Tag: Personal Finance

Rent prices have dropped the most in these 5 U.S. metro areas. Why it’s cheaper to rent in many markets

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Colorful cafe bars at the iconic Beale Street music and entertainment district of downtown Memphis, Tennessee.

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Despite broad hikes in rental prices, competition is easing in some U.S. markets as inventory grows, according to a new report from national real estate brokerage HouseCanary.

At the end of 2022, the median U.S. rent was $2,305, which was nearly 5% higher than a year earlier. But when compared to the end of the first half of 2022, that median rent had declined almost 6%, the report shows.

Although rent prices have cooled in some markets, others have continued to grow, including metro areas along the East Coast and through the industrial Midwest, HouseCanary found.

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5 markets with the largest annual rent increase

These U.S. metropolitan real estate markets had the biggest year-over-year percentage increase in the median monthly single-family rental listing price from the second half of 2021 to the second half of 2022.

1. Indianapolis; Carmel, Indiana; Anderson, Indiana
Median rent at the end of 2021: $1,300
Median rent at the end of 2022: $1,700
Rent increase: 30.8%

2. Charleston, South Carolina; North Charleston, South Carolina
Median rent at the end of 2021: $2,195
Median rent at the end of 2022: $2,750
Rent increase: 25.3%

New Haven, Connecticut

Barry Winiker | Photodisc | Getty Images

3. New Haven, Connecticut; Milford, Connecticut
Median rent at the end of 2021: $2,250
Median rent at the end of 2022: $2,800
Rent increase: 24.4%

4. Naples, Florida; Marco Island, Florida
Median rent at the end of 2021: $5,200
Median rent at the end of 2022: $6,448
Rent increase: 24.0%

5. Pittsburgh
Median rent at the end of 2021: $1,520
Median rent at the end of 2022: $1,872
Rent increase: 23.2%

5 metro areas with the largest annual rent decrease

These U.S. metropolitan real estate markets had the biggest year-over-year percentage decrease in the median monthly single-family rental listing price from the second half of 2021 to the second half of 2022.

1. Memphis, Tennessee
Median rent at the end of 2021: $1,800
Median rent at the end of 2022: $1,695
Rent decrease: -5.8%

2. Port St. Lucie, Florida
Median rent at the end of 2021: $2,800
Median rent at the end of 2022: $2,650
Rent decrease: -5.4%

Cape Coral, Florida

Keita Araki / Eyeem | Eyeem | Getty Images

3. Cape Coral, Florida; Fort Myers, Florida
Median rent at the end of 2021: $4,000
Median rent at the end of 2022: $3,795
Rent decrease: -5.1%

4. Palm Bay, Florida; Melbourne, Florida; Titusville, Florida
Median rent at the end of 2021: $2,300
Median rent at the end of 2022: $2,200
Rent decrease: -4.3%

5. Phoenix; Mesa, Arizona; Chandler, Arizona
Median rent at the end of 2021: $2,350
Median rent at the end of 2022: $2,300
Rent decrease: -2.1%

‘It’s a pretty dramatic shift’ housing experts says

As rent prices ease and mortgage rates rise, it’s become cheaper to rent than buy in many markets.

Renting a three-bedroom home is more affordable than owning a comparable median-priced property in most of the country, according to a recent report from Attom, a real estate data analysis firm.

Similarly, Realtor.com’s December rental report published Thursday found the U.S. median rental price, $1,712, was nearly $800 cheaper than the monthly cost for a starter home.

“It’s a pretty dramatic shift,” said Rick Sharga, executive vice president of market intelligence at Attom, pointing to one year ago when it was cheaper to buy than rent in 60% of the markets Attom analyzed. “You simply can’t overstate the impact that higher financing costs have had on homeownership.”

While mortgage interest rates have recently cooled, rates more than doubled in 2022, which has never happened in one year, according to Freddie Mac. In January 2022, the average 30-year fixed rate mortgage was around 3% before jumping to over 7% in October and November.

Sharga said therate increase made monthly mortgage payments 45% to 50% higher for a home purchase, even as home price appreciation slowed. “That probably is the single biggest factor in creating that shift,” he added.

The decision to rent or buy is ‘always a matter of timing’

While conditions for homebuyers may be somewhat more favorable in 2023, it’s difficult to predict whether the economy is heading for a recession, which may shift financial priorities, experts say.

“One thing to always keep in mind is that markets are constantly changing,” said Keith Gumbinger, vice president of mortgage website HSH. “If you don’t need to be in this marketplace right now, you’re probably better to hold off and watch conditions change.”

Of course, there’s more to homebuying decisions than home prices and mortgage interest rates. “The decision on whether to rent or buy is always a matter of timing,” he said. “And more importantly, it’s a matter of need.”

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January 27, 2023
We’re One Step Closer to the Era of Open Banking. Here’s Everything You Need to Know.

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Opinions expressed by Entrepreneur contributors are their own.

Consumers have become more aware of the security risks their data is exposed to, resulting in tougher privacy regulations that increase business costs and slow innovation. But, with new moves toward open banking on the horizon, there is a better, more secure way to share your data — without the concern that banks will use it for marketing purposes.

Recently, the Consumer Financial Protection Bureau (CFPB) unveiled its plans to activate a dormant authority laid out more than a decade ago in the Dodd-Frank Act. Based on Director Rohit Chopra’s comments, the industry’s assumption that regulators won’t mandate banks to share customer data may not prove true, which could transform the banking industry for good.

Are we entering the open banking era?

On paper, open banking is simple: Create a network where consumers, banks and non-bank financial institutions can securely exchange pertinent data for creating transparency, reducing fraud and improving service delivery. In other words, provide third-party service providers with open access to consumer banking, transaction and other financial data from banks and non-bank financial institutions through the use of application programming interfaces, or APIs. However, with regulatory bodies racing to stay ahead of technology-based privacy concerns over the past decade, many thought open banking was a long way off.

At October’s Money 20/20 conference, Chopra unveiled a process for exercising the CFPB’s authority under Section 1033 of the Dodd-Frank Consumer Financial Protection Act that could lay the foundation for open banking. While specifics have yet to be defined, the rule would obligate financial institutions to share data with consumers upon their request. At the least, this would bolster industry competition by making it easier for consumers to pack up and switch banks for reasons like bad service. It would also take power away from service providers that try to act as gatekeepers, strengthening the competitive advantage of those who provide the best rates, products and customer service.

So, does this mean we’re entering the open banking era? For certain, it means we’re moving one step closer. Even if the CFPB doesn’t mandate data sharing, it will most likely establish standards and guidelines on how to do it. Of course, these processes take time. The CFPB plans to publish a report in the first quarter of 2023 following a public comment period. It will propose rules late next year, and Chopra said that they aim to finalize a rule and begin implementing it sometime in 2024. In other words, official change will not happen overnight, but that doesn’t mean financial institutions can afford to sit and wait.

Related: How Open Banking Can Benefit Small Businesses

It’s already time to leverage consumer data

Supported by droves of startups, certain financial institutions have already begun building the foundation for open banking by utilizing technology like API-based collaboration. Now, consumers can use a non-bank financial app, like a budgeting tool, and connect it to their spending, saving and credit card accounts to reveal insights about their transactions. The banks that support this type of integration recognize it as an opportunity to improve the customer experience and even provide new services. Still, not everyone is on board just yet.

Faced with open banking regulations, financial institutions always have the option to simply comply and do nothing more, like those who have yet to get involved in the voluntary Financial Data Exchange (FDX). It’s a valid choice, but it means staying unaware of what’s happening with customers everywhere else they bank, leading to ecosystem ignorance.

There are other ways to view a financial institution’s role in open banking. Finding ways to share consumer data and leverage other financial institutions’ information will put a business in a far better position for developing competitive offerings, especially as the CFPB moves forward with its plans. We’ll examine each of these different roles next.

Since the industry has already been moving toward standardization independent of regulation, like through the FDX, it’s unlikely any standards established by the CFPB will look dramatically different from the existing specifications. With that in mind, financial institutions have no excuse for not moving forward and getting involved in the innovation that’s already happening, which holds vast opportunities ahead of regulations that may catch some players off guard and vulnerable to increased competition.

Related: How Tech is Shaping the Future of Finance

Everyone can benefit from open banking

The ability to connect financial institutions (FI) and third parties safely and efficiently with well-proven mechanisms is an exciting opportunity, not just for the companies that comprise the ecosystem but for individual and corporate customers. By consuming data instead of just providing it, banks can build an accurate 360-degree view of their customers, helping them recommend the right products, improve service experiences and support users’ financial goals. It allows banks to be more intelligent, creating ecosystem intelligence.

It’s not all about sharing data, either. Sometimes it’s about sharing capabilities through Embedded Finance or Banking as a Service (BaaS) solutions. For instance, banks can allow third parties to initiate transactions from their front end, such as inside an accounting, invoicing or ride-sharing app. In turn, the third-party provider creates a more convenient customer experience while the bank acquires a new client with a substantially lower, if not free, acquisition cost. I call this ecosystem infrastructure.

Taking this a step further and putting everything together, banks can share and consume information from other FIs, fintech and third parties, creating opportunities for business models such as marketplaces and super apps. I like to refer to this ecosystem orchestration, which allows banks to become a one-stop shop for financial services.

Financial institutions that move in this direction while adhering to the emerging open banking standards will be ready to integrate with virtually the entire market while simultaneously solving for immediate use cases. Doing so is a win/win with endless benefits yet to be realized for consumers, corporate clients and financial institutions.

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Leonardo Mattiazzi

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January 25, 2023
Biden administration rolls out a blueprint for a ‘renters bill of rights’ – Here’s what it includes

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Housing rights activists and tenants protest against evictions and the poor condition of their apartments outside the offices the landlord Broadway Capital in Chelsea, Massachusetts on April 25, 2022.

Brian Snyder | Reuters

The Biden administration announced on Wednesday new actions to protect renters across the U.S., including trying to curb practices that prevent people from accessing housing and curtailing exorbitant rent increases in certain properties with government-backed mortgages.

A “Blueprint for a Renters Bill of Rights” was included in the announcement. It lays out a collection of principles for the federal government and other entities to take action on, including “access to safe, quality, accessible and affordable housing” and “clear and fair leases.”

“Having the federal government and the White House talk about the need for and endorse a renters’ bill of rights is really significant,” said Diane Yentel, president and CEO of the National Low Income Housing Coalition.

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Over 44 million households, or roughly 35% the U.S. population, live in rental housing, according to the White House.

While the coronavirus pandemic led to a wave of new renter protections and aid measures, including a historic pot of rental assistance for those who’d fallen behind, most of that help has dried up by now.

Advocates have long called on the government to respond to an affordability crisis facing renters. Nearly half of renter households in the U.S. direct more than 30% of their income to rent and utilities each month, and 900,000 evictions occurred annually prior to the public health crisis.

Possibly curbing ‘egregious rent increases’

As part of Wednesday’s announcement, the Federal Housing Finance Agency and federal mortgage giants Fannie Mae and Freddie Mac say they will look into possibly establishing tenant protections that limit “egregious rent increases” at properties backed by certain federal mortgages.

More than 28% of the national stock of rental units are federally financed, according to a calculation by the Urban Institute in 2020.

Rent protections on such properties “would be the most significant action the federal government could take,” Yentel said.

As part of the White House actions, the Federal Trade Commission said it will look into ways to expand its authority to take action against practices that “unfairly prevent consumers from obtaining and retaining housing.”

The persistence of eviction information on certain background reports, as well as high application fees and security deposits, are some of these practices, Yentel said.

The U.S. Department of Housing and Urban Development also said it will move toward requiring certain rental property owners to provide at least 30 days notice if they plan to terminate the lease of a tenant due to nonpayment of rent. The agency will award $20 million for the Eviction Protection Grant Program, which will fund nonprofits and government agencies to provide legal assistance to low-income tenants at risk of eviction.

Bob Pinnegar, president and CEO of trade group the National Apartment Association, said the industry opposed expanded federal involvement in the landlord-tenant relationship.

“Complex housing policy is a state and local issue and the best solutions utilize carrots over sticks,” Pinnegar said.

‘Aggressive administrative action is so important’

Although the steps announced by the Biden administration are historic, they won’t resolve the U.S. housing crisis, Yentel said.

What’s needed to address the deep issues, she said, is building more affordable housing, creating permanent emergency and universal rental assistance, and establishing robust tenant protections.

However, Yentel added, since it’s “hard to see where the opportunities for those investments will come from this Congress, aggressive administrative action is so important.”

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January 25, 2023
6 cheap stocks that famed value-fund manager Bill Nygren says can help you beat the market

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These are tricky times in the stock market, so it pays to look to the best stock-fund managers for guidance on how to behave now. Veteran value investor Bill Nygren belongs in this camp, because the Oakmark Fund OAKMX he co-manages consistently and substantially outperforms its peers.

That isn’t easy, considering how many fund managers fail to do so. Nygren’s fund beats its Morningstar large-cap value index and category by more than four percentage points annualized over the past three years. It also outperforms at five and…

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January 25, 2023
92% of millennial homebuyers say inflation has impacted their purchase plans, but most are plowing ahead anyway, study shows

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It may come as no surprise that among millennials who have intended to buy a house this year, 92% said in a recent survey that inflation has impacted their goal.

Yet most of them aren’t letting it serve as a roadblock, according to the survey from Real Estate Witch, an education platform owned by real estate data firm Clever.

While 28% of those millennials are delaying their buying plans, the remainder say they’re responding by saving more money for the purchase (59%), spending more than expected (36%), buying a fixer-upper (26%) and buying a smaller home (25%).

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Millennials — who are roughly ages 27 to 42 — are in their prime homebuying years. The typical first-time buyer was age 36 in 2022, up from age 33 in 2021, according to the National Association of Realtors.

Last year, first-time buyers made up 26% of home purchases, compared with 34% in 2021. The combination of year-over-year double-digit price jumps for much of 2022 and rising mortgage rates created an affordability problem for many buyers.

Home prices continue heading down from their highs

However, the situation is gradually improving as home prices continue sliding. The median price for an existing house was $366,900 in December, just 2.3% higher than a year earlier and down from $370,700 in November, according to the Realtors association. Last June, the median price was $416,000 — 13.4% higher than in June 2021.

Additionally, interest rates on mortgages have eased. The average for a 30-year fixed-rate loan is 6.21% as of Jan. 24, according to Mortgage News Daily. That compares with 7.32% in late October. As buyers know, the higher the rate, the more their monthly payment is.

5% or 6% may be the ‘new normal’ for mortgage rates

While it’s impossible to predict where rates will be as the year progresses, experts say buyers shouldn’t wait around for mortgage rates to drop to where they were in 2020 and 2021 — below 3% or not much over it — because it’s unlikely to be seen again anytime soon.

Rates were that low due to emergency actions taken by the Federal Reserve to prop up the economy in the wake of the Covid pandemic hitting the U.S. in 2020.

“Those were unusual circumstances,” said Lawrence Yun, chief economist for the National Association of Realtors.

“Buyers should have the mindset that the new normal is a rate of 5% or 6%,” Yun said.

Houses are still selling quickly

One headwind that buyers may face is limited choices.

As of last month, there was a 2.9-month supply of homes — meaning at the current sales pace, that’s how long it would take to sell all listed houses if no more came on the market. That’s down from 3.3 months in November but up from 1.7 months in December 2021. A balanced market involves a supply of four to five months, according to Redfin.

“There’s not that much inventory in the marketplace,” Yun said.

“Even with the housing slowdown, days on the market are still less than a month,” he said. “That implies that people in the market to buy are finding a listing they want and snatching it up quickly.”

Homes that sit on the market longer may be a buying opportunity

If you’re hoping to find a seller who’s more likely to come down on price, one strategy is to look for homes that have been on the market longer.

“There’s usually a lot of competition for new listings,” he said. “If you find a home that’s been on the market for at least a month or two, it’s a great opportunity … sometimes sellers will take 10% to 15% off the list price.”

Additionally, be aware that while sellers had been less likely to go under contract with a contingency — i.e., making the final sale contingent upon, say, a home inspection — that dynamic has largely changed.

“Waiving the appraisal and waiving of inspections really walked hand in hand with low interest rates,” said Stephen Rinaldi, founder and president of Rinaldi Group, a mortgage broker based near Philadelphia.

Except for in premium areas, in most cases sellers are back to allowing contingencies.

Stephen Rinaldi

founder and president of Rinaldi Group

“Except for in premium areas, in most cases sellers are back to allowing contingencies,” Rinaldi said.

Also, if you’re looking at homes close to a city, it may be worth expanding your search radius, Yun said.

“There are always more affordable houses further out,” he said. “And those homes tend to stay on the market for a longer period.”

An adjustable-rate mortgage may be an option

It may also be worth considering an adjustable-rate mortgage if you’re trying to bring the cost down, Yun said.

With an ARM, the appeal is its lower initial rate compared with a traditional fixed-rate mortgage. That rate is fixed for a set amount of time — say, seven years — and then it adjusts up, down or remains the same, depending on where interest rates are at the time.

“Usually the first home isn’t owned for a long period, usually it’s five or seven or 10 years,” Yun said. “So with that in mind, an ARM might make more sense because it offers a lower rate and by the time it’s set to adjust, it’s time to sell the house.”

While there’s a limit to how much the rate can change, experts recommend making sure you’d be able to afford the maximum rate if faced with it down the road.

You may be able to find an ARM whose introductory rate is at least a percentage point below fixed rates, Rinaldi said.

“I think it’s worth evaluating, depending on the person’s situation,” he said.

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January 25, 2023
Are digital wallets safe? Here’s what to know as the battle between big banks and Apple Pay heats up

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What the war over your wallet means to you

“The pitch for consumers is an easier online checkout experience,” Rossman said. “You won’t need to enter all of your card information because it will already be saved in the system.

“And it will be managed by the banks, which will in theory have better fraud protection than retailers.”

The good news is “they are already a regulated sector,” added Pam Dixon, executive director of the World Privacy Forum, a nonprofit research group, in contrast to the equally popular buy now, pay later programs.

However, “consumers still have to be really careful,” Dixon cautioned. “This is your financial information.”

Digital payments soar in popularity, but are they safe?

During the pandemic, shoppers showed a growing preference for cashless transactions and still do: Peer-to-peer payment apps — known as P2P — such as Zelle and Paypal’s Venmo, which let users store their banking information on their smartphone, have exploded in popularity.

Now, 64% of Americans use peer-to-peer payment apps, although for young adults that jumps to 81%, according to a March 2022 survey by Consumer Reports.

Roughly 40% of the more than 2,000 people polled said they use payment apps at least once a month, while 18% use them at least once a week.

Digital payments are generally more secure than credit card transactions because there’s a biometric component, Rossman said — “this online solution will likely have some sort of two-factor authentication, like a code sent via text message.”

But it is not without risk. Users are vulnerable to fraud or scams or can lose money if they accidentally send a payment to the wrong person, a Consumer Reports analysis found.

And peer-to-peer payments still have varying degrees of consumer protections, which could cause an issue when it comes to getting a refund.

Trying to get money back into your personal account after it’s been transferred to someone else may require more work compared to requesting a refund with a credit card company, which often reverses charges almost immediately and fights on your behalf.

“It’s kind of like getting the toothpaste back in the tube,” Rossman said.

‘Let the buyer beware’

Zelle, in particular, has been the subject of recent criticism. A U.S. Senate report last fall stated that “Zelle is rampant with fraud and theft, and few customers are getting refunded — potentially violating federal laws and consumer rules.”

The Consumer Reports analysis included a call on policymakers to strengthen consumer protections. “There is a lag between the protections available to consumers and the latest technologies for payments,” said Delicia Hand, director of financial fairness for Consumer Reports.

In the meantime, “payment providers can raise the bar for consumer protection by taking more aggressive steps to minimize user risks,” Hand added.

If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.

Pam Dixon

executive director of the World Privacy Forum

Contrary to those findings, “99.9% of the 5 billion transactions processed on the Zelle network in the past five years were sent without any report of fraud or scams,” the American Bankers Association, Bank Policy Institute, Consumer Bankers Association and The Clearing House said in a joint statement.

And in every instance in which a customer disputes a transaction made via Zelle, banks are obligated under federal law to investigate and provide reimbursement if the transaction was unauthorized, the statement said.

For now, Dixon offers consumers this advice: “Let the buyer beware.”

“If you have never used a digital wallet before, make sure you do a couple of test runs and do not send large amounts.”

Also, adjust your privacy setting to minimize the amount of information that companies are collecting, Hand advised.

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January 24, 2023
What to Know Before Adding Someone to Your Bank Account

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Opinions expressed by Entrepreneur contributors are their own.

If you own a small business, then you have a few bank accounts — at least I hope so. Most likely, you have a checking account or two, a few savings accounts and maybe some type of investment accounts as well. Now, when it comes to banking, and if you’re a one-man or one-woman operation, it’s just you on the account. But what about when your company gets bigger and bigger, and you have a difficult time keeping up with what’s happening in your accounts?

This is the point when you need to add people to your accounts to ensure that everything gets paid and there are no overdrafts. Here are some ideas and suggestions that can help you navigate the ins, outs, risks and rewards of having someone on your business bank accounts.

Related: What Should You Look For In A Business Bank Account?

Adding someone to your business bank account

Signer: This is when you add another owner or a high-level employee (obviously one that you trust) to help you get your business banking done on time, every time. For banking purposes, this does not mean that they own the company in any way, they are just a signer on the bank account. They will be able to write checks, make cash withdrawals, order items like stamps, new checks and their own debit cards. They can also get online access, which is often a huge help to so many business owners as this person can help with bill pay, sign up for other online services, call the bank to inquire about fees or charges that they see on the account and any other account info they need. This is a great step if the business is growing and the owner can only do banking about once a week or so, which allows the signer to handle the day-to-day.

Downside? You better trust this person, as they have every right to write any check for any amount they want, even to themselves. They can literally clean you out by making a large cash withdrawal if they wanted to. To get the money back, the bank will not help since you were the one who added them as a signer on the account. You would have to take them to court for that matter. In the end, just be careful.

Related: 4 Best Business Bank Accounts | Entrepreneur Guide

Adding someone to a personal bank account

POA: Having a Power of Attorney added to your bank account can be a big help if you will be, for example, going in for surgery and will be out of commission for a few weeks or months. Or if you plan to travel overseas for a few months. Or for that “just in case” thing that usually happens in life. By designating someone as a POA, they can act on your behalf to ensure that bills are being paid, checks are being written, the mortgage is getting paid, etc.

For this, you’ll need to have the proper documents, which a good attorney can complete for you. Each bank is different in its requirements for a POA, but these papers will always need to be reviewed by the legal department of the bank before anyone can be actually added. Often, the paperwork is incomplete because the account owner is doing the paperwork themselves, so be sure to consult an attorney for this.

One more thing, if the account owner passes away, the POA is immediately null and void. POA is only good for people who are living.

POD: POD (Payable On Death), which is also referred to as a beneficiary for many banks, is also a good thing to have on your accounts. Let’s say you are getting much older or having extreme health issues, and the prognosis is not good, and the doctors are giving you only so much time left to live. It’s a smart thing to add the family member of choice to the bank account.

And here’s why: When you pass away, and you do not have a POD on the account, most times, the bank accounts will go directly to probate court, and your family will wait a long time for the funds and jump through needless hoops. Many people really need the money, too. By having the POD on the account, they can just come to any branch with your death certificate, close the account within a few days to a few weeks and have a cashier’s check issued to them directly.

If not, the funds can go to probate as mentioned, or the check issued will have to be issued to the Estate of “the person who just deceased.” All banks vary in their requirements as do state laws, so speak to your banker about this in detail.

Related: 6 Best Checking Accounts of 2022 | Entrepreneur Guide

Co-owner: This is just as it sounds and is similar to a signer on a business account, but this is for personal accounts, not business. To add a co-owner to the bank account, you must be present in the branch to do so. Adding someone by phone or online is generally never an option. Here is what a co-owner can do when you add them to the account: They can do any transaction they wish on the account, including closing the account. What they cannot do is remove the other owner without them being present. In the world of banking, the phrase is “if you’re getting a divorce, the person who gets to the bank first gets the money.”

Pro tip: There are many ways to add someone to your bank accounts — both business and personal — and there are a lot of benefits as well as a lot of risks involved, so you’d better talk to your banker. While the government makes the regulations that each bank must follow, each bank must decide what they will do to comply with that law and what logistical steps they will take to ensure that they are reducing any risk that comes with adding people to accounts. So, be sure to talk to your banker first to see what steps you need to take to make sure everything is properly conducted.

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John Kyle

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January 24, 2023
With mortgage rates dropping and fee changes in the pipeline, now may be the time to buy that home
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The average rate for a 30-year mortgage dropped to 6.15% last week — the lowest in 18 weeks.

This dip in rates provides welcomed relief for many potential homebuyers who’ve put their dreams on pause thanks to high mortgage interest rates, which have drastically reduced their buying power.

On top of reduced interest rates, the Federal Housing Finance Agency (FHFA) has announced changes to its fee structure beginning May 1, 2023. These changes affect conventional loans and will reduce the cost of a loan for certain borrowers (while increasing it for others).

Plus, according to Redfin, average home prices in the U.S. have continuously dropped, albeit slowly, since hitting their peak in May 2022.

With rates lower than they have been and fee changes coming down the pipeline, it’s a good time to reassess the home-buying plans you may have put on hold and decide if now is the time to act.

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Is now a good time to lock-in your mortgage rate?

If a painfully-high interest rate was the only thing holding you back from signing a mortgage, then you may want to jump on today’s (relatively) low rates. The Federal Reserve has been steadily increasing its benchmark Federal Funds rate and has signaled its intent to continue this pattern until inflation is under control. As long as the Federal Funds rate stays high, so will mortgage rates.

The recent dip in rates represents a significant savings for home buyers. Today’s 30-year mortgage rates are currently 0.93% lower than they were last fall, when rates hit 7.08%. For a $500,000 home loan, a 0.93% lower rate saves you $300+ on your monthly payment and over $110,000 in interest over the life of the loan.

To get the lowest interest rate on your mortgage, however, you’ll want to make sure your credit score is as high as possible. This may be the most-important step you can take when trying to get the best terms on a mortgage.

But before committing to buying a home, you’ll need to save up money for a down payment and closing costs. These upfront costs can easily add up to 10%- 20% of the home’s purchase price. On top of that, it’s a good idea to have money set aside for maintenance, repairs and moving costs. You’ll need to make sure you have enough money saved up before starting your home search.

One way you can reduce some of the upfront costs of buying a home is to compare offers from lenders that don’t charge origination fees. Here are some of the best lenders with no origination fees according to our rankings:

Ally Bank

Annual Percentage Rate (APR)

Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

Types of loans

Conventional loans, HomeReady loan and Jumbo loans

Terms

Credit needed

Minimum down payment

3% if moving forward with a HomeReady loan

Pros

Ally HomeReady loan allows for a slightly smaller downpayment at 3%

Pre-approval in just three minutes

Application submission in as little as 15 minutes

Online support available

Existing Ally customers can receive a discount that gets applied to closing costs

Doesn’t charge lender fees

Cons

Doesn’t offer FHA loans, USDA loans, VA loans or HELOCs

Mortgage loans are not available in Hawaii, Nevada, New Hampshire, or New York

Better.com Mortgage

Annual Percentage Rate (APR)

Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included

Types of loans

Conventional loan, FHA loan, Jumbo loan and adjustable-rate mortgage (ARM)

Terms

Credit needed

Minimum down payment

3.5% if moving forward with an FHA loan

Pros

No application fee, origination fee, or underwriting fee

Pre-approval in as little as three minutes

24/7 support available

Offers options for an adjustable-rate mortgage (ARM)

Promise to match competitor’s loan offer and if they are unable to, they will give you $100

Cons

Doesn’t offer VA loans or USDA loans

Navy Federal Credit Union

Annual Percentage Rate (APR)

Apply online for personalized rates

Types of loans

Conventional loans, VA loans, Military Choice loans, Homebuyers Choice loans, adjustable-rate mortgage

Terms

Credit needed

Not disclosed but lender is flexible

Minimum down payment

0%; 5% for conventional loan option

Pros

0% downpayment for most loan options

flexible repayment terms ranging from 10 years to 30 years

Offers refinancing, second-home financing and loans for investment properties

No PMI required

Fast pre-approval

RealtyPlus program allows applicants to receive up to $9,000 cash back

Cons

Must be a Navy Federal Credit Union member to apply

How will the upcoming fee changes impact me?

The upcoming FHFA fee changes affect conforming conventional loans, which can be sold to Fannie Mae or Freddie Mac by lenders. More niche mortgages, such as jumbo loans, FHA loans and VA loans will not be affected by these changes.

The specific fees that are changing are known as Loan Level Price Adjustments (LLPAs), which are risk-based fees applied to loans. Lenders base these fees on factors such as the borrower’s credit score, the loan-to-value ratio (LTV) and the type of mortgage. In general, you’ll pay more if your credit score is lower or if you’re borrowing a higher percentage of the property’s value (i.e. higher LTV).

The future fee changes will add an additional layer of complexity to a process that already causes heads to spin. For example, the LLPAs for a purchase mortgage will drop for some borrowers with lower credit scores, while borrowers with higher credit scores could be paying more in certain circumstances.

Given the amount of nuance with LLPAs, it’s important to have a conversation with your lender (or multiple lenders) to see how the upcoming changes could affect your home loan. Keep in mind that although the changes apply to loans sold to Fannie Mae or Freddie Mac from May 1, 2023, lenders will begin adjusting their fees well before that deadline.

You can see the current fees here and the upcoming fee structures here.

Bottom line

Mortgage rates have dipped in recent weeks, which can help make your future mortgage payments more affordable. Just be sure to pay attention to the fees, in addition to the rate, when you are comparing mortgage loan offers.

Also, certain fees associated with conventional loans are changing soon, which could save you money or cost you more depending on your situation. So if you’re in the process of buying a home, talk with your lender to figure out how you’ll be affected.

Catch up on Select’s in-depth coverage of personal finance, tech and tools, wellness and more, and follow us on Facebook, Instagram and Twitter to stay up to date.

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.
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January 23, 2023
Why naked short selling has suddenly become a hot topic

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Short selling can be controversial, especially among management teams of companies whose stocks traders are betting that their prices will fall. And a new spike in alleged “naked short selling” among microcap stocks is making several management teams angry enough to threaten legal action:

Taking a long position means buying a stock and holding it, hoping the price will go up.

Shorting, or short selling, is when an investor borrows shares and immediately sells them, hoping he or she can buy them again later at a lower price, return them to the lender and pocket the difference.

Covering is when an investor with a short position buys the stock again to close a short position and return the shares to the lender.

If you take a long position, you might lose all your money. A stock can go to zero if a company goes bankrupt. But a short position is riskier. If the share price rises steadily after an investor has placed a short trade, the investor is sitting on an unrealized capital loss. This is why short selling traditionally has been dominated by professional investors who base this type of trade on heavy research and conviction.

Read: Short sellers are not evil, but they are misunderstood

Brokers require short sellers to qualify for margin accounts. A broker faces credit exposure to an investor if a stock that has been shorted begins to rise instead of going down. Depending on how high the price rises, the broker will demand more collateral from the investor. The investor may eventually have to cover and close the short with a loss, if the stock rises too much.

And that type of activity can lead to a short squeeze if many short sellers are surprised at the same time. A short squeeze can send a share price through the roof temporarily.

Short squeezes helped feed the meme-stock craze of 2021 that sent shares of GameStop Corp.
GME,
+10.45%
and AMC Entertainment Holdings Inc.
AMC,
+2.54%
soaring early in 2021. Some traders communicating through the Reddit WallStreetBets channel and in other social media worked together to try to force short squeezes in stocks of troubled companies that had been heavily shorted. The action sent shares of GameStop soaring from $4.82 at the end of 2020 to a closing high of $86.88 on Jan. 27, 2021, only for the stock to fall to $10.15 on Feb. 19, 2021, as the seesaw action continued for this and other meme stocks.

Naked shorting

Let’s say you were convinced that a company was headed toward financial difficulties or even bankruptcy, but its shares were still trading at a value you considered to be significant. If the shares were highly liquid, you would be able to borrow them through your broker for little or almost no cost, to set up your short trade.

But if many other investors were shorting the stock, there would be fewer shares available for borrowing. Then your broker would charge a higher fee based on supply and demand.

For example, according to data provided by FactSet on Jan. 23, 22.7% of GameStop’s shares available for trading were sold short — a figure that could be up to two weeks out-of-date, according to the financial data provider.

According to Brad Lamensdorf, who co-manages the AdvisorShares Ranger Equity Bear ETF
HDGE,
-2.65%,
the cost of borrowing shares of GameStop on Jan. 23 was an annualized 15.5%. That cost increases a short seller’s risk.

What if you wanted to short a stock that had even heavier short interest than GameStop? Lamensdorf said on Jan. 23 that there were no shares available to borrow for Carvana Co.
CVNA,
+10.63%,
Bed Bath & Beyond Inc.
BBBY,
-12.24%,
Beyond Meat Inc.
BYND,
+11.31%
or Coinbase Global Inc.
COIN,
+1.45%.
If you wanted to short AMC shares, you would pay an annual fee of 85.17% to borrow the shares.

Starting last week, and flowing into this week, management teams at several companies with microcap stocks (with market capitalizations below $100 million) said they were investigating naked short selling — short selling without actually borrowing the shares.

This brings us to three more terms:

A short-locate is a service a short seller requests from a broker. The broker finds shares for the short seller to borrow.

A natural locate is needed to make a “proper” short-sale, according to Moshe Hurwitz, who recently launched Blue Zen Capital Management in Atlanta to specialize in short selling. The broker gives you a price to borrow shares and places the actual shares in your account. You can then short them if you want to.

A nonnatural locate is “when the broker gives you shares they do not have,” according to Hurwitz.

When asked if a nonnatural locate would constitute fraud, Hurwitz said “yes.”

How is naked short selling possible? According to Hurwitz, “it is incumbent on the brokers” to stop placing borrowed shares in customer accounts when supplies of shares are depleted. But he added that some brokers, even in the U.S., lend out the same shares multiple times, because it is lucrative.

“The reason they do it is when it comes time to settle, to deliver, they are banking on the fact that most of those people are day traders, so there would be enough shares to deliver.”

Hurwitz cautioned that the current round of complaints about naked short selling wasn’t unusual and even though short selling activity can push a stock’s price down momentarily, “short sellers are buyers in waiting.” They will eventually buy when they cover their short positions.

“But to really push a stock price down, you need long investors to sell,” he said.

Different action that can appear to be naked shorting

Lamensdorf said the illegal naked shorting that Verb Technology Co.
VERB,
+69.65%,
Genius Group Ltd.
GNS,
+45.37%
and other microcap companies have been recently complaining about might include activity that isn’t illegal.

An investor looking to short a stock for which shares weren’t available to borrow, or for which the cost to borrow shares was too high, might enter into “swap transactions or sophisticated over-the-counter derivative transactions,” to bet against the stock,” he said.

This type of trader would be “pretty sophisticated,” Lamensdorf said. He added that brokers typically have account minimums ranging from $25 million to $50 million for investors making this type of trade. This would mean the trader was likely to be “a decent-sized family office or a fund, with decent liquidity,” he said.

Don’t miss: This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount

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January 23, 2023
These common misconceptions can prevent you from achieving that perfect credit score

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Randy had an 850 credit score. According to FICO, the most popular scoring model, that’s as good as it gets.

Still, a line on his credit report said he could lower his utilization rate, so he promptly paid off the remainder of his car loan with one $6,000 payment, and then his score sank 30 points. (Randy has been a target of identity theft and asked to omit his last name for privacy concerns.)

Most people assume that wiping out those auto payments couldn’t hurt, but that’s a mistake.

More from Personal Finance:
Here’s the best way to pay down high-interest debt
63% of Americans are living paycheck to paycheck
‘Risky behaviors’ are causing credit scores to level off

When it comes to credit scores, there are a few things many borrowers often get wrong, experts say. Here are the top misconceptions and why it’s so hard to set the record straight.

Misconception No. 1: Debt is bad

Your credit score — the three-digit number that determines the interest rate you’ll pay for credit cards, car loans and mortgages — is based on a number of factors but most importantly, it’s a measure of how much you are borrowing and how responsible you are when it comes to making payments.

Having an excellent score doesn’t mean you have zero debt but rather a proven track record of managing a mix of outstanding loans. In fact, consumers with the highest scores owe an average of $150,270, including mortgages, according to a recent LendingTree analysis of 100,000 credit reports.

The borrowers with a credit score of 800 or higher, such as Randy, pay their bills on time, every time, LendingTree found.

To that end, having a four-year auto loan in good standing was working to Randy’s advantage.

“Lenders also want to see that you’ve been responsible for a long time,” said Matt Schulz, LendingTree’s chief credit analyst.

The length of your credit history is another one of the most important factors in a credit score because it gives lenders a better look at your background when it comes to repayments.

Misconception No. 2: All debt is the same

Since Randy had already paid off his mortgage and has no student debt, that auto loan was key to show a diversified mix of accounts.

“Your credit mix should involve more than just having multiple credit cards,” Schulz said. “The ideal credit mix is a blend of installment loans, such as auto loans, student loans and mortgages, with revolving credit, such as bank credit cards.”

“The more different types of loans that you’ve proven you can handle successfully, the better your score will be.”

The total amount of credit and loans you’re using compared to your total credit limit, also known as your utilization rate, is another important aspect of a great credit score.

As a general rule, it’s important to keep revolving debt below 30% of available credit to limit the effect that high balances can have.

Misconception No. 3: You need a perfect score

Only about 1.6% of the 232 million U.S. consumers with a credit score have a perfect 850, according to FICO’s most recent statistics.

Aside from bragging rights, you won’t gain much of an advantage by being in this elite group.

“Typically, lenders do not require individuals to have the highest credit score possible to secure the best loan features,” said Tom Quinn, vice president of FICO Scores. “Instead, they set a high-end cutoff, that is typically in the upper 700’s, where applicants scoring above that cutoff qualify as a good credit score and get the most favorable terms.”

Each lender sets their own credit score thresholds for who they consider the most creditworthy. As long as you fall within these ranges, you are likely to be approved for a loan and qualify for the best rates the issuer has to offer, Schulz added.

“Anything over 800 is gravy,” Schulz said, and “in some cases, the difference between 760 and 800 may not be that significant.”

Most credit card issuers now provide free credit score access to their cardholders, making it easier than ever to check and monitor your score.

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January 23, 2023
This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount
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Most investors want to keep things simple, but digging a bit into details can be lucrative — it can help you match your choices to your objectives.

The JPMorgan Equity Premium Income ETF
JEPI,
+0.20%
has been able to take advantage of rising volatility in the stock market to beat the total return of its benchmark, the S&P 500
SPX,
+1.19%,
while providing a rising stream of monthly income.
The objective of the fund is “to deliver a significant portion of the returns associated with the S&P 500 Index with less volatility,” while paying monthly dividends, according to JPMorgan Asset Management. It does this by maintaining a portfolio of about 100 stocks selected for high quality, value and low price volatility, while also employing a covered-call strategy (described below) to increase income.

This strategy might underperform the index during a bull market, but it is designed to be less volatile while providing high monthly dividends. This might make it easier for you to remain invested through the type of downturn we saw last year.

JEPI was launched on May 20, 2020, and has grown quickly to $18.7 billion in assets under management. Hamilton Reiner, who co-manages the fund with Raffaele Zingone, described the fund’s strategy, and its success during the 2022 bear market and shared thoughts on what may lie ahead.

Outperformance with a smoother ride

First, here’s a chart showing how the fund has performed from when it was established through Jan. 20, against the SPDR S&P 500 ETF Trust
SPY,
+1.20%,
both with dividends reinvested:

JEPI has been less volatile than SPY, which tracks the S&P 500.

FactSet

Total returns for the two funds since May 2020 pretty much match, however, JEPI has been far less volatile than SPY and the S&P 500. Now take a look at a performance comparison for the period of rising interest rates since the end of 2021:

Rising stock-price volatility during 2022 helped JEPI earn more income through its covered call option strategy.

FactSet

Those total returns are after annualized expenses of 0.35% of assets under management for JEPI and 0.09% for SPY. Both funds have had negative returns since the end of 2021, but JEPI has been a much better performer.

““Income is the outcome.””

— Hamilton Reiner

The income component

Which investors JEPI is designed for? “Income is the outcome,” Reiner responded. “We are seeing a lot of people using this as an anchor tenant for income-oriented portfolios.”

The fund quotes a 30-day SEC yield of 11.77%. There are various ways to look at dividend yields for mutual funds or exchange-traded funds and the 30-day yield is meant to be used for comparison. It is based on a fund’s current income distribution profile relative to its price, but the income distributions that investors actually receive will vary.

It turns out that over the past 12 months, JEPI’s monthly distributions have ranged between 38 cents a share and 62 cents a share, with a rising trend over the past six months. The sum of the past 12 distributions has been $5.79 a share, for a distribution yield of 10.53%, based on the ETF’s closing price of $55.01 on Jan. 20.

JEPI invests at least 80% of assets in stocks, mainly selected from those in the S&P 500, while also investing in equity-linked notes to employ a covered call option strategy which enhances income and lowers volatility. Covered calls are described below.

Reiner said that during a typical year, investors in JEPI should expect monthly distributions to come to an annualized yield in the “high single digits.”

He expects that level of income even if we return to the low-interest rate environment that preceded the Federal Reserve’s cycle of rate increases that it started early last year to push down inflation.

JEPI’s approach may be attractive to investors who don’t need the income now. “We also see people using it as a conservative equity approach,” Reiner expects the fund to have 35% less price volatility than the S&P 500.

Getting back to income, Reiner said JEPI was a good alternative even for investors who were willing to take credit risk with high-yield bond funds. Those have higher price volatility than investment-grade bond funds and face a higher risk of losses when bonds default. “But with JEPI you don’t have credit risk or duration risk,” he said.

An example of a high-yield bond fund is the iShares 0-5 Year High Yield Corporate Bond ETF
SHYG,
-0.10%.
It has a 30-day yield of 7.95%.

When discussing JEPI’s stock selection, Reiner said “there is a significant active component to the 90 to 120 names we invest in.” Stock selections are based on recommendations of JPM’s analyst team for those that are “most attractively priced today for the medium to long term,” he said.

Individual stock selections don’t factor in dividend yields.

Covered call strategies and an example of a covered-call trade

JEPI’s high income is an important part of its low-volatility total-return strategy.

A call option is a contract that allows an investor to buy a security at a particular price (called the strike price) until the option expires. A put option is the opposite, allowing the purchaser to sell a security at a specified price until the option expires.

A covered call option is one an investor can write when they already own a security. The strike price is “out of the money,” which means it is higher than the stock’s current price.

Here’s an example of a covered call option provided by Ken Roberts, an investment adviser with Four Star Wealth Management in Reno, Nev.
- You bought shares of 3M Co.
  MMM,
  +1.63%
  on Jan. 20 for $118.75.
- You sold a $130 call option with an expiration date of Jan. 19, 2024.
- The premium for the Jan. 24, $130 call was $7.60 at the time that MMM was selling for $118.75.
- The current dividend yield for MMM is 5.03%.
- “So the maximum gain for this trade before the dividend is $18.85 or 15.87%. Add the divided income and you’ll get 20.90% maximum return,” Roberts wrote in an email exchange on Jan. 20.
If you had made this trade and 3M’s shares didn’t rise above $130 by Jan. 19, 2024, the option would expire and you would be free to write another option. The option alone would provide income equivalent to 6.40% of the Jan. 20 purchase price in the period of a year.

If the stock rose above $130 and the option were exercised, you would have ended up with the maximum gain as described by Roberts. Then you would need to find another stock to invest in. What did you risk? Further upside beyond $130. So you would have written the option only if you had decided you would be willing to part with your shares of MMM for $130.

The bottom line is that the call option strategy lowers volatility with no additional downside risk. The risk is to the upside. If 3M’s shares had doubled in price before the option expired, you would still wind up selling them for $130.

JEPI pursues the covered call options strategy by purchasing equity-linked notes (ELNs) which “combine equity exposure with call options,” Reiner said. The fund invests in ELNs rather than writing its own options, because “unfortunately option premium income is not considered bona fide income. It is considered a gain or a return of capital,” he said.

In other words, the fund’s distributions can be better reflected in its 30-day yield, because option income probably wouldn’t be included.

One obvious question for a fund manager whose portfolio has increased quickly to almost $19 billion is whether or not the fund’s size might make it difficult to manage. Some smaller funds pursuing narrow strategies have been forced to close themselves to new investors. Reiner said JEPI’s 2% weighting limitation for its portfolio of about 100 stocks mitigates size concerns. He also said that “S&P 500 index options are the most liquid equity products in the world,” with over $1 trillion in daily trades.

Summing up the 2022 action, Reiner said “investing is about balance.” The rising level of price volatility increased options premiums. But to further protect investors, he and JEPI co-manager Raffaele Zingone also “gave them more potential upside by selling calls that were a bit further out of the money.”

Don’t miss: These 15 Dividend Aristocrat stocks have been the best income builders
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January 23, 2023
Become a Better Investor in the Stock Market with This Training

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Disclosure: Our goal is to feature products and services that we think you’ll find interesting and useful. If you purchase them, Entrepreneur may get a small share of the revenue from the sale from our commerce partners.

Entrepreneurs often have a lot of money tied up in their businesses, but that doesn’t mean they shouldn’t be on the lookout for good investments. After a volatile 2022, there’s a mixed outlook on the 2023 stock market, which makes now a great time to invest in your financial education. If you want to be a smarter trader in 2023, check out The Complete 2023 Stock Trading & Investing Bundle while it’s on sale.

StackCommerce

This bundle includes 12 courses geared toward investors of all experience levels. If you’re new to investing, you’ll learn the tools you need for fundamental stock analysis so you can analyze a stock in a few minutes to know if a company is worth investing in. You’ll learn the art of value investing, understand how to make better investment choices, and develop a stream of passive income with your stocks. In addition, you’ll be able to evaluate a company’s Price-to-Earnings (P/E) Ratio and other key ratios, develop a repeatable investment process, and learn how successful investors like Warren Buffett operate.

Beyond the basics, there are courses covering technical analysis using candlestick patterns, options and futures trading, Forex trading, swing trading, and more. You’ll learn how to day trade successfully to maximize your profit, manage your trading risk and protect against losses, and learn to formulate robust trading strategies no matter what your investment appetite. By the end of the courses, you’ll have a more comprehensive understanding of how the stock market works and how you can manage your portfolio to maximize your returns and mitigate your risk.

Right now, you can get The Complete 2023 Stock Trading & Investing Bundle on sale for just $39 for a limited time.

Prices subject to change.

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January 21, 2023
EVs Are More Than a Tax Break

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Electric vehicles (EVs) are more popular than ever. In just a few years, they’ve gone from a relative rarity to something you may see daily on your commute. With more charging stations and a wider selection of models available, you may wonder if it’s time to join the trend and buy one.

Due – Due

The most significant talking point in EV economics is electric cars are more expensive upfront, but tax breaks help make up for it. That’s an important thing to consider, but it just scratches the surface of EVs’ benefits, financial or otherwise. Here’s a closer look at all these cars have to offer to help you make the best buying decision.

Financial Benefits of Owning an EV

Cars are expensive, so the first thing you should keep in mind when looking at EVs is their financial advantages. Here are some of the most significant.

Tax Incentives

As you’ve probably heard, you can get tax credits for buying an EV. But how much can you expect to get? That depends on a few factors, but it can be substantial.

If you buy a new EV between 2023 and 2032, you can get up to $7,500 in tax credits. There are some stipulations to consider. The vehicle must undergo final assembly in the U.S., come from a qualified manufacturer, have a suggested retail price of $55,000 or less and meet a few other qualifications. Similarly, you need an income less than $300,000 for married couples filing jointly or $225,000 for heads of household to qualify.

Used EVs and vehicles you bought before 2023 can also get tax breaks. These are generally lower and have different requirements, but they can still help offset the upfront cost.

Reduced Maintenance Costs

A financial benefit of EVs you may be less familiar with is that they carry lower maintenance costs. That may seem odd initially, as most new, expensive things you find today have similar repair costs. That’s technically true with EVs, too, but they need less maintenance overall.

Electric motors have fewer moving parts than gas or diesel engines. As a result, there’s less wear and tear over time and you don’t need oil because there are no pistons to lubricate. Oil changes, belt replacements, spark plug changes and engine tune-ups all become a thing of the past.

EVs still need some maintenance — like tire rotations and brake pad changes — but overall, there’s much less to do. That saves you quite a bit of money. An electric Hyundai Kona costs just $0.079 per mile to maintain, compared to $0.098 for a gas-powered Kona.

Lower Fuel Spending

Driving an EV will also save you money through lower fuel costs. It’s a bit misleading to say EVs eliminate refueling expenses because electricity still costs money, even if you aren’t spending anything at the pump. However, electricity is cheaper than gas or diesel, so you still save in the long run.

While most electricity today comes from fossil fuels like gas, you pay less for it because of the massive scale of energy grids. One study found recharging an EV costs between $3,000 to $10,500 less than refueling a gas car over 15 years. In some states, those savings can reach as high as $14,500.

You also have more control over “refueling” prices with an EV. If you have a home charger, you can charge your car at night when electricity is cheaper, saving you more money. Predicting savings opportunities like that with volatile gas prices is a lot harder.

Savings Opportunities With Other Sustainable Technologies

If you pair an EV with other green technology investments, you could push that electrical spending even lower. Charging your car from the grid is cheaper than refueling, but it can still be costly. However, you can produce your own electricity if you install solar panels in your home, so you don’t have to buy it from the grid.

Like EVs, solar panels have high price tags but come with tax benefits to help pay them off sooner. They also let you generate free electricity. Even if you can’t power your whole home with these panels, you could produce enough energy to charge your car, eliminating recharging costs.

Factoring in solar panels’ ongoing costs, charging a Tesla Model 3 is 51% cheaper on home solar than using the grid. Combine that with the already lower costs of charging over refueling and you’ll find some considerable savings.

Better Values for Buying Used Models

Another way you can save with an EV is to buy a used one. Now that electric cars have been around for a while, you’ll have a better chance of finding one used, which helps avoid new EVs’ high price tags. Old models may not have as impressive of tax breaks, but you can often get a better deal than a used gas car because they depreciate faster.

Old EVs’ lower tax benefits and newer ones’ rapidly growing ranges make used models lose their market value quickly. That may not be great news if you’re selling an EV, but it puts you at an advantage if you’re buying one. Because they depreciate so rapidly, you can get a relatively new EV at a steep discount if you buy it used.

This option can make it easier to fit an EV into your budget. It’s important to leave room for fun and unexpected expenses in your annual budget and getting a deal on a used EV gives you more flexibility to allow that.

State-Specific Benefits

Depending on where you live, you can get some extra economic benefits, too. Some states offer additional tax credits for EVs and Connecticut offers a $38 reduction in registration fees if you drive an EV. Several areas also reduce grid electricity prices during non-peak hours to enable more affordable at-home EV charging.

Some states also offer rebate programs, providing more significant economic breaks apart from tax credits. Others incentivize EV ownership through convenience, like letting you drive in the carpool lane even if you don’t have a passenger if you have an EV. That can save you time, which can save you money on recharging and parking.

Other Benefits of EV Ownership

These economic benefits are just the start of the advantages you can experience from driving an EV. Here’s a look at some of the non-financial upsides to EV ownership.

Sustainability

The most straightforward reason to get an EV apart from economic incentives is their eco-friendliness. Transportation is the largest source of greenhouse gas emissions, accounting for 27% of all emissions in the U.S. By driving an EV instead of a gas or diesel car, you can reduce your part in that trend.

EVs aren’t totally emissions-free because most electricity still comes from fossil fuels. However, they still represent an improvement over gas-powered vehicles and if you use solar or other renewables to charge them, they can get close to zero emissions. Even when you consider production-related emissions, EVs are still more eco-friendly.

If more people drove EVs, the world would substantially reduce its harmful emissions. That’s not the only step the world needs to fight climate change, but it is an important one.

Health Benefits

Similarly, driving an EV can improve public health, too. The same carbon emissions that are bad for the environment are hazardous to your health. Being around gas-powered cars exposes you to things like carbon monoxide, CO2 and other toxins, but EVs don’t have that problem.

According to the American Lung Association, switching to electric transportation would prevent 2.7 million asthma attacks and save 110,000 lives by 2050. That’s all because there would be less air pollution endangering people’s lungs.

Trading your gas car for an electric one would contribute to this improvement in public health. Because you likely spend more time around your car than any other vehicle, it’d also protect your lung health.

Comfort and Performance

You may also find EVs provide a better driving experience. Many electric models today come with features like collision warning, blind spot detection and lane assist. Because EVs as a general category are more tech-centric and future-thinking, they often feature technologies like this that make driving safer and more comfortable.

Electric motors are also far quieter than even the most efficient combustion engines. As a result, you won’t make much noise starting your car in the morning. You’ll also have less ambient noise while driving, making for a more comfortable experience.

Some drivers are surprised to find EVs often perform better than gas-powered cars, too. Because electric drivetrains have fewer moving parts, there’s less power loss, leading to immediate torque delivery and faster acceleration. That’s how some Teslas can go from zero to 60 miles per hour in just two to three seconds — something you’d need a high-end sports car to do with a gas engine.

EVs Have Many Benefits Outside of Tax Savings

The electric vehicle federal tax credit is an enticing benefit, but it’s far from EV’s only one. If you consider your purchasing options and savings opportunities carefully enough, you can experience some massive savings by going electric.

Driving an EV will also help you lower your carbon footprint, improve lung health and have a better driving experience. The next time you’re looking for a new car, consider all these possible benefits to see if an electric one is right for you.

The post EVs Are More Than a Tax Break appeared first on Due.

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January 21, 2023
4 Reasons Your Business Needs Cash Flow Forecasting

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Opinions expressed by Entrepreneur contributors are their own.

You might have heard that the biggest cause of business failures is cash flow issues, but to what extent is the severity of this widespread problem? To put things into perspective, more than 80% of business failures are due to a lack of cash, 20% of small businesses fail within a year, and half fail within five years.

But it doesn’t have to be that way. In fact, many businesses can avoid cash flow problems with proper cash flow forecasting. Cashflow forecasting helps businesses predict when issues may arise and allows them to take action proactively to avoid cash flow gaps.

That said, many businesses already operate at max bandwidth, and cash flow forecasting isn’t on business owners’ minds. It’s usually already too late when business owners are hit with a financial setback and realize they don’t have enough cash to cover it.

Many business owners don’t realize that the scope of benefits that derives from good cash flow forecasting goes light years beyond helping the business plan its operation. If you are still thinking about why you should bother with it, here are a few reasons why you should do cash flow forecasting:

Related: Often-Overlooked Ways Entrepreneurs Can Improve Cash Flow

1. It helps businesses avoid cash flow gaps

This is the most straightforward and important reason why cash flow forecasting is crucial.

Here’s a scenario for you: John’s client promised the payment would be deposited by today, but there has been a mix-up, and the bank said John wouldn’t get the money until next week. John is expected to pay his vendors tomorrow, but without receiving the payment from his client, he doesn’t have enough money to pay. The cycle continues.

This is the reason many businesses fail.

A cash flow forecast helps businesses avoid this very situation. They can use a forecast to project best-case scenarios, worst-case scenarios and everything in between. They can then use that to make prudent decisions about how much money to spend, where to put it, and when to spend it.

If they think there’s a chance cash may not come in the door, the business could decide to put off a big purchase. Or they could talk to vendors and get an extension on payables. Or they could offer customers a discount to pay their bills early. The forecast gives the business the knowledge they need to take action and avoid difficult cash flow situations.

Related: 4 Tips for Managing Cash Flow in a Seasonal Business

2. It helps secure loans

Loans are an important part of running any business. Financing can help a business expand, improve its products and workflows, or cover operational costs in a crunch.

However, obtaining financing is easier said than done, especially for businesses with little assets or no credit history. In this case, lenders look at profitability, expenses and cash flow.

A strong cash flow forecast helps a business prove its creditworthiness to lenders. A business can use its cash flow forecast to show that it deserves a loan and is a good credit risk. Or, if your cash flow forecasting shows otherwise, maybe it’s a good time for you to assess internally and improve your cash flow position before going to a lender for a loan.

3. It helps businesses make better decisions

A cash flow forecast gives a business a glimpse into the future. It helps them view when cash is coming in and going out, so they can better plan for the future and make strategic decisions that align with their budgets.

Let’s say a business is considering hiring additional staff or purchasing new equipment. A business might look into how much money they have right now, thinking they could cover the extra expense. But what if the business lost a major client a week from now? Or what if sales suddenly plummeted due to competition?

These are the kind of things that your account balance can’t tell you and are the exact reasons businesses need cash flow forecasting. By understanding their future cash availability, businesses can make informed decisions about when and how to invest in their growth.

Related: How to Inflation-Proof Your Small Business

4. It helps businesses set measurable goals

Leveraging cash flow forecasts can help businesses set measurable goals to improve cash flow tangibly and determine the path to better business outcomes.

If a best-case scenario forecast says you can potentially grow your business revenue by 50% by improving your operation with a new equipment purchase, you now have a benchmark number.

Or, if you plan on reducing expenses by 20% by cutting out parts of your business operation, cash flow forecasts can help you see the business and revenue impact of cutting out a project and if the financial cost reduction is in line with your decision. You can now set data-driven business goals, know what outcome to expect, and measure success.

That’s two drastically different examples, but no matter what situation your business is in, cash flow forecasting can help a company set measurable goals.

Forecasting for your business is easier than you think

Here’s the thing about cash flow forecasting: It’s not new, but it used to be a challenging, labor-intensive, and time-consuming job that business owners would task their accountants with. The good news is that innovating technology makes cash flow forecasting easier than ever before. New tools now directly integrate with many cloud-accounting platforms that businesses use, making cash flow forecasting faster, more accurate, and sometimes even for free. Start looking for a solution that works with your accounting platform today, and see the wonders it can do for your business.

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Nick Chandi

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January 20, 2023
Getting your credit score above 800 isn’t easy, but it’s ‘definitely attainable,’ says analyst. Here’s how to do it

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Generally speaking, the higher your credit score, the better off you are when it comes to getting a loan.

FICO scores, the most popular scoring model, range from 300 to 850. A “good” score generally is above 670, a “very good” score is over 740 and anything above 800 is considered “exceptional.”

Once you reach that 800 threshold, you’re highly likely to be approved for a loan and can qualify for the lowest interest rate, according to Matt Schulz, LendingTree’s chief credit analyst.

More from Personal Finance:
Here’s the best way to pay down high-interest debt
63% of Americans are living paycheck to paycheck
‘Risky behaviors’ are causing credit scores to level off

There’s no doubt consumers are currently turning to credit cards as they have a harder time keeping up with their expenses and there are a lot of factors at play, he added, including inflation. But exceptional credit is largely based on how well you manage debt and for how long.

Earning an 800-plus credit score isn’t easy, he said, but “it’s definitely attainable.”

Why a high credit score is important

The national average credit score sits at an all-time high of 716, according to a recent report from FICO.

Although that is considered “good,” an “exceptional” score can unlock even better terms, potentially saving thousands of dollars in interest charges.

For example, borrowers with a credit score between 800 and 850 could lock in a 30-year fixed mortgage rate of 6.13%, but it jumps to 6.36% for credit scores between 700 and 750. On a $350,000 loan, paying the higher rate adds up to an extra $19,000, according to data from LendingTree.

4 key factors of an excellent credit score

Here’s a breakdown of four factors that play into your credit score, and ways you can improve that number.

1. On-time payments

The best way to get your credit score over 800 comes down to paying your bills on time every month, even if it is making the minimum payment due. According to LendingTree’s analysis of 100,000 credit reports, 100% of borrowers with a credit score of 800 or higher paid their bills on time, every time.

Prompt payments are the single most important factor, making up roughly 35% of a credit score.

To get there, set up autopay or reminders so you’re never late, Schulz advised.

2. Amounts owed

From mortgages to car payments, having an exceptional score doesn’t mean zero debt but rather a proven track record of managing a mix of outstanding loans. In fact, consumers with the highest scores owe an average of $150,270, including mortgages, LendingTree found.

The total amount of credit and loans you’re using compared to your total credit limit, also known as your utilization rate, is the second most important aspect of a great credit score — accounting for about 30%.

As a general rule, it’s important to keep revolving debt below 30% of available credit to limit the effect that high balances can have. However, the average utilization ratio for those with credit scores of 800 or higher was just 6.1%, according to LendingTree.

“While the best way to improve it is to reduce your debt, you can change the other side of the equation, too, by asking for a higher credit limit,” Schulz said.

3. Credit history

Having a longer credit history also helps boost your score because it gives lenders a better look at your background when it comes to repayments.

The length of your credit history is the third most important factor in a credit score, making up about 15%.

Keeping accounts open and in good standing as well as limiting new credit card inquiries will work to your advantage. “Lenders want to see that you’ve been responsible for a long time,” Schulz said. “I always compare it to a kid borrowing the keys to the car.”

4. Types of accounts and credit activity

Having a diversified mix of accounts but also limiting the number of new accounts you open will further help improve your score, since each make up about 10% of your total.

“Your credit mix should involve more than just having multiple credit cards,” Schulz said. “The ideal credit mix is a blend of installment loans, such as auto loans, student loans and mortgages, with revolving credit, such as bank credit cards.”

“However, it’s very, very important to know that you shouldn’t take out a new loan just to help your credit mix,” he added. “Debt is a really serious thing and should only be taken on as needed.”

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January 19, 2023
3 Reasons Now is the Best Time to Start Investing

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Opinions expressed by Entrepreneur contributors are their own.

Thanks to record-high inflation, geopolitical instability and the first interest rate increases in years, the current market is, simply put, incredibly volatile. Existing investors are making strategic changes to their portfolios, and new investors are unsure if they want in at all. But for those fortunate enough to have disposable funds, is now the right time to get started?

Here are three reasons to wade in — slowly.

1. Time in the market is better than timing the market

Generally, when one starts investing isn’t as impactful as how long one invests. With a long enough time horizon, a well-diversified portfolio, and the power of compounding, portfolio volatility usually smooths out. This has been historically proven repeatedly as it pertains to the stock market.

By contrast, “timing the market” or waiting for stocks to hit a new low or drop from recent highs so that an investor can snag a bargain is risky. Short-term market behavior tends to be unpredictable, with current trends reversing on a dime. Waiting for the “perfect” moment to invest may mean passing up potential gains.

In other words, for many traders in waiting, now is as good a time as any to invest because markets are down. But exceptions may arise for those who need their money soon, as a short-term downturn can wipe out a portfolio overnight. If you are a new investor looking for a long-term “buy and hold” strategy, this is one of the best times to enter the markets and begin investing.

Related: Create More Wealth by Playing the Stock Market

2. Downturns leave more room for growth

Many investors view short-term volatility as a risk that negatively impacts their portfolio. In the short term, this is true: volatility often drags down the total value of one’s investments.

That said, one of the primary ways that the stock market generates returns is when investors buy low and sell high. And what better way to profit off large price differences than buying in when the market swings downward? Forget timing the market — a good strategy for long-term growth is to buy when the market is down.

It may help to view market volatility as a form of bargain hunting. By buying high-quality investments when they go “on sale,” investors can increase their future profit margins when the market recovers. The trick is sorting the junk from the gems.

Related: How To Start Investing

3. The market will perform sooner or later

There’s no guarantee that any individual security will turn a profit. But historically, given enough time and increased economic activity, the stock market always performs — eventually.

That said, the time between a crash and recovery varies widely, and it certainly cannot be forecasted when that will happen. As such, pinpointing how long investors have to wait to realize gains is nearly impossible.

For instance, most stocks took 12 years to recover following the Great Depression. But during the COVID-19 pandemic, many stocks recovered within just four months. This a sobering reminder that there is no way to time bull or bear market cycles and that a market recovery can even mount in some of the worst economic conditions.

Related: Why You Should Invest in Mutual Funds vs. Individual Stocks

Start slowly to establish good habits and “feel out” the market

So, is now the right time to invest? For investors who aren’t on the cusp of retirement, the answer may be yes. Every investor should consider their risk tolerance and time horizon before deciding when and where to invest. Starting slowly can ease new investors into the market without introducing excessive risk.

Novices may also start simply with a dollar-cost averaging method, which involves investing small sums at regular intervals to even out the market’s ups and downs. While it’s not as exciting as day trading, dollar-cost averaging reduces the temptation to time the market and can even lead to more significant gains for investors.

As scary as the current market may seem, competent investing is less about day-to-day developments and more about the future. Be strategic, stay focused, and only risk what you can afford not to touch over the future.

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Kyle Leighton

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January 18, 2023
I ruined my family’s finances by withdrawing from my 401(k) to buy a house – I regret it

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I recently made a panic decision to withdraw all my money from one retirement account and I am now closing on a house in February (about $200,000). I am 36 years old, married and have a 1-year-old. Half of me is regretting it, and I’m worried about next year’s taxes due to the withdrawal and the 10% penalty I paid.

I have been saving up money with my family in order to buy our first home. Recently, however, interest rates have risen, making me worry that this window to get an affordable house was closing. In a fit of panic, I withdrew all of our $26,000 saved money from my 401(k), putting it in a high-yield savings account (3.75%). We have now chosen a home and will be using around $18,000 of this money for the down payment.

I am now worried that I might have to pay income taxes and a penalty for the withdrawal itself. I am extremely anxious over this situation as I feel I have destroyed our family’s financial future and that we cannot afford to pay taxes on the money I withdrew.

My main concern or question is, is there a way to tell the IRS that this money is being used toward a house? Retroactively?

See: I’m a single dad maxing out my retirement accounts and earning $100,000 – how do I make the most of my retirement dollars?

Dear reader,

The first thing you need to do: Take a breath. Most decisions should not be made in a panic, especially when involving money.

Because you withdrew from your 401(k), yes, you will have to pay taxes and a penalty. Had it been a loan, you’d have to pay interest on what you borrowed, but it would be to your own account. Keep in mind however that loans from your employer-based retirement plans are also risky – if you were to separate from your job, for whatever reason, you’d be responsible to pay it back or it would be treated as a distribution.

I understand your sense of urgency in wanting to buy a home during a more favorable market, but your time now should be spent on getting yourself financially situated and saving for the future.

“I wouldn’t advise this or done it this way, but he’s not stuck and it’s not detrimental – it’s just a tough lesson to learn,” said Jordan Benold, a certified financial planner at Benold Financial Planning.

Get very serious about your current finances and find a way to earmark a portion of your income to savings if at all possible. There are a few things you should be doing.

First, assess how much you will be paying in taxes and penalties. I’m not sure what your tax bracket is, but did this distribution push you into a higher tax bracket? You can use a calculator or talk to an accountant to see what that withdrawal will incur in taxes – then make sure you can pay it, or talk to the Internal Revenue Service about an extension. There are penalties for failing to file your taxes or pay them, and you don’t want to add that on top of your stress.

Also see: We have 25 years until retirement and are saving 25% of our income – are we doing it right? And are we saving too much?

The IRS may not be able to do anything for you in terms of waiving those penalties – though it doesn’t hurt to ask, even if you have to wait on the phone for a while to talk to someone – but communication and attention to detail are key when it comes to your taxes. Getting an IRS agent on the phone and talking through your situation won’t be time wasted. There are so many rules, and an agent can help make sense of your options.

Read: The days of IRS forgiveness for RMD mistakes may soon be over

Once you get that sorted, look extremely carefully at whatever money you have coming in and what’s going out. You’re about to close on a home, and that costs money – not just the home itself, but all of the extras associated with closing. You may also need money for insurance, furniture, any repairs and so on if you haven’t factored that in yet, so fit that into your budget for when you sign the papers. Beyond that, list every expense you expect to have for the next 12 months – home insurance and taxes, a mortgage or utilities, groceries, medicine, any other nonnegotiable costs and add it all up. Don’t forget anything – ask your partner if there’s anything you may have forgotten.

Then compare it to your income. Are you under? Are you over? What changes can you make without totally draining your happiness? I always advocate for a balance…yes, in some cases you have to omit a few expenses for the time being when building up an emergency savings account or paying down debt, but don’t completely rob yourself of joy or all of your hard work may backfire. If you really need to buckle down, make a separate list of activities and entertainment you can get for free (or as close to free as possible)—walks in the park or on the beach with your partner and child, museums on free days, pot lucks and at-home movie nights with family and friends and so on.

Want more actionable tips for your retirement savings journey? Read MarketWatch’s “Retirement Hacks” column

Earmark a portion of your income to replenish your retirement savings before you try saving for any other goals. (This is separate from an emergency savings account, however – you should have one of those.) You may do that with payroll deductions in your 401(k), or also by allocating some of your savings to an IRA outside of the 401(k).

Take some time to learn the rules of your retirement plans. For example, an IRA allows an investor to take $10,000 out of the account penalty-free if it’s for a first-time home purchase (whereas a 401(k) does not have that exception). It may be too late for that, but there are other perks with various retirement accounts.

The 401(k) has a higher contribution limit and also comes with the possibility of employer matches (if your company offers it), whereas an IRA allows for penalty-free withdrawals for college. With a traditional IRA, you’d have to pay taxes on the withdrawal, whereas with a Roth IRA you’ve already paid the taxes and won’t have to pay any more for withdrawing from your contributions (you may have to pay taxes on the earnings portion, so follow distribution rules closely).

Remember – you don’t want to make distributions from your retirement savings for just anything. You can borrow money for a home or college, but you can’t borrow money for retirement, so it’s important to protect those accounts. Familiarize yourself with the pros and cons of all accounts so that you can maximize your savings and diversify your withdrawal options when you finally get to retirement.

So just buckle down, get yourself in order and think of the future. “He’s got plenty of time – 30 to 40 years to work,” Benold said. “This might be a distant memory that he hopes he can forget.”

Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com

Readers: Do you have suggestions for this reader? Add them in the comments below.

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January 17, 2023

10 simple investments that can turn your portfolio into an income dynamo

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Many people are good at saving up money for retirement. They manage expenses and build up their nest eggs steadily. But when it comes time to begin drawing income from an investment portfolio, they might feel overwhelmed with so many choices.

Some income-seeking investors might want to dig deeply into individual bonds or dividend stocks. But others will want to keep things simple. One of the easiest ways to begin switching to an income focus is to use exchange-traded funds. Below are examples of income-oriented exchange-traded funds (ETFs) with related definitions further down.

First, the inverse relationship

Before looking at income-producing ETFs, there is one concept we will have to get out of the way — the relationship between interest rates and bond prices.

Stocks represent ownership units in companies. Bonds are debt instruments. A government, company or other entity borrows money from investors and issues bonds that mature on a certain date, when the issuer redeems them for the face amount. Most bonds issued in the U.S. have fixed interest rates and pay interest every six months.

Investors can sell their bonds to other investors at any time. But if interest rates in the market have changed, the market value of the bonds will move in the opposite direction. Last year, when interest rates rose, the value of bonds declined, so that their yields would match the interest rates of newly issued bonds of the same credit quality.

It was difficult to watch bond values decline last year, but investors who didn’t sell their bonds continued to receive their interest. The same could be said for stocks. The benchmark S&P 500
SPX,
-0.20%
fell 19.4% during 2022, with 72% of its stocks declining. But few companies cut dividends, just as few companies defaulted on their bond payments.

One retired couple that I know saw their income-oriented brokerage account value decline by about 20% last year, but their investment income increased — not only did the dividend income continue to flow, they were able to invest a bit more because their income exceeded their expenses. They “bought more income.”

The longer the maturity of a bond, the greater its price volatility. Depending on the economic environment, you might find that a shorter-term bond portfolio offers a “sweet spot” factoring in price volatility and income.

And here’s a silver lining — if you are thinking of switching your portfolio to an income orientation now, the decline in bond prices means yields are much more attractive than they were a year ago. The same can be said for many stocks’ dividend yields.

Downside protection

What lies ahead for interest rates? With the Federal Reserve continuing its efforts to fight inflation, interest rates may continue to rise through 2023. This can put more pressure on bond and stock prices.

Ken Roberts, an investment adviser with Four Star Wealth Management in Reno, Nev., emphasizes the “downside protection” provided by dividend income in his discussions with clients.

“Diversification is the best risk-management tool there is,” he said during an interview. He also advised novice investors — even those seeking income rather than growth — to consider total returns, which combine the income and price appreciation over the long term.

An ETF that holds bonds is designed to provide income in a steady stream. Some pay dividends quarterly and some pay monthly. An ETF that holds dividend-paying stocks is also an income vehicle; it may pay dividends that are lower than bond-fund payouts and it will also take greater risk of stock-market price fluctuation. But investors taking this approach are hoping for higher total returns over the long term as the stock market rises.

“With an ETF, your funds are diversified. And when the market goes through periods of volatility, you continue to enjoy the income, even if your principal balance declines temporarily,” Roberts said.

If you sell your investments into a declining market, you know you will lose money — that is, you will sell for less than your investments were worth previously. If you are enjoying a stream of income from your portfolio, it might be easier for you to wait through a down market. If we look back over the past 20 calendar years — arbitrary periods — the S&P 500 increased during 15 of those years. But its average annual price increase was 9.1% and its average annual total return, with dividends reinvested, was 9.8%, according to FactSet.

Also see: When can I sell my I-bonds? Are I-bonds taxed? Answers to your questions about Series I bonds.

In any given year, there can be tremendous price swings. For example, during 2020, the early phase of the Covid-19 pandemic pushed the S&P 500 down 31% through March 23, but the index ended the year with a 16% gain.

Two ETFs with broad approaches to dividend stocks

Invesco Head of Factor and Core Strategies Nick Kalivas believes investors should “explore higher-yielding stocks as a way to generate income and hedge against inflation.”

He cautioned during an interview that selecting a stock based only on a high dividend yield could place an investor in “a dividend trap.” That is, a high yield might indicate that professional investors in the stock market believe a company might be forced to cut its dividend. The stock price has probably already declined, to send the dividend yield down further. And if the company cuts the dividend, the shares will probably fall even further.

Here are two ways Invesco filters broad groups of stocks to those with higher yields and some degree of safety:

The Invesco S&P 500 High Dividend Low Volatility ETF
SPHD,
-0.33%
holds shares of 50 companies with high dividend yields that have also shown low price volatility over the previous 12 months. The portfolio is weighted toward the highest-yielding stocks that meet the criteria, with limits on exposure to individual stocks or sectors. It is reconstituted twice a year in January and July. Its 30-day SEC yield is 4.92%.
The Invesco High Yield Equity Dividend Achievers ETF
PEY,
-0.70%
follows a different screening approach for quality. It begins with the components of the Nasdaq Composite Index
COMP,
+1.39%,
then narrows the list to 50 companies that have raised dividend payouts for at least 10 consecutive years, whose stocks have the highest dividend yields. It excludes real-estate investment trusts and is weighted toward higher-yielding stocks meeting the criteria. Its 30-day yield is 4.08%.

The 30-day yields give you an idea of how much income to expect. Both of these ETFs pay monthly. Now see how they performed in 2022, compared with the S&P 500 and the Nasdaq, all with dividends reinvested:

Both ETFs had positive returns during 2022, when rising interest rates pressured the broad indexes.

8 more ETFs for income (and some for growth too)

A mutual fund is a pooling of many investors’ money to pursue a particular goal or set of goals. You can buy or sell shares of most mutual funds once a day, at the market close. An ETF can be bought or sold at any time during stock-market trading hours. ETFs can have lower expenses than mutual funds, especially ETFs that are passively managed to track indexes.

You should learn about the expenses before making a purchase. If you are working with an investment adviser, ask about fees — depending on the relationship between the adviser and a fund manager, you might get a discount on combined fees. You should also discuss volatility risk with your adviser, to establish a comfort level and to try to match your income investment choices to your risk tolerance.

Here are eight more ETFs designed to provide income or a combination of income and growth:

Company	Ticker	30-day SEC yield	Concentration	2022 total return
iShares iBoxx $ Investment Grade Corporate Bond ETF	LQD, -0.36%	4.98%	Corporate bonds with investment-grade ratings.	-17.9%
iShares iBoxx $ High Yield Corporate Bond ETF	HYG, -0.34%	7.96%	Corporate bonds with lower credit ratings.	-11.0%
iShares 0-5 Year High Yield Corporate Bond ETF	SHYG, -0.26%	8.02%	Similar to HYG but with shorter maturities for lower price volatility.	-4.7%
SPDR Nuveen Municipal Bond ETF	MBND, +0.04%	2.94%	Investment-grade municipal bonds for income exempt from federal taxes.	-8.6%
GraniteShares HIPS US High Income ETF	HIPS, +0.82%	9.08%	An aggressive equity income approach that includes REITs, business development companies and pipeline partnerships.	-13.5%
JPMorgan Equity Premium Income ETF	JEPI, -0.25%	11.77%	A covered-call strategy with equity-linked notes for extra income.	-3.5%
Amplify CWP Enhanced Dividend Income ETF	DIVO, -0.55%	1.82%	Bue chip dividend stocks with some covered-call writing to enhance income.	-1.5%
First Trust Institutional Preferred Securities & Income ETF	FPEI, +0.05%	5.62%	Preferred stocks, mainly in the financial sector	-8.2%
Sources: Issuer websites (for 30-day yields), FactSet

Click the tickers for more about each ETF.

Read: Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

Definitions

The following definitions can help you gain a better understanding of how the ETFs listed above work:

30-day SEC yield — A standardized calculation that factors in a fund’s income and expenses. For most funds, this yield gives a good indication of how much income a new investor can be expected to receive on an annualized basis. But the 30-day yields don’t always tell the whole story. For example, a covered-call ETF with a low 30-day yield may be making regular dividend distributions (quarterly or monthly) that are considerably higher, since the 30-day yield can exclude covered-call option income. See the issuer’s website for more information about any ETF that may be of interest.

Taxable-equivalent yield — A taxable yield that would compare with interest earned from municipal bonds that are exempt from federal income taxes. Leaving state or local income taxes aside, you can calculate the taxable-equivalent yield by dividing your tax exempt yield by 1 less your highest graduated federal income tax bracket.

Bond ratings — Grades for credit risk, as determined by ratings agencies. Bonds are generally considered Investment-grade if they are rated BBB- or higher by Standard & Poor’s and Fitch, and Baa3 or higher by Moody’s. Fidelity breaks down the credit agencies’ ratings hierarchy. Bonds with below-investment-grade ratings have higher risk of default and higher interest rates than investment-grade bonds. They are known as high-yield or “junk” bonds.

Call option — A contract that allows an investor to buy a security at a particular price (called the strike price) until the option expires. A put option is the opposite, allowing the purchaser to sell a security at a specified price until the option expires.

Covered call option — A call option an investor writes when they already own a security. The strategy is used by stock investors to increase income and provide some downside protection.

Preferred stock — A stock issued with a stated dividend yield. This type of stock has preference in the event a company is liquidated. Unlike common shareholders, preferred shareholders don’t have voting rights.

These articles dig deeper into the types of securities mentioned above and related definitions:

Don’t miss: These 15 Dividend Aristocrat stocks have been the best income builders

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January 17, 2023

Federal student loan office has lots to do but no new money to do it | CNN Politics

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Washington
CNN
—

Big headaches for student loan borrowers could be on the horizon.

Their monthly payments could restart as early as this summer after a three-year pause. And the federal office that oversees the student loan system is operating under the same budget as last year – which could complicate any efforts to make sure the repayment process goes smoothly, as well as the office’s plans to overhaul the system.

When Congress passed the government’s annual budget in December, the Federal Student Aid office got about $800 million less than what the Biden administration had asked for. After granting steady increases in previous years, lawmakers left funding for the office’s operations flat at about $2 billion.

Republican lawmakers touted how Congress provided no new funding to help implement President Joe Biden’s controversial student loan forgiveness plan – which is currently tied up in the courts. If the Supreme Court allows the forgiveness program to move forward, it would also be a huge lift for the Federal Student Aid office.

“I think it’s particularly unfortunate for borrowers that the political fight over loan forgiveness has resulted in flat funding this year,” said Jonathan Fansmith, assistant vice president of government relations at the American Council on Education, an advocacy group for colleges and universities.

“Wherever the cracks start to show, borrowers are going to be impacted,” Fansmith added.

The Federal Student Aid office, which has about 1,400 employees and provides about $112 billion in grant, work-study and loan funds annually, has a lot on its plate.

The office oversees the $1.6 trillion federal student loan portfolio but has also taken on additional work to revamp the federal student aid application form, known as the FAFSA, and to overhaul some federal student loan programs. Last week, it announced a plan to start making significant changes to its income-driven repayment program this year.

“I think certainly a number of their priorities will either not get done on the timeline that they had originally hoped for, or not get done at all,” said Michele Shepard, senior director of college affordability at The Institute for College Access and Success, an advocacy group.

But the Department of Education says it can still meet the timelines it has set.

“The several hundred-million-dollar shortfall will of course have an impact on these important bipartisan priorities, but we will continue to do everything we can with the available resources to better serve students and protect taxpayer dollars,” the department said in a statement sent to CNN.

Still, that means the Federal Student Aid office would be doing more work with less money. Here are some of the tasks it is expected to tackle this year:

Federal student loan borrowers have not had to make any payments since March 2020, thanks to a pandemic-related pause that has been extended by both the Trump and Biden administrations several times.

Most recently, Biden extended the pause after his student loan forgiveness program was halted by federal courts. The administration had told borrowers debt relief would be granted before payments restarted.

The payment pause will now last until 60 days after litigation over Biden’s student loan forgiveness program is resolved. If the program has not been implemented and the litigation has not been resolved by June 30, payments will resume 60 days after that.

Bringing roughly 44 million borrowers back into repayment at one time is an unprecedented task. Many people may be confused about how much they owe, when to pay and how. Missing payments can result in monetary fees.

The government contracts with several outside organizations, such as MOHELA and Nelnet, to handle servicing the federal student loans. But it’s up to the Federal Student Aid office to communicate with the servicers about when payments restart and how.

“To be kind, the quality of student loan servicing has not been stellar,” Fansmith said.

“If you multiply all of these issues, even if small, by 44 million borrowers, it’s a massive national problem,” he added.

In late February, the Supreme Court will hear arguments in two cases concerning Biden’s student loan forgiveness program, which could deliver up to $20,000 of debt relief for millions of low- and middle-income borrowers.

A decision on whether the program is legal and can move forward is expected by June. Until then, it is on hold and no debt will be discharged under the program.

Biden’s student loan forgiveness program has faced several legal challenges since the president announced it in August. The Department of Education had received about 26 million applications for debt relief by the time a federal district court judge struck down the program on November 10.

The legal back-and-forth has created confusion for borrowers around the status of the program. Adding to the uncertainty, about 9 million people received an email from the Department of Education in the fall that mistakenly said their application for student loan forgiveness had been approved.

The Biden administration has plans to overhaul some of its student loan repayment programs and the Federal Student Aid office is charged with rolling those out.

In July, the Department of Education plans to implement permanent changes to the Public Service Loan Forgiveness program to make it easier for government and nonprofit workers to qualify for debt relief after making 10 years of payments. The program has long been plagued with loan servicing problems.

Big changes to the department’s income-driven repayment plans are also in the works, aimed at reducing monthly debt burdens as well as the total amount borrowers pay over the lifetime of their loans.

The new regulations are expected to cap payments at 5% of a borrower’s discretionary income, down from 10% that is offered under most current income-driven plans. As a result, single borrowers making less than $30,600 per year would not need to make any payments under the proposal, up from the current $24,000 threshold.

The changes would also forgive remaining balances after 10 years of repayment, instead of 20 or 25 years, as well as cover the borrower’s unpaid monthly interest.

The Department of Education said last week that it expects to start implementing some of these provisions later this year.

Each year, as part of its normal work, the Federal Student Aid office processes millions of FAFSA applications from students. Generally, the form is released in October for the following academic year.

Every college student needs to fill out the FAFSA in order to qualify for federal student loans, grants and work-study aid. But it has long been criticized as too long and complicated.

Congress passed a law in 2021 that simplifies the FAFSA form, and the Federal Student Aid office has been working on implementing the changes – which financial aid experts hope will be done before October this year.

The office was supposed to have had the changes already done, but the effective date was pushed back by a year.

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January 16, 2023
Preparing Finances for a Recession
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With many economists predicting a recession sometime soon, it’s wise to start preparing just in case. There are numerous ways to improve your financial situation regardless of your income level. Here’s how to get started, plus tips on what not to do during an economic slump.

Due – Due

The Predicted Recession

There’s growing talk of an economic downturn. With inflation gathering steam and the Fed predicted to push up interest rates in response, the first half of 2023 will likely bring a recession. Many factors are compounding the issue, including:
- Rising food prices due to embargos on Russian wheat, wheat fields in Ukraine being burned and Ukrainian wheat harvests being stolen or destroyed.
- Pandemic supply chain issues.
- Billions of people spend more money than usual after quarantine, such as by going on vacation or getting married.
- Increased energy prices due to Russian oil sanctions.
It’s essential to keep in mind that even if a recession happens, it may still be very mild or short-lived.

Tips for Preparing for a Recession

Whether or not the predicted recession materializes, it’s still a good idea to get your finances in order as soon as possible. That way, you’ll be even more prepared for the next economic downturn.

Create an Emergency Reserve

If you have car trouble, you need to visit the dentist, or your home has a water leak, can you pay for it without breaking the bank? Unexpected bills are a part of life, so it’s essential to prepare for them even during prosperous times. Having a solid emergency fund is critical during a recession.

Aim to start a fund that covers three to six months of minimal living expenses — that is, don’t budget for things like going out to eat or taking a vacation. If you’re retired, you’d do well to save for at least one to two years’ worth of expenses.

These emergency funds shouldn’t be tied up in real estate or an investment account. You should be able to draw from them immediately if you lose your job or face an unexpected rent hike. Other than paying off debts, prioritize building your emergency fund above all else.

You can start by putting just a few dollars a day into your account. Setting aside even $3 a day means that in one year, you’ll have saved $1,095, which can be immensely helpful if you get an unexpected bill. Consider what minor expenses you could eliminate — such as a streaming subscription or smoking habit — to save thousands of dollars in the long run.

Automate Your Savings

The easiest way to start saving money is to do it automatically. Set up an automatic transfer with your bank or employer to make regular deposits into a savings account. If you have any recurring bills, use autopay to cover them. This will reduce your financial stress, ensure your bills are paid on time and slowly build up your savings account.

Reduce Debt

Interest rates tend to increase during a recession. If your credit card has a variable rate — meaning the interest rate can change based on factors beyond your control — it’s vital to pay off the card as soon as possible. You could save hundreds or even thousands of dollars in potential interest by paying it off before the recession starts. This should be your number one priority during an economic downturn.

Put off Larger Purchases

Sometimes, making a large payment is unavoidable. If your car is beyond saving, but you live miles from any public transportation, you may have no choice but to buy another vehicle.

But don’t make large purchases unless absolutely necessary — now is the time to save as much as you can. If you lose your job, interest rates go up, or your cost of living increases substantially, you’ll want to have a large nest egg set aside.

Consider Sticking With Your Job

It’s true that many people are quitting their jobs right now. When polled, 45% of American employees said they would consider leaving their job if they got a better offer. This phenomenon even has a name — the Great Resignation.

It’s understandable if you’re tempted to look for better job opportunities, but recessions are a notoriously tricky time to be out of work. Many employers are forced to lay off workers and go on hiring freezes, meaning that if you put in your two weeks’ notice before a recession, it could be a while before you find another job.

Rather than looking for a higher-paying job, upskill yourself so you can earn more at your current place of employment. This also bolsters your chances of staying employed even if your company starts laying people off. If you do need to quit, have a solid backup plan in place. You should ideally have another job lined up before jumping ship.

Get a Side Gig

These days, it’s incredibly common to have a second job. Put in an hour or two per week mowing yards or selling art. If you can, get a side gig you can do alongside your main job, such as dog sitting or house sitting while you work on your laptop. That way, you can earn a little more without putting in too many extra hours.

Share Your Living Space

With rent prices soaring, it’s no wonder that as of 2021, over half of all Americans aged 18–24 lived with their parents. Others cut costs by sharing their home with roommates, a spouse, or an unmarried partner. Consider staying where you are if you already have a shared living situation. If you have an empty room in your house, you may even be able to rent it out to make some extra income.

Hold Onto Your Investments

If you have investments, you may feel rising anxiety as your portfolio shows falling prices. But remember — these losses are only theoretical until you withdraw your money, a principle called locking in your losses. Don’t let your emotions guide your financial decisions.

It’s common for the market to have some of its best days right after its worst days, so fight the urge to sell during a bear market. You want to invest for decades, holding steady even as your investments rise and fall in value over time. You’re statistically more likely to make a profit the longer you wait to sell.

Consider shifting your investments into sectors like energy, health care, and consumer goods, which people will always buy regardless of their financial situation. These are solid investments during a recession. Or, switch your assets from stocks to bonds.

Bonds are an excellent choice for people looking for a fixed income. Every year, you’re guaranteed to gain a small amount of interest on the bond, which adds up slowly over time. This offers a safe return on your investment, even if the return is much smaller than what you’d get by buying stocks. Bonds aren’t subject to plummeting in value during a recession like stocks are.

Keep Investing if You Can

Taking on additional debt or making big purchases during a recession is not advisable. However, keep investing if you’re financially privileged enough to do so. Whether you have a Roth IRA, brokerage account, or 401k, stick to your plan and keep depositing money into your account. You’re more likely to avoid losses the longer you stay in the market.

Don’t Co-Sign on a Loan

A recession isn’t the best time to co-sign on a loan, meaning you’re signing up to be someone’s backup in case they fall through on their payments. Although co-signing can help a friend or family member with a poor credit history, you’re ultimately responsible for the debt if they can’t pay it off. That’s a risky move during an economic downturn. Instead, give someone cash or a personal loan if you want to help them financially.

Stay Calm

Remember that recessions are a regular, temporary part of the economic cycle and the economy always bounces back even stronger afterward. You’ve already been through multiple recessions in your lifetime. In the US, the average post-war recession only lasts 10 months, while expansion periods last almost five years.

So, don’t fall prey to fear, uncertainty, and doubt. You don’t need to constantly watch the news or read every doomsday article predicting another Great Depression. It’s possible to stay informed without fixating on the worst outcomes, and it’s possible to be prepared without being anxious. Protect your mental health during a recession by reminding yourself economic slumps are usually short-lived.

Weathering Any Storm

Recessions are a part of life. The good news is experts know how they work, so there are reliable ways to prepare for and get through them unscathed. Your best bet is to create an emergency savings account, hold on tight to your investments, reduce your debt and wait to make large purchases until after the recession ends.

Above all, keep a clear head and do your best not to make any irrational financial decisions. Things will be back to normal before you know it.

The post Preparing Finances for a Recession appeared first on Due.
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Devin Partida

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January 16, 2023

Tag: Personal Finance

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Definitions

The Predicted Recession

Tips for Preparing for a Recession

Create an Emergency Reserve

Automate Your Savings

Reduce Debt

Put off Larger Purchases

Consider Sticking With Your Job

Get a Side Gig

Share Your Living Space

Hold Onto Your Investments

Keep Investing if You Can

Don’t Co-Sign on a Loan

Stay Calm