, tailor your compensation package to support your financial goals, and try to align your equity package with both your short-term and long-term objectives. After all, holding equity in a company can be an insignificant piece of paper or a goldmine for the future.
It’s likely that you have one primary source of income — just like most people. It’s fine to have a single source of income. It can, however, be dangerous as well.
How would you cope if your primary source of income dried up, or your job was lost? That’s exactly what happened in the aftermath of the pandemic, many people lost their jobs and were furloughed.
The unemployment rate spiked in April after business closures and restrictions began in March 2020. By May, 23 million jobs were lost cumulatively. There hasn’t been a crisis as severe as this since the Great Depression. Suffice it to say, this created financial hardship for millions of people, which may explain why savings are dwindling and there’s record credit card debt.
This is why having multiple income streams is so important. By doing so, you won’t have to worry about losing one income stream if another one runs out.
Furthermore, Richard Corley, author of “Rich Habits: The Daily Success Habits of Wealthy Individuals”, analyzed IRS data and found that 75% of millionaires have multiple income streams.
And, that makes sense. It is easier to pay off debt, save for retirement, and build wealth when you have multiple income streams.
Creating multiple streams of income can be tricky, so let me tell you a few of the biggest mistakes people make. By avoiding these mistakes, you can generate multiple streams of income.
1. Master one revenue stream.
Perhaps the biggest mistake I see people make, myself included, before making multiple streams of income is this. You need to master at least one reliable form of income.
Maybe it’s your 9-to-5 job. And, that’s OK. In my case, it was when I became a financial planner that really taught me this. Five years into my career as a W-2 employee at the first investment firm I started with, I became an independent advisor before co-founding my own firm.
After that, I became an independent contractor under 1099. At that stage of my life, I remember being obsessed with making money on the side, whether it be in real estate or multi-level marketing. But, that plan didn’t exactly work.
So, instead, I pivoted and created multiple streams of income based on my experience as a financial advisor.
Websites. My financial practice and GoodFinancialCents are two of the many income streams I have built over the years. Until recently, I was earning a side income while helping people decide which kind of insurance they needed through LifeInsurancebyJeff.com.
Investing. Investing is the most obvious way for me to earn extra income. While everyone invests differently, most people use mutual funds, ETFs, or dividends to make extra income.
Media deals. Media deals are another source of income. Years ago, I would never have imagined this happening, but it has worked out quite well. Putting myself out there by doing YouTube videos and interviews is something I enjoy already. Through media deals, I’ve had the opportunity to represent and market the products of big financial brands.
Creating online courses. Additionally, I have launched an online course for financial advisors – The Online Advisor Growth Formula. Revenue from this resource alone exceeds $100,000.
But, I’m not the only one who knows this secret.
“When you are deciding on adding another income flow, I want you to consider something in the same industry or a parallel one,” advises Grant Cardone. “This approach allows these multiple flows to feed and fuel one another, which ensures their strength.”
As the expert in your field, you know the ins and outs like no other, he continues. Having to deal with problems on a daily basis is part of what you do. As a result, you could even invent a business solution to earn additional income.
“The possibilities are endless, and it’s the way to make this technique work without running in circles,” Cardone adds.
2. Make sure you don’t obsess over other people’s incomes.
Don’t be influenced by what others make. Instead, focus on you. Do what feels right to you, and forget about outside influences telling you you aren’t hustling enough. There is no guarantee that every income stream will be suitable for you.
Case in point, I had a chance to start a marathon when I lived in a wine country with a former client. Two problems. I didn’t drink wine. And, because I have bad knees, I hate running.
There was a lot of money to be made. However, I was neither knowledgeable nor passionate about it.
Relax and enjoy the feeling of contentment. You shouldn’t feel guilty about setting your own achievements and earnings goals. It’s incredible what happens when you realize what is good enough. Eventually, you become good enough.
Just because someone else made $15k last month with a blog, home-based business, social media influencer, or monetized YouTube channel, think twice before taking the plunge yourself. Don’t forget the cost you may incur in terms of joy, sanity, energy, time, and self-esteem. These are the things that may be taken away from you.
In short, there is no reason not to take chances or strive for success. Rather, you should decide what is best for you rather than what is appropriate for someone else when taking a risk.
It’s 2007 and Nathan is studying graphic design and marketing at Boise State University. While building websites for companies, he dropped out of college and started his own business. During the global financial crisis of 2007/2008, however, work dried up, and he took a job as a contractor at a digital communications software company before going back to freelancing.
His sales soon exceeded $2,000 per month. His blog, eBooks, and packages with useful code and other resources for app-making were published through his blog and self-publishing. A lot of money was being made from the sales of his books. Within 24 hours of his first book launch, he did $12,000 in business, and the following day his second book launch did twice as much.
In order to build his subscriber list and promote his products, Nathan used Mailchimp to build his email list. Although he used the email marketing service and marketing automation platform, he always felt limited by their limitations. He then founded and became CEO of ConvertKit to solve this problem.
It was his opinion that he might be able to sustain both businesses simultaneously in a podcast interview. But he found that his book business took a serious dip as he couldn’t dedicate as much time to it.
Nathan eventually reached a crossroads. Shut down ConvertKit or devote more time to it to make it something special.
“So I shut down my course business because I’m not good at doing two things at once,” he said on the Go-To Gal Podcast. “I’m a focused person. And all these people are like, oh, I’m a serial entrepreneur; I run seven businesses. I’m like great, I’m so happy for you. That is not me at all. I run one business. And hopefully, I do it well.”
It is easy for new revenue streams to take over existing projects when added. As long as you’re not against dedicating more time to the project requiring more attention, that’s fine. However, if you do not look forward to your new project, you might find it challenging.
4. You’re a victim of shiny object syndrome.
For those not familiar with Shiny object syndrome (SOS), it is a state of constant distraction that arises from an ongoing belief that there is something new to pursue. As a result, it takes away from what’s already planned or in progress. It’s rooted in that childhood phenomenon of wanting a new toy even if you don’t want to part with your current one.
Basically, it’s chasing the next “Great Thing,” the current “Flavor of the Month,” or quick cash. While shiny objects may be appealing, they do not provide long-term benefits.
Decide what your goals are and how the new opportunity aligns with them. Think about the impact this new income stream will have on your life and business.
Understand the time required for the opportunity and what you hope to achieve. Take into account the required financial investment as well.
Consider taking action only when there are clear benefits. Do not overload yourself by doing too many things at once. Instead, focus on your current priorities.
5. Passive income isn’t really passive.
You should diversify your income into passive income assets. Ideally, this shouldn’t take a lot of effort or brainpower.
To keep passive income sources flowing over nicely and from grinding to a halt or even costing you money, you must still take action from time to time.
One of the best examples of this is investing in real estate. As much as you would like to see your portfolio generate rental income over time, you also need to accept the responsibility for maintaining the premises and resolving tenant issues.
This type of management can be outsourced to a third party. However, you should also take into account the associated fees.
6. More income streams, more responsibilities.
It’s hard to track multiple revenue streams without good reporting. As an example, you might have four streams of income to juggle. To properly evaluate revenues, expenses, and profits, you may need the assistance of an outside bookkeeper.
People don’t tell you that when you earn multiple streams of income, you take on more responsibilities as well. However, I began to realize which parts of the day-to-day task I needed to eliminate. You can do this by hiring virtual assistants and, independent contractors, or even full-time employees. But, the hiring process still can be time-consuming. And, this will also eat into your profits.
FAQs
Multiple income streams: what are they?
It just means that you have income coming from multiple sources if this is your first time hearing about it.
You have multiple streams of income if, say, you have a 9-5 job, drive for Uber, or create YouTube videos.
What are the benefits of multiple income streams?
Multiple sources of income are important because they allow you to retain your income if one source ceases or is eliminated. If anything goes wrong, there’s always a safety net to catch you.
Savings can be increased by earning additional income. Growing your savings account is key to protecting against unexpected costs and living cost increases, as well as reaching goals like early retirement.
To build wealth and succeed financially, you need multiple income streams. Many millionaires have more than one source of income. A variety of income streams allows you to have peace of mind about your finances because you aren’t dependent on one job or investment.
What are the best ways to generate multiple streams of income?
Investing in rental properties, buying stock market investments, or selling products or services online are all ways to create multiple income streams. In order to create additional sources of income, you should assess your skills and interests.
Can full-time workers create multiple income streams?
Yes. You can create multiple income streams as well as work a full-time job.
Often, people begin with part-time freelance work or side hustles, gradually increasing their income and potentially transitioning to full-time self-employment.
Which income streams are right for me?
It is important to take your skills, interests, and resources into consideration when choosing an income stream. Researching markets and identifying opportunities that are available and in demand is also helpful.
Developing multiple income streams gradually is okay if you start small.
Over the last few years, many absurd investing success stories about cryptocurrency have popped up. You may have heard about folks who got rich from meme coins and random coins they invested in for fun.
Then, in 2022, the cryptocurrency market crashed. Luna was completely eliminated, and many altcoins went to being worth almost nothing with shocking losses.
Despite the recent losses in the cryptocurrency space, many still believe that cryptocurrency is the future. Many Dogecoin fans are still attempting to prop up this meme coin. Also, we’re seeing cryptocurrencies like Bitcoin rebound slightly in 2023.
The cryptocurrency market suffered greatly in 2022, with many coins down over 70%.
We looked through expert analysis to see the predictions for the prices of Dogecoin and Polygon—and the numbers are all over the place.
Dogecoin continues to have the support of Elon Musk and a strong community of enthusiasts.
How’s Dogecoin Doing?
Only a few people will remember that Dogecoin started as a joke in 2013 by folks who didn’t believe cryptocurrency was the way of the future. The Dogecoin cryptocurrency was created purely as a parody, taking its name from the viral meme of the Shiba Inu dog. Unlike other forms of cryptocurrency, Dogecoin was never intended to have any real-world applicable utility.
Then the community surrounding the cryptocurrency created clever memes and pumped the coin up until others started to notice. Elon Musk came into the picture and became associated with the coin. Musk referred to Dogecoin as the “people’s crypto,” and he went as far as to announce at one point that Tesla would accept Dogecoin as payment.
For some reason, this coin has many dedicated fans who continue to hype it up. They’ve garnered a significant amount of positive press, largely thanks to public stunts associated with the coin, like sponsoring the Jamaican bobsled team at the 2014 Winter Olympics. Elon Musk mentioned the coin on SNL in 2021.
One issue with Dogecoin is there’s no limit on how many coins can be created, so this crypto could lose its value easily as the supply goes up.
Dogecoin is currently listed at $0.079, with an all-time high of roughly $0.70 in May 2021. As of April 25, 2023, Dogecoin is down 49.43% for the year. Dogecoin is currently ranked 8th of all cryptocurrencies based on market cap.
How’s MATIC Doing?
MATIC is the name of the native coin on the Polygon network, which lives on top of the Ethereum blockchain instead of using its own blockchain. As Ethereum became more popular, it became more expensive and slower to use. Polygon is a layer 2 solution, meaning it stays on top of another blockchain (Ethereum in this case).
MATIC suffered in 2022 because some experts felt that with the Ethereum merge, there wouldn’t be much use for a layer 2 project.
The goal of the Polygon network is to enable you to have many of the same features as the Ethereum network with a fraction of the fees. Even with Ethereum switching to the proof-of-stake mechanism in 2022, it looks like the fees on that network have yet to decrease to the levels of Polygon.
Ethereum enthusiasts were hopeful that the transaction fees would eventually come down. Polygon supporters, on the other hand, continued to argue the speed of Ethereum hadn’t changed. Many still rely on Polygon for scaling.
MATIC is currently listed at $0.98, with an all-time high of $2.92 on December 27, 2021. As of April 25, 2023, MATIC is down 27.81% year-over-year. MATIC is currently ranked 9th in the cryptocurrency space based on market cap.
What Are Current Price Predictions for Dogecoin and Polygon?
We looked through various analyst reports to see what experts are predicting for the future prices of Dogecoin and Polygon. The major difference between cryptocurrency and the stock market is that there aren’t as many mainstream analysts in the cryptocurrency space. It’s also difficult to find experts with a proven track record in the crypto arena.
What are the price predictions for Dogecoin?
The team at Coin Journal feels that Dogecoin could go above $1 in “the near future” if there’s enough bullish momentum in the coming months. They believe the coin could hit between $2 and $3 in 2030 if more merchants accept it as a form of payment and if a bull market were to kick it up a few notches.
Digital Coin Price predicts that Dogecoin could reach a maximum price of $0.18 in 2023. It also predicts a minimum price of $0.0711 for this year. By 2031, Digital Coin Price predicts Dogecoin will reach $1.
What are the price predictions for MATIC?
The team at Coin Journal published its price prediction that MATIC would reach $3.42 during 2023. They believe MATIC will reach $4.39 by 2024 and $34.74 by 2040.
Crypto Ticket published in 2022 that they believed the price of MATIC could reach $1 if the higher scalability with Ethereum led to more applications being moved over to the Polygon network. Indeed, the crypto did cross the $1 threshold several times in 2022. Recently, the price has been decreasing and has dropped 5.66% in the last month.
Digital Coin Price predicts that MATIC could reach a maximum price of $2.20 this year and a minimum price of $0.90. By 2025, Digital Coin Price predicts MATIC will reach a maximum price of $3.65 and a maximum of $10.48 by 2030.
The predictions for MATIC and Dogecoin vary quite a bit. It’s difficult to tell if there will be another bull market in the near future where the price of all cryptocurrencies goes up in tandem.
What You Need to Know About Cryptocurrency Price Predictions
It’s important to note that it’s challenging enough to predict the price of any cryptocurrency a week down the line, let alone years into the future. Price predictions from earlier in 2022 were much different than predictions at the end of the year, as the entire market dropped drastically.
Also, as we looked at cryptocurrency price predictions, we found many caveats and contingencies. There are many other factors at play here, including mass adoption, the global economy, and governmental regulation. We also can’t forget about the importance of another bull run.
Here’s what you need to know about the price of any type of cryptocurrency:
Cryptocurrency isn’t independent of the overall macroeconomic situation. When the Fed raises rates, the stock market drops—and so does the crypto market.
Many experts are just guessing. It’s rare to find an expert in this space with a decent track record.
Nobody knows for sure what’s going to happen in the cryptocurrency space. This asset is so volatile and unpredictable that it’s a fool’s errand to try to make a prediction.
How Are The Key Altcoins Doing?
When looking at the cryptocurrency market, it’s only fair that we break down some of the key altcoins. These are all prices as of April 25, 2023, on CoinDesk.
Solana (SOL)
The price of Solana is currently $21.72, with an all-time high of $259.96 in November of 2021. SOL is down 78.51% for the year.
Avalanche (AVAX)
The price of Avalanche is currently $17.72, with an all-time high of $144.96 in November of 2021. AVAX is down 75.56% for the year.
XRP (XRP)
The price of XRP is currently $0.47, with an all-time high of $3.40. XRP is down 32.42% for the year.
Polkadot (DOT)
The price of Polkadot is currently $5.99, with an all-time high of $54.35 in November 2021. DOT is down 66.91% for the year.
Binance Coin (BNB)
The price of Binance Coin is currently $336.68, with an all-time high of $686.31 in May 2021. BNB is down 17.04% for the year.
From some of the prices in this article, it should be clear many cryptos aren’t having a profitable year. While some hope this is the bottom, there’s no way to know. Many coins are down over 70% for the year.
However, you should also note the month-to-month price movements are slightly more optimistic. Avalanche, for example, is down about 75% for the year but has increased 7.63% in the past month. Similarly, Bitcoin is down approximately 30% year-over-year at the moment but up about 40% over the past six months.
How Should You Be Investing?
While investing in digital assets has become more popular over the last few years, it’s important to remember that these are still risky investments with extreme volatility. The cryptocurrency market is open 24 hours worldwide, so you never know when there will be some sort of a pump or a crash.
We’re living in a time of high inflation and lowered consumer spending. If you’re interested in investing in speculative assets like cryptocurrencies, you should be prepared to lose any money you invest. There’s no guarantee about anything these days.
The Bottom Line
It’s fair to say that waiting for a crypto pump is a bad financial move you can make, as there’s so much volatility in the space. As always, we suggest you only invest money you can afford to lose in risky assets because you don’t want to watch the money you worked hard for disappear.
“Regression to the mean” is a powerful force in the financial markets, so it was a good bet that the 60:40 portfolio would have a much better year in 2023 than in 2022.
But not as good a year as it has had so far. That’s important to point out, lest retirees start believing that returns like we’re seeing this year are the norm. They’re not.
The 60:40 portfolio, a default option for many retirees and near-retirees, lost 23.4% last year, assuming the 60% equity portion was invested in the Vanguard Total Stock Market ETF VTI, +1.65%
and the 40% bond portion in the Vanguard Long-Term Treasury ETF VGLT, -0.94%.
That was the worst calendar-year return for the portfolio since the Great Depression.
Through the end of May this year, in contrast, this portfolio rose at an annualized pace of 17.6%. That is more than double the average return since 1793 of 7.7% annualized for an annually rebalanced portfolio (according to data compiled by Edward McQuarrie of Santa Clara University).
Regression to the mean deserves only a minority of the credit for this reversal. That’s because there’s no guarantee that, following a year with as big a loss as 2022’s, the portfolio would produce a gain this year. Strictly speaking, in fact, all that regression to the mean implies for the 60:40 portfolio is that its return this year would be closer to its long-term average than last year’s. A wide range of possible returns are consistent with this implication, of course, including a loss—just so long as that loss is significantly less than 2022’s.
Rather than thanking mean regression, retirees therefore should thank their lucky stars that the 60:40 portfolio’s year-to-date return is coming in at the upper end of this possible range.
But I need not remind you that luck is not a strategy.
It’s also important to remember that regression to the mean cuts both ways. Assuming that the 60:40 portfolio continues performing for all of 2023 at its year-to-date pace, mean regression would imply a smaller return in 2024. That smaller return could still be a gain, of course, but it also could be a loss.
In any case, it’s worth emphasizing that the 60:40 portfolio is a long-term bet, not a market timing tool. As you can see from the accompanying chart, this portfolio’s most recent trailing 20-year annualized return is almost precisely on top of its two-century average of 7.7% annualized. So no regression to the mean is implied when projecting the portfolio’s long-term future return.
Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com.
A spokesperson for JPMorgan Chase & Co. on Friday has confirmed statements on social media that some customers are seeing duplicate transactions and fees on their checking accounts.
“We’re sorry,” the spokesperson said in an email to MarketWatch. “We’re working to resolve the issue and will automatically reverse any duplicates and adjust any related fees.”
JPMorgan Chase JPM, +2.10%
customers on Twitter and other social-media outlets said payments made through Zelle were showing up twice.
“PSA!!!,” said Twitter user @haunteraIIA. “Anyone waking up to duplicate zelle charges from chase, my call just went through and was told the duplicate charge should be credited within 24hours. they’re having issues with this today. i was on hold for an hour, so just in case anyone else wakes up freaked out lol.”
Zelle is jointly owned by six banks: JPMorgan, Truist Financial Corp. TFC, +3.62%,
Capital One COF, +4.00%,
U.S. Bancorp USB, +4.00%,
PNC Financial Services Group Inc. PNC, +3.21%
and Wells Fargo & Co. WFC, +2.95%.
A spokesperson from Chase clarified that the problems are confined to its customers.
Hitting the campaign trail in Iowa on Wednesday for the first time as a presidential candidate, Florida Gov. Ron DeSantis road tested new policy ideas for handling student debt and boosting military morale.
In Salix, Iowa, DeSantis said universities should have to pick up the tab if a former student can’t pay back their loans. Later, in Council Bluffs, DeSantis said that he, if elected, would offer back pay to veterans who reenlist after leaving the military due to Covid-19 vaccine requirements.
For DeSantis, who provided few details on his first-term agenda in his official launch on Twitter last week and in Tuesday’s campaign kickoff event in Des Moines, Wednesday’s events offered an early glimpse into the ideas he will bring to the race as he seeks to convince Republicans he is best positioned to take on President Joe Biden in 2024. Both suggestions are near to issues DeSantis has championed as governor – overhauling higher education to remove perceived liberal influences and pushing back against coronavirus mitigation measures widely credited with ending the pandemic.
A DeSantis campaign spokesperson told CNN more specifics on all of DeSantis’ policy proposals will come as the campaign progresses.
DeSantis’ pitch to remedy the country’s mounting student loan debt – amassing $1.6 trillion nationwide as of last year, according to the Federal Reserve Bank of New York – he said will force universities to change their approach to preparing students for the workforce. The proposal comes as House Republicans negotiated for student loan payments to restart by the end of August as part of the debt ceiling deal with Biden – a pact DeSantis has criticized.
“If somebody defaults, the university should pick it up,” he said. “If they were on the hook for it, they would make sure the curriculum was designed to produce people that can be very productive. You’d have a heck of a lot less gender studies going on.”
DeSantis as governor has banned diversity, equity and inclusion programs at public colleges as well as gender studies majors. DeSantis added that “we do believe in universities, but they got to be done in a good way,” meaning “rooted in the traditional mission of the university classical education.”
Speaking from a welding warehouse in Western Iowa, DeSantis – himself a product of two Ivy League schools – also highlighted his administration’s efforts to emphasize trade and apprenticeships as an alternative to four-year degrees.
“It’s sending the message to young people that you’re not better because you got a four-year degree,” he said.
Later in the day, while touting his time in the US Navy as a JAG officer, DeSantis argued the US military is “indulging woke ideology” that negatively impacts recruitment.
“They’ve driven off some of our greatest warriors not just through that culture, but also through dumb policies like forcing m-RNA Covid shots on our service members,” DeSantis said.
In January, Secretary of Defense Lloyd Austin rescinded the military’s Covid-19 vaccination mandate for troops. The coronavirus vaccine was added to the list of required inoculations in August 2021, leading many conservatives to surmise it would hinder recruitment, a suggestion the Pentagon denied was occurring.
“Why would you want to drive them off by doing things like forcing them to take a shot that they don’t want and sure enough, many people left,” DeSantis said at the second of four stops across Iowa. “As president, we will restore everybody back who wants to come back and we will give them back pay as a result.”
Bidding wars are back, as limited housing-market inventory pits buyers against each other. To compete — and certainly to win — buyers need to come fully prepared, Barbara Corcoran says.
Despite a sharp rise in the 30-year mortgage rate to nearly 7%, buyers aren’t able to catch a break, due to a shortage of listings. Competition for homes…
Opinions expressed by Entrepreneur contributors are their own.
How did Elon Musk become one of the richest entrepreneurs in the world? He didn’t start just one company, he was involved in several groundbreaking enterprises including PayPal, SpaceX and Tesla. The same goes for Richard Branson, who has launched over 400 companies, and Oprah, who has founded or acquired substantial stakes in several businesses including Weight Watchers, True Food Kitchen and Oatly.
While some entrepreneurs are content to start a single business, scale it, sell it and retire to a life of leisure, other entrepreneurs are driven to do more. Perhaps they want to change the world for the better, or maybe they simply thrive by staying active and growing businesses.
If you think you may want to follow in the footsteps of some of the greatest entrepreneurs of all time and create multiple streams of income, here are three ways to make it happen:
The idea of starting multiple businesses might sound appealing to a visionary entrepreneur. However, when reality strikes, business owners often discover that operating a single business can be challenging enough. Fortunately, there are ways to build multiple companies and keep your head above water.
First, if you’re going to run multiple businesses, you can’t do it all by yourself. You need partners.
Second, don’t start multiple businesses at the same time. Start one, focus on it intensely until it becomes profitable, turn it into a self-managing entity, and then you can leverage your profits to launch the next business.
Third, find ways to align your businesses and create synergies so that each business can grow faster and better.
2. Acquire existing businesses
Warren Buffett made his money buying businesses, not starting them. Could the same tactic work for you? Bear in mind the success of any acquisition hinges on who (and what) comes with the business.
The “who” is straightforward — it’s the people who are currently employed by the business. These people may love the company or hate it. Neither of those is necessarily good or bad. If they love the company, they might stay, but it may also mean they don’t want you to change anything, even if it’s an improvement. If they hate the company, they may leave, but they may also have lots of ideas about how to improve things.
The “what” can be more complicated. Businesses can come with tax obligations, legal entanglements and more. This is why many acquisitions don’t involve buying the entire business but an asset buyout, in which you only buy the parts of the business you want. Regardless, make sure you do your due diligence so you know exactly what you’re getting into.
Many business founders outsource parts of their business, like marketing, but what if you could outsource the entire business? “Today, there is so much complexity and competition when it comes to launching a business,” says Milos Safranek, founder of Automated Wealth Management Holdings. “You’ve got product sourcing, logistics and supply chain management, not to mention these things are always changing. For many entrepreneurs and investors, it makes more sense to outsource the operation entirely.”
One of the easiest types of businesses to outsource is an ecommerce store because so much of the process can be automated. Business automation is key to unlocking an entrepreneur’s full potential. It’s how you make money while you sleep, but most entrepreneurs don’t know what automation systems and tools are available — which is why, for many, it makes sense for them to focus on vision, brand and marketing while outsourcing everything else.
Many articles and entrepreneurial “experts” on social media will tell you how to create multiple streams of income “overnight” or as a “side hustle.” The ideas I shared above are not get-rich-quick schemes, and they’re not side hustles. These are time-intensive strategies that require large amounts of money and effort, but if they take a large effort, the payoff can also be big.
If there were no tax cheats in America, there would be no Social Security crisis. Benefits could be paid, and payroll taxes kept the same, for the next 75 years.
That’s not me talking. That’s math. It comes from the number crunchers at the Social Security Administration and the Internal Revenue Service.
And it explains why those of us who support Social Security should be pounding the table in outrage over one clause of the Biden-McCarthy debt ceiling deal: The part where the president has to retreat from his crackdown on tax cheats just so McCarthy and the House Republicans would agree to prevent America defaulting on its debts.
It’s just two years since the administration got into law an extra $80 billion for the IRS to beef up enforcement. That was supposed to include hiring an estimated 87,000 IRS agents.
OK, so nobody likes paying taxes and nobody likes the IRS. Cue the inevitable critiques of an IRS tax “army,” and so on. But this isn’t about whether taxes should be higher or lower. It’s about whether everyone should pay the taxes that they owe.
After all, if we’re going to cut taxes, shouldn’t they apply to those of us who obey the laws as well as those who don’t? Or do we just support the “Tax Cuts for Criminals” Act?
Why would any voter rally around a platform of “I stand with tax cheats?”
If this seems abstract, consider the context and how it affects you and your retirement — and the retirements of everyone you know.
Social Security is now running at an $80 billion annual deficit. That’s the amount benefits are expected to exceed payroll taxes this year. (So say the Social Security Administration’s trustees.)
Next year, that deficit is expected to top $150 billion. By 2026, we’re looking at $200 billion and rising. The trust fund will run out of cash by 2034, and without extra payroll taxes will have to slash benefits by a fifth or more.
Over the next 75 years, says the Congressional Budget Office, the entire funding gap for the program will average about 1.7% of gross domestic product per year.
Meanwhile, how much are tax cheats stealing from the rest of us? A multiple of that.
But it still worked out at around 12% of all the taxes people were supposed to pay (including payroll taxes). And around 2.3% of GDP.
Over the next 10 years, based on similar ratios to GDP, that would come to another $3.3 billion.
Sure, Social Security’s trust fund is theoretically separate from the rest of Uncle Sam’s finances. But that’s an accounting issue: A distinction without a difference.
Some people want to cut benefits. Others want to raise the retirement age, which also means cutting benefits. Others want to raise taxes on benefits — which also means cutting benefits. Others want to hike payroll taxes, either on all of us or (initially) only on very high earners.
But if investing some of the trust fund in stocks is a no-brainer, so, too, is insisting everyone obey the law and pay the taxes they actually owe each year. I mean, shouldn’t we do that before we think about raising taxes even further on those who abide by the law?
How could anyone object? Any party that believes in law and order would support enforcing, er, law and order on tax evasion. And any party of fiscal conservatism would support measures, like tax enforcement, to narrow the deficit.
And, actually, any party that truly supported lower taxes for all would be tough on tax evasion: It is precisely this $500 billion in evasion by a small, scofflaw minority that forces the rest of us to pay more. We have, quite literally, a tax on obeying the law.
Many people put off saving or investing their money because they think a small amount won’t make a big impact. The truth is, with an extra $100, anyone can start to build a richer financial future.
After you’ve bought groceries and paid the bills, what do you do with an extra $100? Here are 4 things to consider.
Financial experts recommend that people put aside three to six months of expenses in an emergency fund. But in uncertain economic times, building a financial safety net of any size is important, even if you start small with $25, $50 or $100 a month.
To get the most bang for your buck, a high-yield savings account allows the money your holding in your emergency fund to grow faster. The average APY (aka, annual percentage yield, or the interest you can accrue in a year) is hovering around 0.4% for traditional savings accounts. But there are high-yield online savings accounts offering up to 5% and higher APY, giving you a better return on your savings.
These accounts allow the flexibility to easily take out money if you need it, though some have a monthly cap on how many withdrawals you can make. This both gives you access to your money, while encouraging you to leave it there for a rainy day.
Once your emergency fund has been secured, the next step is working towards paying down your high-interest debt.
All debt is not created equal: Credit cards are useful in many ways, including helping you build your credit, but they carry high interest rates. The average credit card interest rate currently clocks in around 20% APR, and that can add up quickly if you don’t pay your bill in full every month. Right now, Americans owe nearly $1 trillion on credit cards.
Your goal should be to get that balance down as quickly as possible by making at least your monthly payments. If you have an extra $100, use it to make an extra payment on your credit card bill this month to speed up the process.
An extra $100 is the perfect amount to dip your toe into the stock market.
Investment apps offer an accessible way to start investing, even with small sums. Acorns, for example, lets you invest your spare change, and Robinhood has no minimums to open an account.
Saving and investing are smart ways to grow wealth, but if you’d rather treat yourself, make it an investment in you.
Take on online class in something you love or learn a new skill. Or if free time is hard to come by, hire a housekeeping service for an hour or two to give yourself time to read a book or go for a family walk.
If you’re feeling charitable, you can give the money to charity. Plus, charitable donations are often tax deductible.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
When your finances start to spiral and it becomes increasingly difficult to keep up with credit card payments or build toward financial goals, switching your payment method temporarily to cash or debit could help.
Spending with credit cards can stimulate the brain’s reward center and drive you to make more purchases, according to a recent study by MIT Sloan School of Management. The 2021 study had a small sample size of 28 participants, but other research also finds that people are likely to spend more with credit cards. However, it is possible to avoid overspending and the costs of interest charges on outstanding debt by using cash instead.
A vacation from credit card spending isn’t for everyone, though. If you want to preserve your credit scores, you’ll still need to keep zero-balance credit cards open and active with small recurring purchases such as paying for streaming service subscriptions or other similar transactions. Issuers may close inactive accounts, which can cause credit scores to drop.
By not piling new purchases on your credit cards, making more progress on debt or savings is possible. If you need a sign to determine if this course is right for you, here are some instances when shifting your spending to cash or debit can make sense.
1. YOU FREQUENTLY OVERSPEND IN CERTAIN CATEGORIES
You might not need to go cold turkey on your credit card spending. If you tend to overspend only in specific categories, consider setting aside a fixed amount of cash or funds on your debit card to cover those expenses. For those purchases that don’t lead your budget astray, continue using a credit card and paying it off in full every month to avoid interest charges.
If, however, you usually overspend across multiple categories, using only cash may help you stay on track.
2. YOU’RE AN EMOTIONAL OR IMPULSIVE SPENDER
You may not be aware that you’re an emotional or impulsive spender. However, it’s possible to get an idea by reviewing credit card statements and reflecting on the reasons behind the purchases, says LaQueshia Clemons, a financial therapist at Freedom Life Therapy and Wellness in Connecticut.
“When you get upset or whenever you’re emotional, this may be when you find yourself on Amazon or going to the mall,” Clemons says. “As a way to avoid negative feelings, you may find yourself buying items because this can give you a euphoric feeling to replace the negative emotions.”
If you realize you might be in this category after reviewing your purchases, stop spending with credit cards and analyze your financial habits, she says.
You might also consider meeting with a financial therapist if it’s difficult to accomplish financial goals or you’re in a continuous cycle of debt. The Financial Therapy Association has a directory to help you find a professional.
3. YOU CAN’T SEE A WAY OUT OF DEBT
If your credit cards are maxed out or you’re struggling to keep up with minimum payments, it’s time to come up with a strategy to pay off the debt.
After several layoffs early in her career, Aileen Luib, a digital content creator based in California , says she had to rely on credit cards to get by. Her combined balances grew to $10,000 by 2015, putting a wrench in her plans, so she came up with a new one.
“I was doing a lot of different things to rack in the money and chip away at that debt as quickly as I could,” Luib says. “I was kind of tapping into my skill sets to start scraping up money in little corners of my life, and it all added up.”
Luib says she also used a balance transfer to consolidate debt from several credit cards onto one with a lower interest rate, and she didn’t add new purchases to the card. With these tactics, she says she paid off her balance in 2017.
Balance transfers typically require a good credit score of 690 or higher. The ideal balance transfer card will have an interest-free window long enough to pay off debt, no annual fee, and a balance transfer fee of 3% or lower. To determine if a transfer is worth it, consider whether the balance transfer fee costs less than what you’re projected to pay in interest charges on the current credit card. (An online interest calculator can help.) You’ll also make more progress on the debt if you stop putting new purchases on credit cards.
With less-than-ideal credit, you still have options if it’s becoming increasingly difficult to meet payments. Consider meeting with a counselor from a nonprofit credit counseling agency. They aren’t mental health professionals, but they can offer financial guidance and help you determine whether you qualify for a debt management plan that consolidates debt into a single payment with a lower interest rate. Your credit cards may be closed if you enroll in this plan, so expect to shift to cash or debit to cover expenses.
________________________________
This column was provided to The Associated Press by the personal finance website NerdWallet. Melissa Lambarena is a writer at NerdWallet. Email: mlambarena@nerdwallet.com. Twitter: @lissalambarena.
RELATED LINKS:
NerdWallet: Does using a credit card make you spend more money? https://bit.ly/nerdwallet-credit-cards-make-you-spend-more
MIT Management Sloan School: MIT Sloan study shows credit cards act to “step on the gas” to increase spending https://mitsloan.mit.edu/press/mit-sloan-study-shows-credit-cards-act-to-step-gas-to-increase-spending
Opinions expressed by Entrepreneur contributors are their own.
Congratulations! You have graduated from college… Now what? This is a question asked by many new graduates every year, with many struggling to reach that ideal 6 figure pay for years! Don’t get stuck in the system and break out using this method. I will teach you how to make over $100,000 per year by practicing and finding a fully remote job for “appointment setting.”
Appointment setting
All you need to do for this job is bring potential clients and a dedicated salesperson together. An appointment setter plays a crucial role in the sales process and acts as the first impression for the brand. You will be in charge of generating leads for the sales team to follow up with.
With this job, you can make large amounts of money from commissions without having to have the experience and skill of the actual salesperson. This job serves as a great introduction to a career in selling, with a massive potential for growth in career and salary wise.
To find success in appointment setting, you need to have the skills. Fortunately, these skills require no degree or certification and can be mastered quickly. Use free resources like Youtube and Google to learn about the job and how to sell.
This alone is good enough to find a 6-figure job right out of college, but if you want to learn more about the intricacies of selling and how to win, read these books on sales that shaped me into the salesman I am today: 100M Offer by Alex Hormozi, The Challenger Sale by Matt Dixon and How to Win Friends and Influence People by Dale Carnegie. Sharpen your skills by practicing selling to your friends, family and eventually to ideal clients of your desired field; more on that later.
When getting into sales, many rookies make the mistake of working for companies that pay high commission percentages but for a relatively inexpensive product. This is why choosing a company that sells a “high-ticket” product or service is essential.
These high-ticket products are usually in the range of thousands to tens of thousands in price, including automobiles, software, medical procedures and consulting services. This is where the real money is and where just a small appointment-setting position can yield significant amounts of commission and soar to 6 figures.
But why stop there? With the advancement of technology and the changing office environments post-2020, finding a remote job is easier now than ever before. You can reach that 100k salary working from your home.
Get hired on the spot with this trick
To the anxious new grad, this all may seem too good to be true. Though finding a 6 figure remote job in appointment setting is relatively easy, you need to be good at sales to be hired. So here you have two options: One, you could grind at a low-paying sales job until you have enough experience on your resume for years, or you could use this trick to give the company you are applying for an offer they CAN’T refuse! The trick is to show up to your interview with three potential clients under your belt who are ready to schedule a demo with the sales team.
Not only will you prove you can sell their product, but you will also have made them some business before they even hired you. To accomplish this, research your company closely and find ideal clients for their product through Google and social media.
Once you find these clients, cold call or message them asking if they would be interested in a demonstration with the sales team. This could take some work, but remember you don’t have to sell the product to these potential clients, just a meeting with the sales team. Reach out to as many people as possible, and once you have three interested people, schedule your interview with the company. With this trick, you have an extremely high chance of being hired on the spot right out of college.
Start making six figures this year by becoming a fully remote appointment setter and nailing that first interview with three clients ready to go. The best part is it doesn’t have to stop there — mastering selling will benefit other aspects of your life and career. Once you reach that 6 figure goal, you can spend the time you saved where you would have been grinding with a low wage for years to enhance your skills further and reach your next goal faster!
When you’re applying for a mortgage, the numbers matter. So it’s important to understand what everything means, which isn’t always easy when you’re trying to decipher industry jargon and acronyms.
One of these terms is “loan-to-value ratio”, which is often simply referred to as LTV. When applying for a home loan, the LTV can make a big difference in what type of mortgage you’re eligible for, your loan’s interest rate and the fees you pay.
Below, CNBC Select covers how loan-to-value ratios work and why it’s such an important number to understand.
A loan-to-value ratio (LTV) is a number that shows how much money is being borrowed in comparison to the value of the collateral. LTV has significant implications for mortgage applications and is expressed as a percentage. For example, if you’re purchasing a home worth $100,000 and your mortgage loan balance is $80,000, you have an 80% LTV.
The LTV requirement for a mortgage depends on the type of loan and your financial situation. If you’re struggling to find a home loan that fits your needs, try a lender that offers a larger variety of loan types. PNC Bank is CNBC Select’s best mortgage lender for flexible loan options and offers conventional loans, USDA loans, VA loans, FHA loans and more.
Calculating LTV is straightforward because you’ll typically only have to know two numbers: The loan amount and the appraised property value.
The formula is this:
Current loan balance / current property value = LTV
You can change your initial LTV by increasing your down payment or negotiating a lower purchase price. Over time, your LTV will drop as you pay off the loan and the property (hopefully) increases in value.
LTV vs. CLTV
Whenever you’re taking out a second loan on a property the lender will look at a combined-loan-to-value ratio (CLTV). The CLTV uses a similar formula as LTV but factors in the balances of multiple loans.
A common situation where CLTV matters is when you’re getting a home equity loan or a home equity line of credit (HELOC). For these types of loans, you’re typically allowed to have a CLTV of up to 80%.
If you’re looking to cash out some of your home’s equity to pay for a renovation, calculating your CLTV helps you figure out your rehab budget. Let’s say your home is worth $350,000, you’ll usually be able to borrow up to an 80% CLTV, which would be $280,000 in total. This means if your current mortgage balance is $200,000, you could finance $80,000 in home upgrades.
When it comes to mortgages, LTV affects what type of loans you’re eligible for and your borrowing costs.
The LTV requirements for a mortgage vary depending on the loan type. Mortgages with smaller down payment requirements, for example, allow for higher LTVs. An FHA loan allows down payments of as little as 3.5% or an LTV of 96.5%. And USDA or VA loans can have an LTV of 100% (essentially requiring no down payment).
Conventional loans usually have stricter LTV guidelines, although certain conventional loan programs allow for an LTV as high as 97%. Just remember that with conventional loans, you’ll be required to pay private mortgage insurance (PMI) if your LTV is 80% or higher.
Aside from helping you qualify for a mortgage, a lower LTV can get you a better interest rate, although other factors such as your credit score, the type of loan and the loan balance also play a role.
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Inflation has been putting pressure on households across the country for over a year now. And while prices have started to decrease again, increasing consumers’ purchasing power in the process, inflation is not yet yesterday’s problem. As you map out your own household budget, it’s easy to spot the continued impact of higher prices.
With household budgets feeling pressed, many people have asked for the past year whether we’re in a recession. A high inflationary environment doesn’t always translate into a full-blown recession, but many experts are still predicting the NBER will call a recession later this year.
Let’s take a closer look at what the experts are saying about this uncertain economic time.
Key Takeaways
The National Bureau of Economic Research (NBER) says that the U.S. is not experiencing a recession right now.
According to NBER, the last recessionary period lasted from February 2020 to April 2020.
The NBER looks at a wide range of economic information when determining whether or not a recession is happening.
Recession: A Tale of Two Definitions
Many people believe that a recession has started when real gross domestic product (GDP) has fallen for two consecutive quarters. However, the National Bureau of Economic Research (NBER) looks at various factors when determining a recession’s start date.
The NBER Business Cycle Dating Committee defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
Ultimately, this committee looks beyond the real GDP metric when determining if the economy has slipped into a recession. This can make it confusing for consumers to know whether we’re in a recession or not.
The NBER Didn’t Call a Recession in 2022
When looking at the two definitions, the two-quarters definition concerning real GDP is easier for the average investor to keep track of. Because of that, it’s sometimes the case that investors believe we’re in a recession automatically if there have been two consecutive quarters of negative real GDP growth.
The Bureau of Economic Analysis keeps track of the USA’s real GDP. In the first and second quarters of 2022, real GDP fell. Based on the general definition of a recession, falling real GDP in those two consecutive quarters would mean the country experienced a recession.
However, real GDP grew in the third quarter of 2022. With that, falling real GDP in the first two quarters was not enough for the NBER to call an official recession. To the NBER, real GDP is just one piece of the puzzle.
The NBER Business Cycle Dating Committee maintained that the country had not gone into a recession in 2022. Instead, it held that the most recent recessionary period happened between February 2020 and April 2020.
Economic Indicators: A Closer Look
The NBER’s determination that the USA still isn’t in a recession has been the topic of a sharp political debate. As the country’s politicians argue the finer points of the definition, it’s helpful to understand the broader picture.
With more details in mind, it’s easier to understand why the NBER committee didn’t declare a recession in 2022.
Real Gross Domestic Product
While real GDP fell in the first and second quarters of 2022, it grew in the third quarter of 2022. The change of direction was seen as a step in the right direction.
Real GDP continued to grow in the fourth quarter, increasing by 2.6%. Growth slowed in the first quarter of 2023, with real GDP increasing only by 1.1%. This has led some experts to speculate a recession is more likely in the second half of 2023.
Inflation
The Consumer Price Index (CPI) is a widely used measure of inflation. In the October 2022 report, the CPI was up 7.7% from last year. Although that was a slightly better figure than earlier numbers from the summer of 2022, inflation was still a major problem facing the economy when third-quarter real GDP results were released.
In response to sky-high prices, the Federal Reserve has been raising interest rates with the goal of taming inflation. But, with a target inflation rate of 2%, the Fed still has a long way to go. Inflation peaked in June 2022 at 9.1%. Since then, inflation has consistently declined, dropping to 4.9% in April 2023.
The Fed’s monetary policy is clearly having its intended effect, encouraging banks to save money and borrow from each other less. When the Fed raises interest rates, banks will raise yields on savings products to encourage consumers to deposit money with them. Variable interest rates (like the rate on your credit card) increase in tandem with a higher fed funds rate.
The Fed’s monetary policy trickles through the economy. When investors are more bearish with their money, corporations see their profits take a hit. This reduces optimism about the future of the economy, further decreasing investment.
The Fed’s monetary policy is a painful but necessary reaction to unsustainable economic growth.
Unemployment
The factor that has maybe been most significant in keeping the NBER from calling a recession is the unemployment rate. The relatively low unemployment rate has been a beacon of hope in these tumultuous times. Last October, the unemployment rate rose to 3.7%, still a relatively low number.
Since then, unemployment has remained between 3.4% and 3.7%. The low unemployment rate is one of the main things encouraging some experts to say a soft landing is possible. Many cite the Sahm Rule – a recession indicator meant to flag the start of an economic downturn – to argue we aren’t in a recession.
The Sahm Rule holds that if the unemployment rate rises 0.50% or more from its low during the previous 12 months, a recession may be occurring.
While we saw large waves of layoffs hit the headlines this past year, the majority of the layoffs impacted employees working at major tech companies. They weren’t significant enough to drive the unemployment rate much higher.
Even with the layoffs, there are still plenty of employers hiring across the economy. Plus, many other companies seem hesitant to initiate major layoffs due to the challenge of attracting talent.
NFIC Small Business Optimism Index
Small businesses are an important part of a healthy economy. Unfortunately, small business owners seem to be losing confidence in the economic outlook. The National Federation of Independent Business saw its Small Business Optimism Index fall to 91.2 in October.
Since then, things have not rebounded. The index has hovered around 90 in the early months of 2023, decreasing 0.8 points in March to 90.1. This marked the 15th consecutive month of the index sitting below its 49-year average of 98.
According to the NFIB website, “Twenty-four percent of owners reported inflation as their single most important business problem, down four points from last month.” The website also states, “Small business owners expecting better business conditions over the next six months remain at a net negative 47%.”
The cynicism small business owners feel about the future of the economy should not be encouraging to experts.
The Housing Market
Another area of the economy that has been impacted by these tumultuous times is the housing market. When interest rates rise, would-be homeowners get pushed out of the market due to a lack of affordability.
The Home Builders Index fell to 38 last October. This meant that builders were not optimistic about the housing market then. In the following months, however, the index started to turn positive again, hitting 45 in April of this year.
How to Invest During a Recession
While the economy might not be in a recession at the moment, the economic indicators are all over the board. One of the most interesting things about the economy this past year has been seeing inflation hit frightening highs while unemployment remains low. In such confusing times, it can be challenging to build an efficient investment portfolio.
As an investor, monitoring economic indicators across the economy is time-consuming. However, it’s essential because changing market conditions can impact your investment portfolio.
Keep your eye on reports like the Consumer Price Index (CPI), which tracks inflation in the US economy. If inflation continues to decrease, it’s possible the sentiment among small business owners will turn positive. If unemployment remains low, it will also bode well for any potential recession in the second half of 2023.
It’s important for investors to note that not all companies see their profits suffer from a recession. Consumer staples like grocery chains and utility companies tend to hurt less from a recession, while retail stores and less essential goods and services see demand slacken.
Diversifying your portfolio is always a good idea. Stock prices tend to decrease overall when recessions occur, which some investors take advantage of to buy into an investment at a low price.
The Bottom Line
The NBER didn’t call a recession in 2022, despite very high inflation and cynicism among small business owners. Now, in 2023, inflation is slowly decreasing and home-building indexes are turning positive again.
Unemployment has remained low enough to keep the NBER from calling a recession, but slowing real GDP growth and continued high inflation have some experts insisting a recession is coming in the second half of 2023. Only time will tell.
We might not be in a recession, but most of us can feel the impacts of a tumultuous economy. As investors, it’s critical to keep up with the changing market to make the best decisions for your financial goals.
The numbers: The final reading of a consumer-sentiment survey in May rebounded slightly to 59.2, but Americans remained worried about the future of the economy, especially against the backdrop of another fight in Washington over the debt ceiling.
The index, produced by the University of Michigan, registered a six-month low of 57.7 earlier in May. The index sank from 62 in April.
The consumer-sentiment survey reveals how consumers feel about their own finances as well as the broader economy.
Americans are worried about the possibility of recession and threat posed by a stalemate in talks between Democrats and Republicans on raising the U.S. debt limit. A similar impasse in 2011 also hurt consumer sentiment.
Sentiment is far below a recent peak of 88.3 in 2021 and a prepandemic high of 101. The index dropped to an all-time low of 50 last summer.
Key details: A gauge that measures what consumers think about the current state of the economy edged up to 64.9 from an initial 64.5 in May.
A measure that asks about expectations for the next six months also partly recovered to 55.4 from a preliminary 53.4 in May.
Both indexes are still quite low, however.
Inflation expectations haven’t changed much. Americans also think inflation will average just above 3% annually in the next five years.
Big picture: Higher borrowing costs have depressed purchases of houses and many other big-ticket items and put the brakes on U.S. growth. Yet even though the economy is more fragile now, there’s still no sign of a pending recession.
Market reaction: The Dow Jones Industrial Average DJIA, +1.00%
and S&P 500 SPX, +1.30%
rose in Friday trades.
When I was growing up, my father used to repeat a saying he’d heard as a child from his grandmother: “When money doesn’t come through the door, love goes out the window.” That proverb appears to date back to a 19th century painting by the English artist George Frederick Watts, titled “When Poverty Comes in at the Door, Love Flies out of the Window.”
I relayed the quote to psychoanalyst Orna Guralnik, and she agreed money is one of the biggest stressors on couples, “especially because of the society we live in.” Guralnik is the star of the Showtime documentary series “Couples Therapy,” in which she analyzes real patients in a room with hidden cameras. New episodes of its third season premiered last month.
While financial issues can spark intense conflict for couples, Guralnik doesn’t believe money, or the lack of it, is the real reason they split up. “Ultimately, from my perspective, the breakup is not about money,” she said. Instead, Guralnik said, “the breakup is about not being able to negotiate differences, to be honest or to find a way to common ground.”
Guralnik describes money as one of the major “touchstones with reality” that can make it clear two people can’t problem-solve together. It is this inability to communicate, emphasize and compromise with each other that might ruin a relationship, she said.
During my interview in late April with Guralnik, she had many other interesting things to say about love and money. Here are three of them.
“Sometimes, I find people are more private about money than their sex life,” she said.
It’s not just with their therapist people avoid topics such as debt or overspending, Guralnik said. People can be married for years and still not have told their partner what’s going on with their finances.
Guralnik understands this avoidance of the subject.
“In American society, money locates you in the social structure more than anything else,” she said. “A lot hangs on money in terms of people’s self-worth.”
People take huge risks by avoiding talking about and confronting their finances, she said.
“If you’re refusing to look at your bank account when you’re pulling out your credit card, you can accrue debt,” Guralnik said. “And if you keep doing that, that debt can be pretty devastating.”
Sometimes, I find people are more private about money than their sex life.
Orna Guralnik
psychoanalyst and host of “Couples Therapy”
“It can put you in the hole for a lifetime to come,” she added.
“I’m not saying that hyperbolically,” Guralnik went on to say. “I have plenty of people that come into my office in that situation.”
People are “shielding themselves from knowing reality” when they refuse to pay attention to their finances, Guralnik said. She added, “you can’t take care of yourself if you don’t deal with reality.”
At one point in the new episodes of season three of “Couples Therapy,” couple Kristi and Brock tell Guralnik they’re worried a big reason they’re moving in together is to save money.
Guralnik doesn’t see a problem with that motivation, however. “I’m cool with the fact that finances are part of the reasons people are together,” she said.
“Kristi and Brock are idealists, and I love them for that,” she went on. “They believe they should be moving in for love, not financial easement.”
But the idea marriage should only be about love is a pretty new idea, she added.
“Marriage has always been, first of all, a way to create a structure that protects people. It is there to protect the financial unit.”
Two people in a relationship can have vastly different attitudes about money, Guralnik said.
“Some people are frugal and can lean towards the obsessive side,” she said. “Some people do not have any impulse control, and they hate thinking about the future.”
“Any conversation about budgeting or planning is excruciating for them,” she added.
Jamie Grill | Getty Images
To understand their behavior, Guralnik tries to understand what money has come to symbolize for her patients.
“As a psychoanalyst, my general way of approaching things is with the belief that concrete realities are tied to unconscious realities,” she said.
For example, she once had a patient who hoarded money. “We discovered through analysis that, for her, money stood for time,” Guralnik said. “By hoarding money, in her unconscious mind, she was protecting herself against death.”
In other words, she said, “Money is not just money. It stands for something else, as well.”
