Top 10 Robo-Advisors – Put Your Money On Autopilot

Top 10 Robo-Advisors

Barely in existence for 10 years, robo-advisors have taken the investment universe by storm. Dozens of different robo-advisors are now handling investment management for millions of investors across the country. We put together our list of the top 10 robo-advisors, to help you choose one that might work for you.

But before you jump in, we’ve put together a shortlist of the top 3 robo-advisors – and we’ve let you know who they’re perfect for.

Try our Best Robo Advisor Questionnaire

If you don’t want to go through the hassle of comparing the features and specifications of each and every robo advisor to find the perfect one that suits your needs, try our questionnaire. It’ll take about 30 seconds, and we’ll recommend the perfect robo advisor for you.

Top 3 Shortlist of the Best Robo-Advisors

Our Top 3 Robo AdvisorsBest For
BettermentNew investors with a low starting balance
Personal CapitalExperienced investors looking to take the next step
M1 FinanceInvestors looking for a robo advisor, but with a human touch

Full List of the Top 10 Robo-Advisors

Betterment1. Betterment

Betterment is the largest independent robo-advisor, and the one that’s been setting the standard for all others. Though they have a bottom line fee of 0.15%, it’s available only on accounts over $2 million. So expect to pay 0.25%, but that’s on the lower end of the robo-advisor fee range. They’ve recently been upgrading live contact with advisors, moving the platform away from a purely automated one.

  • Fees: Digital: 0.15 to 0.25%; Premium: 0.30% to 0.40%.
  • Minimum initial investment: Digital: $0; Premium: $100,000.
  • Available accounts: Taxable individual & joint; traditional, Roth, rollover, & SEP IRAs; trusts & non-profits.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: Yes + premium packages available.
  • Investments included: Low cost ETFs in US & foreign stocks and bonds.
  • Tax-loss harvesting: Yes.

Personal Capital2. Personal Capital Wealth Management

Personal Capital Wealth Management operates as a robo-advisor, but it might be better to say it’s a low cost, automated investment management service. They offer the services you’ll typically find with traditional human driven investment management services, but at much lower rates. Though their rates are higher than other robo-advisors, the service level is a cut higher, and worth the extra fee.

They also offer a free personal finance software that also provides some investment guidance, so there’s really something on this platform for everyone.

  • Fees: 0.49% to 0.89% – the higher fee applies to accounts under $1 million.
  • Minimum initial investment: $100,000.
  • Available accounts: Taxable individual & joint; traditional, Roth, rollover IRAs; trusts.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: Yes, including a personal financial advisor.
  • Investments included: Low cost ETFs invested in US and foreign stocks and bonds as well as alternatives.
  • Tax-loss harvesting: Yes.

M1 Finance3. M1 Finance

M1 Finance is something of a hybrid between do-it-yourself investing and a robo-advisor. The DIY part is that you choose your own investments. You do this by creating mini-portfolios, called “Pies”. Each can be dedicated to any investment theme of your choosing.

But the robo-advisor part comes in where M1 manages the portfolios you create. It’s perfect for the self-directed investor who doesn’t want to handle the day-to-day management of their portfolios.

  • Fees: $0. Some miscellaneous fees – read more here.
  • Minimum initial investment: $0. There is a $100 minimum account size for taxable accounts and a $500 minimum for retirement accounts.
  • Available accounts: Taxable individual & joint; traditional, Roth, rollover, & SEP IRAs; trusts.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: No.
  • Investments included: Create your own investment portfolios, using ETFs and stocks.
  • Tax-loss harvesting: No.

Wealthfront4. Wealthfront

Wealthfront has been aggressively innovative in recent years. Not only do they offer funds that invest directly in stocks for larger investors, but they’ve also added a portfolio line of credit to the mix. It’s for accounts with over $100,000, but it comes with very low interest rates. Meanwhile, this robo-advisor may take the prize as the best at investment tax minimization.

  • Fees: 0.25%.
  • Minimum initial investment: $500.
  • Available accounts: Taxable individual & joint; traditional, Roth, rollover, & SEP IRAs; 529, trusts & non-profits.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: No.
  • Investments included: Low cost ETFs in US & foreign stocks and bonds; real estate investment trust (REIT); natural resources; mostly individual stocks on larger portfolios.
  • Tax-loss harvesting: Yes.

Charles Schwab5. Schwab Intelligent Portfolios

Schwab Intelligent Portfolios is the robo-advisor for Charles Schwab. Its two leading features are that there is no fee to use the service, and they add REITs to the mix of stocks and bonds. One consistent criticism against this robo-advisor, however, is that it holds a fairly large cash position in most accounts, creating “cash drag” (uninvested funds).

  • Fees: $0.
  • Minimum initial investment: $5,000.
  • Available accounts: Taxable individual & joint; traditional, Roth, rollover, SIMPLE & SEP IRAs; custodial, trusts.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: No.
  • Investments included: Low cost ETFs invested in US and foreign stocks and bonds, US and foreign REITs.
  • Tax-loss harvesting: Yes.

Validea6. Validea Legends

Validea Legends is a different kind of robo-advisor in that they don’t simply attempt to match the performance of the general markets, but to outperform them. They do this by investing in stocks based on stock picks by well-known Wall Street “gurus”, like Peter Lynch and Warren Buffett. But they also use what they call “equity rotation” to reduce stock exposure in bear markets. The attempt is to outperform the market on the way up, and on the way down.

They also offer two different basic accounts, Legends Advisor, which is primarily a growth fund, and Legends Income, which is also focused on growth, but primarily on income.

  • Fees: 0.25% for the Advisor plan; 0.50% for the Income plan.
  • Minimum initial investment: $25,000.
  • Available accounts: Taxable individual and joint; traditional, Roth, rollover and SEP IRAs; trusts and other accounts.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: Unlimited access to investment consultants.
  • Investments included: Low cost ETFs Invested in US in foreign stocks and bonds, shares of Berkshire Hathaway A; gold, commodities, REITs and private equity.
  • Tax-loss harvesting: No.

Merrill Edge7. Merrill Edge Guided Investing (MEGI)

Merrill Edge Guided Investing is the rob-advisor for Merrill Edge, and it’s another platform that attempts to outperform the market, rather than just matching it. They use a mix of proprietary software with human guided investment strategies. But they also employ what they refer to as tactical strategic shifts, in which management will re-adjust your portfolio based on shifts in the financial markets.

  • Fees: 0.45%.
  • Minimum initial investment: $5,000.
  • Available accounts: Taxable individual and joint; traditional, Roth, rollover, SIMPLE and SEP IRAs; Solo 401(k), custodial and 529 plans.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: No.
  • Investments included: Low cost ETFs invested in US and foreign stocks and bonds as well as alternatives.
  • Tax-loss harvesting: No.

Wealthsimple8. Wealthsimple

Wealthsimple works like most other robo-advisors, but it also offers an option for socially responsible investing, as well as a Halal Portfolio, that invests consistent with Islamic principles (no debt securities since interest is prohibited under Islamic laws). The fee is a bit higher than other robo-advisors, but the investing is also more specialized.

  • Fees: 0.50%, with the first $5,000 managed free.
  • Minimum initial investment: $0.
  • Available accounts: Taxable individual and joint; traditional, Roth, rollover, and SEP IRAs; trusts.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: Yes, including consultation with a Certified Financial Planner.
  • Investments included: Low cost ETFs invested in US and foreign stocks and bonds.
  • Tax-loss harvesting: Yes.

Ellevest9. Ellevest

Ellevest is a robo-advisor designed for women. In fact, their motto is Invest Like a Woman. It’s hoped that the platform will help women achieve their financial goals. They differ in their investment strategy in that they recognize poor market scenarios, as well as the real world impact of taxes, fees, and inflation.

They also use a goals-based strategy, in which you can establish goals for retirement, emergencies, or even the down payment on a home.

  • Fees: Digital: 0.25%; Premium 0.50%.
  • Minimum initial investment: $0.
  • Available accounts: Taxable accounts, plus traditional and Roth IRAs.
  • Portfolio rebalancing: Yes.
  • Access to human advisors: Yes.
  • Investments included: Low cost ETFs invested in US and foreign stocks and bonds, and US and foreign REITs.
  • Tax-loss harvesting: No.

Motif10. Motif

Motif might be the most unique robo-advisor of all. They enable you to create your own mini portfolios, called motifs. Each motif is theme-based. For example, you might create one based on renewable energy, and another based on clean waste disposal. Each motif consists of 30 securities, which can include ETFs or individual stocks.

  • Fees:$9.95 to buy or sell a motif; $4.95 to trade a stock or ETF within a motif, but they do offer flat monthly fees of $4.95 to $19.95.
  • Minimum initial investment: $250.
  • Available accounts: Taxable accounts, plus traditional and Roth IRAs.
  • Portfolio rebalancing: No.
  • Access to human advisors: No.
  • Investments included: Stocks and ETFs invested in US and foreign stocks and bonds, as well as real estate and commodities stocks.
  • Tax-loss harvesting: No.

What is a Robo-advisor, and Who Are they Good For?

Robo-advisors are automated investment platforms that handle all aspects of investment management for you. That includes creating a portfolio, rebalancing it periodically to maintain the target allocations, and reinvesting dividends.

They start by asking you a list of questions, generally between six and 10, that are designed to determine your investment goals, time horizon, and investment risk tolerance. Based on your answers, your portfolio can be conservative, aggressive, or somewhere in between.

Robo-advisors are managed based on Modern Portfolio Theory (MPT), which is an investment strategy that emphasizes asset allocation over individual security selection.

Overall, robo-advisors offer investors – particularly new and small investors – professional investment management at a very low cost.

What to Look for in a Robo-advisor

Since most robo-advisors operate in similar fashion, deciding which one to go with really comes down to the details.

The first consideration is the investment methodology. They all invest in a mix of stocks and bonds, but you might prefer a robo-advisor that seeks to outperform the market, invests in specialized areas, like socially responsible investing, or enables you to have some control over the investments in your portfolio.

Other factors include fees, minimum initial investment, the types of accounts available, access to human advisors, or the availability of tax loss harvesting (to minimize your tax liability in taxable accounts).

You may also be very interested in the investment composition a platform offers. For example, you may prefer to have alternative investments, like real estate, gold, or other commodities included. And there are robo-advisors that provide those alternatives.

Robo-advisor vs. Traditional Investment Advisor

Robo-advisors do essentially what traditional investment advisors do, but with several significant differences:

  • Lower fees. Traditional investment advisors charge between 1% and 3% of your portfolio each year. Robo-advisors typically charge between 0.25% and 0.50%.
  • Portfolio size. Traditional investment advisors typically require a minimum investment of $100,000, and many want $500,000 or more. You can usually start a robo-advisor account with anywhere from zero to $5,000.
  • Financial advice. With traditional investment managers, one or more advisors are appointed to manage your portfolio. With robo-advisors, portfolio management is automated. Robo-advisors are adding additional human contact, but it’s still generally less than what you will get from traditional investment managers.

Traditional investment managers are primarily for high net worth individuals, who are looking for close personal investment attention. However, since the two services do essentially the same job, some high net worth individuals are now switching over to robo-advisors. After all, just 1% per year variance in fees can make a major difference in the size of your portfolio in 20 or 30 years.

Robo-advisor vs. DIY Investing

Robo-advisors and do-it-yourself (DIY) investing are direct opposites. As a DIY investor, your preference is to choose and manage your own investments. With a robo-advisor, you’re looking for all your investment activities to be managed by the platform.

And while it does stack up as an either-or-choice, you could also mix the two. For example, you can maintain a DIY portfolio, while also having a portion of your portfolio managed by a robo-advisor. It can give you the best of both worlds.

Final Thoughts on the Top 10 Robo-Advisors

In ranking these robo-advisors from one to 10, we’re simply expressing our opinion of which we think are the best for the majority of investors. But robo-advisors now come in so many different flavors that you can choose the one that best matches your investment personality.

For example, you can choose a totally automated robo-adviser, or one that offers a generous amount of human assistance. Or you can choose a platform that invests in areas of the economy that are near and dear to your heart. At least one robo-advisor on this list will work perfectly for you.

How To Build Credit

How To Build Credit

Credit reports are merely a record of your transaction history with no analysis. A credit score is similar to a cumulative GPA at college. It’s a collection of numbers that analyzes your performance relative to other individuals, assigning you a specific grade.

Your credit score is one of the most critical numbers in your life. Its importance is no less than a bank account balance or social security number. Creditors and mortgage lenders will assess your credit score and accept or decline your application based on the score and accompanying report.

The article below explains how credit scores are calculated, how to maintain a good credit score, and how to avoid a bad credit score. Let’s first start with understanding exactly what your credit score is.

Understanding Your Credit Score

How To Build Credit

A credit score helps lenders decide on the terms of a loan and whether the individual’s financial history indicates timely payments. Your personal credit score is derived from your credit history. Credit scores typically range from 300 to 850. Three leading companies compile credit scores of different borrowers: Equifax, Experian, and TransUnion.

A good credit score is essential for financial stability, as it indicates the ability of an individual to pay off their obligations. A higher credit score indicates less financial risk. There are two broad categories of credit scores: generic and custom.

Generic credit scores are used by most lenders and companies to determine financial risk. Custom credit scores, on the other hand, are tailored for a specific type of lenders. Auto and mortgage lenders are two examples of users that may require custom credit scores.

Credit scores are three-digit numbers. The lower end of the spectrum, 300, indicates the lowest score, while 850 is the highest score achievable.

Different models of calculating a credit score may use a different range. However, a higher score is always an indicator of financial stability and creditworthiness.

Here are some breakdowns of each credit score range:

  • 750 to 850: Excellent
  • 700 to 749: Good
  • 650 to 699: Fair
  • 550 to 649: Poor
  • 350 to 549: Bad

Credit Score Averages

A higher score indicates a substantial likelihood of managing and paying off previous credit promptly. It’s an indicator of timely payments and well-managed balances.

A lower score denotes poor handling of prior credit. It also indicates things like high credit card borrowing, taking on more than you can handle, missed or late payments, and even the possibility of foreclosure.

A low credit score makes it harder to get access to loans and credit cards. Even if you are approved, the interest rates offered are much higher.

How Credit Scores Are Calculated

How Credit Scores Are Calculated

FICO is the most commonly used measure by lenders to determine the creditworthiness of loan applicants. Developed by the credit bureau FICO, this score uses five components to arrive at the final credit score.

 Credit Score Factors

Payment history (35%)

Payment history looks at the timely payment of your credit accounts and whether they were consistent enough. It considers any bankruptcies, collections, and neglect. These problems, the time taken to resolve the issues, and the period since they last took place all contribute towards the final calculation.

Amount owed (30%)

The second most significant factor in your credit score is the amount you have borrowed relative to what you can borrow. Credit scoring methodologies identify borrowers who are a financial risk. Such borrowers spend up to or beyond their credit limit. Lenders see the optimal credit utilization as at or below 20%. Credit utilization is an indicator of credit expressed as a percentage of credit available. Massive debt from various sources also hurts this calculation; thus, lowering your score.

Length of credit history (15%)

The longer a borrower has had credit with timely payments, the more financially stable they appear. For instance, a person with a credit account for 20 years with no late payments will have a higher score assigned as compared to a person who has had credit for 2 years with timely payments.

Types of credit accounts (10%)

Having a mix of different credit accounts, such as a mortgage loan and a business loan, is a good indicator for this factor.

New credit (10%)

When borrowers apply for loans too frequently, it is an indicator of financial instability. It implies that each time you apply for credit, it affects your score.

Common Myths About Your Credit Score

Common Myths About Your Credit Score

Your credit score only analyzes information within the credit report and doesn’t include or consider additional data that some lenders may require. Credit score doesn’t consider factors such as length of employment and salary.

Your current job and income have no direct impact on your credit score. A credit score usually doesn’t include employment status.

But your employment status and salary do affect your credit score, as you still have to pay off any credit you may have. Applications for credit approval do require income and job status.

People might be led to believe that closing a credit card account will improve the score. In reality, it is quite the opposite where closing the card usually leads to an adverse effect on your score.

Most credit scoring formulations consider credit utilization. By closing an unused line of credit, you are diminishing the credit available to you. This increases the credit utilization, and lenders prefer lower percentages of this ratio.

In all honesty, I don’t believe in “credit repair companies.” Bad credit scores can only be repaired through measures taken on an individual level.

Credit reestablishing services may come up with a feasible plan to manage your debts better, but the right way of improving your credit score is to manage your credit well.

Understanding Your Credit Report

Understanding Your Credit Report

Your credit report is an accumulation of your credit transactions. It’s information that lenders who give credit to you provide to credit reporting agencies.

he information within the credit report is used to compile and calculate an individual’s credit score. Your credit report contains information on the type of credit utilized by you, the timeline of different loans, and whether you have been prompt in your payments.

It shows lending agencies how much credit an individual has used and if they are looking for new sources to acquire credit. A credit report gives a more comprehensive view on credit history than other transactional sources such as banking reports.

Credit Report

There are three leading credit reporting agencies: Equifax, TransUnion, and Experian. These companies provide credit reports to different sources such as lenders, creditors, insurers, and various other businesses authorized to view the credit report under the law.

The process starts when an applicant applies for a new source of credit (like a mortgage). The lender then requests a credit report from either one or multiple credit agencies.

The lender analyzes your credit report in junction with other factors such as credit score, income, and other data provided by the applicant. Based on this evaluation, the lender approves or rejects the application and sets up the timeline and interest rate (if accepted).

Once an application is approved, it will be included in the credit report as a new source of credit and will be updated every month. Credit lending agencies such as banks, financial institutions, and credit card providers send monthly updates to the credit reporting companies.

Breaking Down the Credit Report

Credit reports mostly comprise of 6 sections:

Personal information

The identification part on the credit report generally includes name, social security number, birth date, address, and phone number.

Employer history

This is included in the personal information part and acts as an identity guarantee.

Consumer Statements

This section lists any statements you have provided to the credit agency. For example, if you requested to change any information within the report and it was not changed, then your consumer statements will convey your reservation about the information and explain your viewpoint.

Account information

This section mostly contains banking account statuses and details. Open accounts, closed accounts, payment timelines, credit utilization, current account, savings account, and loan payments are all examples of information you can expect to see in this section. Timely payment of bills and rent are also present in this section. Late payments hurt credit reports for up to 7 years before removal.

Public records

Your history as a citizen is included in this section. Cases, judgments, and arrests are all included in this section including bankruptcies, foreclosures, and repossessions of your car or assets.

Inquiries

Hard inquiries can hurt your credit score and credit report. They occur when a lending agency checks details of your credit history, and you must provide authorization. It can also happen when someone requests for a line of credit using your name. Unauthorized hard inquiries are an indicator of someone using your identity for credit.

How to Get Your Credit Report

A credit report is one of the most important documents relating to your finances. It’s vital to check your credit report at least annually to make sustainable financial decisions.

The Fair and Accurate Credit Transactions Act (FACTA) established in 2003 has granted individuals access to get a free credit report. FACTA entitles you to receive one free copy of your credit report from the major nationwide credit reporting bureaus: Experian, Equifax, and TransUnion.

Any person with some awareness of such matters should take advantage of the FACTA to view their credit report and analyze their credit history at least annually.

There are three ways to get the free credit report annually, as specified by the FACTA:

  1. First, you can get it online through annualcreditreport.com
  2. You can get it via telephone
  3. You can also have it mailed via a request form

There are alternate ways for you to receive a free credit report as well. Several sites offer a free credit report, and they do not require you to pay as they make money from advertising. Registration and receiving a report is free on these following websites:

Besides the free annual report you are entitled to, certain conditions make it possible to obtain a free credit report. These requirements and circumstances are as followed.

  • An application for credit was denied based on your credit report. Such applications include credit cards, insurance, and mortgage applications. From the date of the denial, you have 60 days to request a free copy of the credit report. The lending agency generally includes the contact details of the credit agency that provided them with the credit report.
  • You received state welfare.
  • You are unemployed and intend on applying for a position within 2 months (60 days).
  • Your credit report contains inaccurate information due to potential identity theft.

Removing Negative Items

Upon viewing your credit report, you will notice a part devoted to negative items. These unfavorable items tick off potential lenders and might be the basis for a loan rejection or higher interest rate payments.

Such things include, but are not limited to, unpaid bills, late payments, and outstanding debt.

Common negative items in the report are:

  • Collections Accounts: Taken down seven years after the initial neglect
  • Delayed Payments: Taken down seven years after the initial late payment
  • Bankruptcy: Taken down seven to ten years

It’s vital that you pay whatever credit you have borrowed.

However, there are strategies you can deploy to remove negative items off your credit report.

Searching for Errors and Disputing Them

Do your due diligence on your credit report and make sure there are no mistakes within the negative section.

Such mistakes include accounts you are not aware of (possibly due to identity theft), negative items past their drop-off period, personal information error, and accounts closed off but still listed as unpaid.

After the discovery of an error, the first step to be taken is to notify the creditor. They are required by law to investigate the negative item and respond back within a month.

If they agree with your statement and realize the error, they notify the three main credit bureaus to fix your report.

If your dispute doesn’t reach a desirable outcome, then an individual can request their dispute statement to be included in future credit reports.

Negative Items That Are Not Errors

Sometimes, you have to make ends meet and might not be able to pay a bill or it went late for some reason. For late payments, you can write a goodwill letter.  A goodwill letter is sent to lenders requesting them to remove a negative item from your credit report.

Creditors do not have to remove correct information from your credit report unless it is inaccurate. If an individual has been timely with their payments and the late payments are just one-off instances, then some lenders do remove negative information such as a late payment.

They do this by not updating it in their monthly credit report sent to the credit bureaus. This is only the case when your credit history is rated as good, and the incident was isolated.

How to Reduce High Credit Utilization

There are often mixed views on how much credit utilization is optimal for a good score. Some say its 20% while others say it is below 30%. However, if you are above this range, there are strategies you can deploy to reduce your utilization rate for a better credit report and a better credit score.

Pay down debt

A combination of paying more than the minimum each month and reducing outstanding credit card balance could do wonder for your credit. Even small additional payments on your credit cards through the course of a month can increase debt payoff and keep your credit utilization ratio in check.

Reduce your spending

If you are struggling to pay off partial or full payment on your credit cards, it would be wise to stop using them for buying more things. Switching to a debit card or cash would be a better option. Otherwise, your credit card debt won’t budge, leaving you with a high credit utilization rate.

Increasing the credit limit

By increasing the amount of credit available to use, you can effectively lower the credit utilization rate. You can raise the limit of your current credit cards by putting in a request. Certain factors credit card issuers look at before increasing your limit. These include how long you have been their card holder and late payment history.

Unused cards should not be closed

One way of reducing the desire to spend is by closing any unused cards as it’s a line of credit available to you. However, doing so reduces the credit available to you and actually increases your credit utilization rate.

Using personal loans to pay off credit card debt

Taking out a personal loan to pay off credit card debt can be advantageous. Assimilating different credit card balances into one loan leads to a reduced interest rate. Also, it is easier to pay off a lump sum amount owed to a single creditor rather than paying off multiple credit card balances.

Disputing with Credit Bureaus

Checking your credit report for errors, negative items, and discrepancies is something everyone should do at least annually. It can significantly affect your ability to get credit and the cost of that credit.

The Fair Credit Billing Act (FCBA) authorizes consumers to dispute any information they believe is inaccurate or erroneous.

The three major credit bureaus have to act on any request sent to them and have 30 days to certify the information with the lender, bank or collection agency. They are obligated by the law to do this and provide results to the person contesting the dispute.

You can even dispute a legitimate account because the creditor must certify and prove your ownership of the account. Otherwise, the credit reporting companies must remove it. If the credit bureau suspects that you are disputing accurate items on purpose, the dispute will be marked as such.

There are several ways through which you can file for a dispute with the credit bureau.

You can do it by mail, phone or online and can deal directly with this credit reporting agency. If this disputed item doesn’t get removed, there is a 4-month cool-down period after which you can dispute it again.

What Is a Personal Statement?

Credit bureaus allow for the inclusion of a 100-word personal statement that will enable you to provide any additional information concerning the items on your credit report.

The statement can be regarding any part of your credit report. Following listed are examples of why people commonly write statements.

Clarifying a bankruptcy filing

If you can explain your bankruptcy reason to let lenders know about your situation, it may improve the prospects of obtaining a loan or a credit line. Unexpected tragedies such as going through a tumultuous divorce or a significant medical issue may help in clarifying your situation.

Clarifying inaccurate information

Oversights and mistakes in your credit report not being updated can be clarified and explained from your perspective.

Clarifying a dispute

If you are currently in the process of removing any unauthorized hard inquiries or credit access resulting from identity theft, you can mention you are working towards having it removed.

Specifying a negative item

If you have late payments or missed bills on your report, you can try to clarify the scenario, although it won’t affect your score.

A note to mention is personal statements in your credit report not bringing benefits of any kind usually. Many lenders do not take the time out to read them or might use a computer program to analyze your credit report.

Tips for Building Excellent Credit

Tips on Building Excellent Credit

Bad credit history could deprive you of many opportunities in life such as your first home, education funding or even getting a job. It’s therefore essential you build and maintain good credit from the get-go. Listed below are tips that can help you build good credit.

Bite Off Only As Much as You Can Chew

People often confuse spending on a credit card with having spent their own money. This is a fast way of ending up with a lot of debt. The most optimal way of building good credit is to use only your credit cards for what you can pay off.

This habit is not just good for your personal credit report and score, it also relays to potential lenders you are a disciplined borrower. This will improve your chances of getting a loan and future financing on better terms and interest rates. It also keeps excessive spending and debt at bay.

Use Only the Credit You Have

Utilizing your credit cards to their max or close to their maximum limit affects your credit utilization rate and creates a bad credit report and score.

This is especially true if you don’t plan on or have the means to pay off outstanding credit card debt within a month. Credit lenders know users who max out their cards have trouble paying back what they owe.

Use a Single Card

The feeling of spending what doesn’t belong to you encourages first-time users to assimilate different credit cards. The more cards you have, the more debt you have to keep track off and pay off.

Hard inquiries are common for people applying for too many cards. Several inquiries in a specific time frame, with new cards, can hurt your score. Credit inquiries account for 10% of your credit score so remember that before applying for a new card too early.

Pay Off Your Outstanding Balance in Full

By charging only what you can afford to pay, you also ensure that you can meet your payments in full each month.

Paying off what you owe each month diligently proves you are financially stable and disciplined. A large part of your credit score also consists of timely payments of the bill. So you are laying the foundation of a good credit score.

Pay All Your Bills on Time

All bills and payments are not part of your credit report, but late payments can wind up on the credit report. If you neglect any payment and the credit account is sent to a third party for collection, it is counted as delinquency and poses as a negative on the credit report.

How to Maintain Credit Once It’s There

How to Maintain Credit Once It’s There

There are many advantages of maintaining a good credit score such as better terms for loans and mortgages. Using credit wisely and managing it responsibly is the key to maintaining a good credit score.

Knowing the Stuff That Effects Your Credit Score

Knowledge is power. This adage holds true for credit scores. If you know the components that make up your credit score, then you can maintain a good score from the start.

Punctual Payment of All Bills

This holds true for all bills and not just credit card dues or loans. Some bills are not on the credit report for being paid on time. However, they do wind up there if you are late or miss a payment.

Limiting New Credit Lines

Hard inquiries into a new application for credit, such as credit card or personal loans, affect your credit score.

Avoiding Major Credit Pitfalls

Avoiding Major Credit Pitfalls

Every credit step you take from getting your first credit card will determine whether you fall in the category of bad credit or good credit. Simple choices can help an individual avoid the lousy credit road.

Think Twice Before Spending

Every new expense is an opportunity cost forgone and could have been used to pay off outstanding debt. We often spend on things we don’t even need. When you are making ends meet and are stacked up high in debt, it would be wise to cut out expenditures on wants and focus only on the necessities.

Staying out of the Debt Cycle

When revenue is tight, and the expenses are piling up, using a credit card might be tempting and alluring. But don’t make that mistake. Using a credit card to pay off expenses you cannot afford is a sign you cannot make payment within the month. You will then incur interest expense on your credit card debt which will leave you in a worse off scenario.

Taking on Excessive Debt

Level of debt is the second largest component used in calculating the credit score. The level of debt impacts your ability to pay off what you owe. Identify and stop before gathering too much debt. Not only would it affect your punctuality, but could lead to foreclosures and repossessions if non-payment occurs.

Summary

Whew. Well, there you have it. How to build credit.

We went through the entire history and makeup of your credit, and even gave you some tips on how to fix problems, build good credit, and keep it there.

The question for you is – what will you do to as your first actionable step now that you’ve read this whole article?

Top 7 Free Online Tax Filing Software of 2019

Top Free Online Tax Filing Software

We’ve identified seven of the most popular online tax filing software we consider to be the best on the market. Each has a free version for basic returns, and premium options for more complex tax situations.

Each software enables you to prepare and e-file your Federal income tax return free. You can also print and save copies, also for free.

There’s one other point we need to make about this list. It’s an evaluation of what we believe to be the best free online tax filing software. That means we’re judging each software based first and foremost on the strength of its free version. Premium editions and services are a secondary consideration only.

Put another way, if this guide was created to detail what we believe to be the best tax filing software overall, it would look completely different.

Before we dive into it, we want to give you a shortlist of our top 3 best free online tax filing software, and who they’re perfect for.

Top 3 Shortlist of the Best Free Online Tax Filing Software

Tax Filing SoftwareBest For
FreeTaxUSAThe filer looking for the most comprehensive free tax software
TurboTaxThe filer who might need some premium services, but at a low cost
H&R BlockThe filer that might need a helping human hand through the process

The Top 7 Free Online Tax Filing Software

FreeTaxUSA1. FreeTaxUSA

FreeTaxUSA takes the top spot on our list because it offers virtually any type of return free for federal tax preparation. That includes the most complicated returns. There is a deluxe version, but it contains only minor upgrades. The free version will give you exactly what you need.

Free version offered for: FreeTaxUSA’s free version is the most comprehensive available. You can use the free version to prepare all levels of returns, including business income, investments, rental real estate, as well as itemized deductions and nearly all tax credits.

Cost of state tax returns: $12.95.
Customer support: Live chat.
Import prior year return from competitor: By PDF from TurboTax, H&R Block and TaxAct.
Refund tracking: Yes.
Audit assistance: Free assistance, but no direct representation.
Premium plans and costs: The Deluxe plan adds Audit Assist, live chat with priority support, and unlimited amended returns. $6.95, plus $12.95 per state.
Other features: The Free version can prepare any type of tax return, not just the most basic ones.

Turbotax2. TurboTax

TurboTax is the best known and most widely used tax software. It has a plan for every taxpayer, from the simplest to the most complicated. It takes our #2 spot primarily on the strength of its premium services. TurboTax is the best tax software overall for the most complicated tax situations.

Free version offered for: 1040EZ and 1040A. Income must be W2 and interest only, and not more than $100,000. Cannot be used to itemize deductions.
Cost of state tax returns: $29.99, but $39.99 on premium plans.
Customer support: 24/7 live support.
Import prior year return from competitor: Yes, by PDF.
Refund tracking: Yes.
Audit assistance: Free guidance; direct representation is $44.99.
Premium plans and costs: Three plans:

  • TurboTax Deluxe – for form 1040, including income over $100,000 and itemized deductions. $59.99, plus $39.99 per state.
  • TurboTax Premier – for investment income and rental properties. $79.99, plus $39.99 per state.
  • TurboTax Self-Employed – for small business owners. $119.99, plus $39.99 per state.

Other features: Import W2 information from thousands of employers, or use smartphone photo capture.

TurboTax Business is available for partnerships, C and S corporations, LLCs, trusts and estates. $169.99.

TurboTax Live lets you access direct help from a CPA or enrolled agent to review or even complete your return. $60 to $90 add-on fee.

H&RBlock3. H&R Block

H&R Block is another well known tax software, but it has the advantage that you can get support from any one of thousands of local offices. It rates the #3 spot on our list because it’s second only to TurboTax in preparing complicated returns, but its plans are priced lower. It also has excellent customer support, in case you think you might need a human touch guiding you through the process.

Free version offered for: 1040EZ and 1040A. Income must be W2 or Social Security.
Cost of state tax returns: $29.99, but $39.99 on premium plans.
Customer support: Live chat and phone.
Import prior year return from competitor: Yes, by drag-and-drop. But free version does not allow import of prior year H&R Block return.
Refund tracking: Yes.
Audit assistance: Free in-person audit support, but not representation.
Premium plans and costs: Three plans:

  • Deluxe – itemized deductions. $49.99, plus $39.99 per state.
  • Premium – simple self-employed (Sch C-EZ), retirement, investments, and rental real estate. $69.99, plus $39.99 per state.
  • Self-Employed – small business income. $94.99, plus $39.99 per state.

Other features: Smartphone photo capture of W2. Unlimited technical support by phone and expert tax advice by chat on premium plans. Your return can be completed at a local office for an additional fee.

TaxSlayer4. TaxSlayer

TaxSlayer is another tax software offering premium plans at low rates. It makes #4 on our list because the free version is also free for state filing, but also because its premium plans are about half the price of the competition.

Free version offered for: 1040EZ, but your state return is also free with this version.
Cost of state tax returns: Free on the free version. $29 on premium versions.
Customer support: Phone and email.
Import prior year return from competitor: By PDF.
Refund tracking: Yes.
Audit assistance: Free assistance (but not direct representation) with Premium and Self-Employed versions.
Premium plans and costs: Three plans:

  • Classic – for all major federal forms. $24, plus $29 per state
  • Premium – for VIP support and personal tax expert. $44, plus $29 per state.
  • Self-employed – for small businesses, contractors, freelancers and 1099 income. $47, plus $29 per state.

Other features: N/A.

TaxAct5. TaxAct

The basic advantage of TaxAct is that free means free, at least on the free version. TaxAct takes #5 because while it’s free for both federal and state filing with the free version, and has reasonably priced premium plans, it’s weaker on service levels than the top four.

Free version offered for: 1040, includes W2 and retirement income. It’s also free to file your state tax return.
Cost of state tax returns: Free on the Free plan, but various fees for premium plans.
Customer support: Email or phone.
Import prior year return from competitor: From TurboTax and H&R Block.
Refund tracking: Yes.
Audit assistance: Assistance only, no direct representation.
Premium plans and costs: Four plans:

  • Basic+ – for simple returns with dependents and college expenses. $9.95, plus $19.95 per state.
  • Deluxe+ – for itemized deductions. $29.95, plus $36.95 per state.
  • Premier+ – for investment income. $34.95, plus $36.95 per state.
  • Self-Employed+ – for small business filers. $49.95, plus $36.95 per state.

Other features: N/A

E-File6. E-file

E-file not only has a free version, but its premium plans are only about half the price of the competition. It takes #6 because its free version is also free for state filing, and because its premium plans are much cheaper than the competition. We couldn’t rank it higher however because it’s a pretty basic service with limited support and ability to accommodate complicated returns.

Free version offered for: Form 1040, must be under 65 with no dependents, and income under $100,000 (wages only).
Cost of state tax returns: Free with Free version.
Customer support: Free online support.
Import prior year return from competitor: N/A.
Refund tracking: N/A.
Audit assistance: Free assistance, no direct representation.
Premium plans and costs: Two plans:

  • Deluxe – for returns with dependents, itemized deductions and retirement income. $29.95, plus $19.95 for state returns.
  • Premium – for small businesses. $39.95, plus $24.95 for state returns.

Other features: One price paid for state return preparation, regardless of the number of state returns needed.

Credit Karma7. Credit Karma

Credit Karma has the advantage that if also offers free credit score monitoring. But its tax software is free across the board. We ranked it #7 because its a new service, but also because it can handle only the simplest returns.

Free version offered for: Basic tax returns – 1040, including schedules A, C, D, and E.
Cost of state tax returns: $0 for state returns.
Customer support: Email, chat, and limited phone support.
Import prior year return from competitor: From H&R Block, TurboTax and TaxAct.
Refund tracking: N/A.
Audit assistance: N/A.
Premium plans and costs: None available for more complex returns, like multi-state returns.
Other features: Smartphone photo capture of W2.

Side-by-Side Comparison of the Top 7 Free Online Tax Filing Software

Software/CategoryFreeTaxUSATurboTaxTaxSlayerH&R BlockTaxActE-FileCredit Karma - Tax
Free VersionAll Returns1040EZ & 1040A1040EZ1040EZ & 1040A104010401040, with schedules A, C, D, and E
Cost of State Returns12.95$29.99 on the free version; $39.99 on premium plansFree on free version; $29 on premium plansFree version $29.99; $39.99 on premium plansFree on free plan; varies on premium plansFree on free plan; varies on premium plans0
Customer SupportLive Chat24/7 Live SupportPhone & EmailLive chat & phone Email or phone Free online supportEmail, chat, and limited phone support
Import Prior Year Return from CompetitorsPDF from TurboTax, H&R Block and TaxActYes, by PDFYes, by PDFYes, by drag-and-dropYes, from TurboTax & HR BlockN/AFrom H&R Block, TurboTax and TaxAct
Refund TrackingYesYesYesYesYesN/AN/A
Audit AssistanceAssistance but no direct representationFree, but direct representation is $44.99Yes, with premium plansAssistance but no direct representationAssistance but no direct representationAssistance but no direct representationN/A
Premium Plans and Costs
  • Deluxe, with minor upgrades: $6.95
  • Deluxe – income over $100,000 + itemized deduction: $59.99

  • Premier – investment income and rental properties: $79.99

  • Self-employed/small business owners: $119.99
  • Classic – for all major federal forms: $24

  • Premium – for VIP support and personal tax expert: $44

  • Self-employed: $47
  • Deluxe – itemized deductions: $49.99

  • Premium – simple self-employed retirement, investments, and rental real estate: $69.99

  • Self-Employed: $94.99
  • Basic+ – returns with dependents and college expense: $9.95

  • Deluxe+ – itemized deductions: $29.95

  • Premier+ – investment income: $34.95

  • Self-Employed+: $49.95
  • Deluxe – dependents, itemized deduction, retirement income: $29.95

  • Premium – for small businesses: $39.95
  • None, return type is limited
  • Other FeaturesFree for all return levelsImport W2 information from thousands of employers, or use smartphone photo captureN/ASmartphone photo capture of W2; Your return can be completed at a local office for an additional fee.N/AOne price for all state returnsSmartphone photo capture of W2

    What to Look for in a Tax Filing Software – How to Choose the Best One for You

    This guide provides a list of free online tax filing software. But the free versions of each will generally apply only to people with very simple tax situations.

    Typical qualifications/limitations include:

    • 1040EZ or 1040A filers (though the 2018 tax law eliminates these in favor of the 1040).
    • Total income under $100,000.
    • No income from self-employment, investments, or real estate.
    • No dependents.
    • You take the standard deduction.

    If you fit the above tax profile, you’ll be able to take advantage of free filing. Be aware however that “free” typically applies only to your federal return. If you have a state income tax return due, you should consider either software that has no fee for preparing the state return, or one that charges a very low fee.

    When Should I Pay for Premium?

    You’ll have to consider any potential complications. For example, if you have a side business, like driving for Uber, you’ll need to complete a Schedule C. You’ll have to look at software that provides a reasonably priced premium plan for a simple side business.

    The same is true if you have significant investment income, own investment real estate, or have business income from partnerships or S corporations.

    You will also need a premium plan if you earn in excess of $100,000, have dependents, and expect to itemize your deductions.

    Finally, you’ll have to consider the likelihood you’ll face an audit. This is more typical of high-income earners, and those with more complicated tax situations. But if an audit is a possibility, it will be well worth a small investment paying for an audit defense package. In fact, you should favor one that provides direct representation before the IRS, rather than just audit assistance that helps you prepare for the audit.

    If you have any doubts, look at last year’s tax return and see what schedules you filed, and what possible complications you might have for 2019. That will be your best guide.

    But remember that with most of these tax filing software, you can start out with the free version, then add premium services as you need to.

    Final Thoughts on the Top 7 Free Online Tax Filing Software

    Select the filing software that will most closely match your tax situation. But include some wiggle room in your decision. If you see potential complications, go with the software that will enable you to add premium services after you sign up. Remember, each service starts you out with a free version, but then offers premium options.

    And once again remember that free tax filing applies only to the simplest of tax returns – except FreeTaxUSA, which is why they made our #1 spot.

    The Best Way to Refinance Your Student Loans

    The Best Way to Refinance Your Student Loans

    $1.521 trillion. That’s the total amount of student loan debt in 2018. The number is mind boggling. But to put it in perspective, it’s 2.5 times the total of $600 billion from 10 years ago. The average graduate now owes $37,000. Since there’s practically no way to get out of them, the strategy needs to be focused on finding the best way to refinance your student loans.

    Let’s go through the process step by step, so you’ll know the best ways to make it happen.

    Federal vs. Private Student Loan

    Before you even consider refinancing your student loans, you first need to understand the differences between federal and private student loans.

    Federal student loans are either provided or guaranteed by the US Department of Education (even if issued by banks or credit unions or colleges themselves). Private student loans are provided by banks and credit unions, but are not guaranteed by the US government in any way.

    There are important distinctions between the two types of loans if you are planning to do a refinance.

    Bankruptcy. Private student loans can be discharged through bankruptcy, federal loans generally cannot.

    Refinancing. Federal loans don’t offer a refinance option. Instead they offer loan consolidations (we’ll discuss the two in the next section). Private student loans do offer refinancing. If you refinance a federal loan into a private loan, you won’t be able to go back to a federal loan later.

    Hardship forbearance. A hardship is defined as unemployment, active military duty, economic hardship, disability, or other qualifying event. Forbearance can last up to three years. Federal loans allow you to temporarily make partial payments or halt them if you encounter a hardship. Private lenders may or may not offer hardship forbearance, and where they do, it’s usually under much less generous terms.

    Payment relief/loan forgiveness. Federal loans enable you to reduce your monthly payment to 10% of your income through (IBR) plans. Or you can get loan forgiveness through the Public Service Loan Forgiveness (PSLF) plan, after 10 years of employment with a government or charitable organization. Private student loans don’t offer either plan.

    Why are these distinctions important? If you refinance federal loans into private loans, you’ll lose important federal loan benefits.

    Here’s a table to sum it up.

     Federal Student LoansPrivate Student Loans
    Provider and GuarantorBoth by the US Department of EducationProvided by banks and credit unions; not guaranteed by the US government
    BankruptcyCannot be dischargedCan be discharged
    RefinancingNoYes
    Hardship forbearanceYesUsually not
    Payment relief/loan forgivenessRelief through Income Based Repayment ; forgiveness through Public Service Loan ForgivenessNone

    With that in mind, let’s move forward…

    Student Loan Consolidation vs. Student Loan Refinancing

    These are the two ways you can recast your student loans. Here are the details:

    Consolidation. These are available with federal student loans. Numerous federal loans are lumped together in a single loan, with an interest rate that’s the weighted average of all your existing federal loans. It doesn’t lower your interest rate, but It does give you a single monthly payment.

    However, you can lower your monthly payment by extending the overall term. For example, if you have one loan with a 10-year term, and two others with 15-year terms, you can consolidate them into a single loan with a 25-year term. That will lower the monthly payment.

    Consolidations can be done through the federal Direct Consolidation Loan program. There’s no cost to do a consolidation under this program, nor do you need to qualify based on your income and credit.

    Refinance. These are available through private lenders. They’re generally used to get a lower interest rate. You can also consolidate several student loans under the same refinance. The loans can be either federal or private, or a combination of both. Once again, you’ll want to be careful doing a refinance of federal loans, because you’ll lose the benefits that come with them.

    Unlike consolidations, you’ll need to qualify for a refinance, based on your income and credit.

    Refinances can be done at many banks and credit unions, as well as what I call loan aggregators that scour the internet for the best loan rates on the market and present to you the one that perfectly suits your needs. I’m recommending Credible right now – I think they’re finding the best rates for student refinancing. You can generally refinance up to $250,000 to $500,000 in total student debts.

    For the rest of this article, we’re going to focus on refinancing, since consolidation is simple and self-explanatory.

    The Benefits of Student Loan Refinancing

    We’ve already discussed the potential to lower your interest rate with a refinance. But there are several other benefits:

    1. Consolidating several loans (and payments) into one.
    2. Converting variable rate loans into a fixed rate (or vice-versa).
    3. Changing the term of the loan – shorter for quicker payoff, or longer for a lower payment.
    4. Removing a co-signer.

    To decide if a refinance is worth doing, it should result in one or more of these benefits.

    Qualifying for Student Loan Refinancing

    Unlike federal consolidation loans, you will need to qualify for a private refinance.

    Credit. Just as is the case with any other type of loan, your interest rate, as well as whether or not you’ll even get an approval, will be closely tied to your credit score. Credit score requirements vary by lender. Some may set a minimum score of 650, while others may go as low as 600. But the higher your credit score, the lower your interest rate will be. If your credit score is particularly low, the terms you’re offered may not justify the refinance. You may need to raise your credit score, then try again.

    Employment. You must have completed your education and be employed to qualify for a refinance. To establish stability, a lender will typically require a minimum of two years of continuous employment. However, you may be approved with less if you work in certain fields, such as health care.

    Income. Since there are so many different private lenders, it’s not possible to generalize what the income requirements will be. Many have a minimum income requirement, like $1,000 per month. But most will rely on your debt-to-income (DTI) ratio. That’s your total debts, divided by your gross monthly income. The DTI limit may be set at 40%, or 45%, just as examples.

    Cosigners and coborrowers. If either your credit, employment or income are insufficient, you may be able to add a qualified cosigner or coborrower to your refinance. This ability will vary by lender, and there may be secondary income qualifications for you based on your income alone. For example, though a cosigner may get your DTI below 40%, if it’s 70% based on your income alone, the lender still may not approve the loan.

    Documentation Needed to Refinance

    You’ll need to complete a loan application. You should expect to have the following information and documentation available:

    • A government issued photo ID, such as a driver’s license.
    • Recent pay stubs and W2s confirming your income.
    • Payoff statements for your existing student loan debts.
    • Evidence of your monthly housing expense.
    • College transcripts. Some lenders may use academic performance as a credit criteria, particularly if you’re a recent graduate.

    The above is a list of the general documentation requirements, but there may also be lender-specific requirements. You’ll need to check with that lender to be sure your package will be complete.

    If you’re including a cosigner, that person will need to be included on the application, and provide similar documentation.

    Interest Rates, Fees and Loan Terms

    Interest rates. These can be either fixed or variable. Fixed rates are higher than variable rates, but they remain constant throughout the loan term. By contrast, variable rates will change throughout the term of the loan. They’re usually based on a popular index, such as the prime rate or the LIBOR. A margin is added to that rate. For example, if the prime rate is 4.0%, and the margin is 1.0%, the rate will be 5.0%. Your rate will change each time the underlying index changes.

    Loan fees. Some lenders may charge application or origination fees. But the majority of banks, credit unions, an online lenders don’t. These are the lenders you should favor.

    Loan terms. Private lenders offer a wide variety of loan terms. The general ranges are from five years to as long as 20.

    Specific Refinance Provisions to be Aware of

    Even if a student loan refinance works for you based on the numbers, there are some provisions to look out for:

    Prepayment penalty. Most private lenders don’t charge these fees. But carefully review the loan documents to make sure no such penalty is included. There are enough lenders that don’t have a penalty, and there’s no need to accept a loan that does.

    Cosigner release. Most private lenders will allow your cosigner to be released. Common provisions include 24 to 48 consecutive, on-time monthly payments, plus the demonstrated ability to manage the payments on your own. If you’re adding a cosigner to your loan, make sure this provision exists.

    Variable rates. These can look very attractive, because the initial rate is much lower than a fixed rate. But interest rates are currently low, and since variable rates provide for increases, it’s entirely possible you’ll be paying a higher rate in the future than you would be on a fixed rate loan. Many variable rate loans have “caps”, which is the maximum a rate can go. But the cap may be set considerably higher than current fixed rates. Go with a variable rate loan only if you’re reasonably certain you can pay it off in just a few years.

    Forbearance. Once again, forbearance provisions are much more limited with private loans than federal loans. The terms vary between lenders, and not all lenders offer them. For example, a lender may offer temporary suspension of either interest or principal payments for up to 12 months. Prolonged unemployment may be the cause, and the lender may require you to participate in a program that monitors your progress in finding a new job.

    Final Thoughts on the Best Way to Refinance Your Student Loans

    As you can see, refinancing your student loans is a complicated process, not the least of which since there are so many potential lenders. Before deciding to do a refinance, make sure it will offer the benefits described above. And even if it does, pay careful attention to the fine print. Like all loan types, there may be a “gotcha provision” you’re not comfortable with.

    Check first with your bank or credit union, and then with other financial institutions. But also investigate the possibilities with online loan aggregators, like Credible. Among the many choices, you’re bound to find the loan program that works for you.

    Where Can You Invest with $100,000? The Sky’s the Limit!

    How To Invest $100,000

    Investing $100,000 can be daunting because of the magnitude of the task at hand. There are so many categories to choose from. Stocks, bonds, mutual funds, ETFs and REITs. High-yield savings products, treasury securities and P2P investing. What should your portfolio mix be, how willing are you to risk your capital? These questions can keep a person awake at night.

    In this article we’ll get into all that, and more.

    Introduction: How To Invest $100,000

     

    Because $100,000 provides more investment options, we’re going to focus primarily on asset classes, and then suggest platforms where they can be acquired and held.

    There are three basic asset classes:

    • Stocks
    • Real estate
    • Fixed income securities

    Below is a detailed discussion of each of the three, as well as the best investment platforms to acquire them through.

    Stocks

    If you read any articles or listen to any financial experts talk about long-term investing or retirement, you’ll see or hear a heavy emphasis on stocks.

    There’s an excellent reason for this.

    Stocks provide equity ownership of companies that represent the means of production of both the national and global economies. Put another way, stocks represent ownership in the business organizations that create wealth.

    As a long-term investor, looking to build your own wealth, stocks need to form the cornerstone of your investment portfolio.

    For the past 90 years, the stock market has had an average annual return of about 10%, based on the S&P 500 Index. That isn’t to imply you can expect a 10% return each year. But that is the long-term average, and you need to be heavily invested in it.

    Where to Invest in Stocks

    One of the advantages to having a portfolio at least $100,000 is that you have a choice as to how you will invest in stocks. There are three basic ways to do this:

    Robo-advisors

    Here at Autopilot Finances we strongly encourage you to try a robo-advisor, at least when you’re starting out. They’ll invest your money for you based your age, time horizon, investment goals and risk tolerance. Robo-advisors design and manage your portfolio at a very low fee. It’s autopilot investing at it’s best, since all you need to concern yourself with is funding your account.

    Betterment and Wealthfront are the two most popular robo-advisors. Each will provide you with a diversified portfolio of stocks and bonds, and in the case of Wealthfront, real estate. Each will manage your portfolio for a very low fee of 0.25%.

    Another very interesting robo-advisor is M1 Finance. What makes it unique is that while it works like a robo advisor, you can actually choose the investments in your portfolio.

    It works on a concept called “Pies”. Each pie is a portfolio dedicated to a certain investment goal. The platform has more than 60 prebuilt pies, but you can also create your own. Each pie has as many as 100 “slices”, which can be ETFs or individual stocks. Once you’ve created a pie, it’s then automatically managed by the platform.

    Best of all, M1 Finance has no minimum investment, and charges no fees to manage your account.

    Invest in Individual Stocks

    You can invest $60,000 in the stock of 12 different companies, with an average investment of $5,000 each. That’s like creating your own mutual fund. The best way to do this is through investment brokers.

    If you’re a self-directed investor, and you want to choose your own stocks, it’s best to work with a diversified investment platform. Examples include Fidelity and Ally Invest. Each platform offers trades on stocks and ETFs at a low $4.95 per trade.

    TD Ameritrade is another excellent investment platform, though trading fees are a little bit higher, at $6.95. Best of all, all three platforms also offer a robo-advisor option, should you decide you want to have part of your portfolio professionally managed.

    If you’re an active trader, which we don’t recommend, Robinhood and Firstrade offer free trades.

    Funds

    You can choose to invest in stocks through either exchange traded funds (ETFs) or mutual funds. This will give you an opportunity to invest in a portfolio of stocks, without having to concern yourself with the day-to-day tasks of managing it.

    ETFs are generally based on underlying market indexes. For example, the most common index is the S&P 500. Others can include sectors, like energy stocks, health care stocks, and emerging market stocks. ETFs are considered passive investments because they are not actively traded. The only trades made are to keep the fund consistent with the underlying index. For this reason, ETFs have lower expense ratios than mutual funds.

    ETFs can be purchased through investment brokers, generally at commissions equal to those for stocks.

    Mutual funds are typically actively managed. Rather than investing in an underlying index, the fund invests in a more narrow selection of stocks that are expected to outperform the general market. This is fundamentally different from ETFs, which only attempt to match the performance of the market.

    Mutual funds can be purchased through stock brokers, but the commissions are usually higher than they are for stocks and ETFs. They can also be purchased through mutual fund families, such as Vanguard or T. Rowe Price.

    If purchased through fund companies, there is generally no commission. But many mutual funds have what are known as load fees, which can be equal to between 1% and 3% of the fund value.

    Because of load fees, and the fact that very few mutual funds actually outperform the market consistently, investors heavily favor ETFs.

    Individual Stocks vs. Robo-advisors vs. Funds

    Here are the three methods of investing in stocks compared side-by-side:

     Individual StocksRobo-advisorsFunds
    Minimum investmentVaries$0 and upNo minimum on EFTs, generally $3,000 for mutual funds
    FeesTrading commissions $0 to $6.95 per trade0% to 0.50% per year$0 to 3% on purchase or sale
    Available for IRAsYesYesYes
    Professional managementNoYesYes
    Investment expertise neededHighLow/noneModerate/low
    Best forSelf-directed investorsInexperienced investorsModerately experienced investors

    Real Estate

    With a portfolio of $100,000, you have three options to invest in real estate:

    • Direct ownership of property
    • Real estate investment trusts (REITs)
    • Real estate crowdfunding

    Direct Ownership

    With $100,000 you’ll have sufficient funds to invest in an individual property. Unlike owner-occupied residential real estate, you can’t purchase an investment property with a minimum down payment of 5% or less. Investment properties normally require a down payment of at least 20% of the purchase price.

    If you wanted to purchase a property for $150,000, and rent it out to tenants, you would need a down payment of $30,000.

    With a $100,000 investment portfolio, you’ll be able to do this, and still have plenty of capital left over for other investments.

    Advantages:

    • You’ll be the sole owner of the property, and take 100% of the profits
    • There are significant tax advantages to owning rental real estate, including depreciation expense and favorable long-term capital gains tax rates.
    • The profit potential on a single property can be high, particularly if the property is located in a strong housing market.

    Disadvantages:

    • A property will require a large down payment, which will reduce your ability to buy multiple properties.
    • The down payment requirement will reduce the amount of money you’ll have available for non-real estate investing.
    • In a declining real estate market, you could lose money.
    • Rental real estate is a hands-on venture, that can often get messy.
    • There may be times when your expenses will exceed your rental income.
    • Real estate isn’t as liquid as other investments, so your money will be tied up for years.

    Direct ownership of investment real estate is highly specialized, and more complex than other types of investing. Carefully consider if you want to get involved on a direct basis.

    Real Estate Investment Trusts (REITs)

    In a real way, REITs make real estate investing no more complicated than owning mutual funds. In fact, a REIT is basically a mutual fund for real estate. The fund purchases the properties, manages them, then pays income to the investors. By law, REITs are required to pay 90% of their income to their investors as dividends.

    In recent years, returns on REITs have been comparable to those of stocks. But since real estate often moves in a different direction than stocks, it offers an opportunity to continue earning high returns even during a bear market in stocks.

    REITs typically invest in commercial real estate, including office buildings, retail space, industrial space, and large apartment complexes.

    You can purchase REITs through investment brokers, in much the same way as mutual funds. And because the REITs are publicly traded, you can usually sell them quickly. In the meantime, you can collect a steady stream of income, without ever getting your hands dirty.

    Real Estate Crowdfunding Platforms

    These are essentially peer-to-peer (P2P) investment sites, where investors buy either loans or equity positions in real estate investments provided by sponsors. The sponsors are basically the entrepreneurs behind individual deals. They either own the property, or are redeveloping it, either to rent it out, or to flip for a profit. They’ll come to the platform either looking for financing or to sell equity shares in the particular project.

    This type of investing is both complicated and sophisticated. First, many real estate crowdfunding platforms require that you be an accredited investor. That requires a minimum annual income of $200,000, a minimum net worth of at least $1 million (not including your house), or both. Even with $100,000 to invest, you may not qualify.

    But there are other sites that allow you to invest even if you are not accredited. For example, with Groundfloor you lend money to property sponsors who are doing property flips. You invest in slivers of loans, called “notes”. You can spread a $5,000 investment across 500 different loans, at $10 per note.

    Meanwhile, Rich Uncles and Fundrise enable you to invest in private REITs. Those trusts invest in commercial real estate, and claim to provide higher returns than publicly traded REITs.

    Though real estate crowdfunding platforms claim to provide higher returns, there are some downsides:

        • Private REITs are not liquid, and will require you to remain invested for several years.
        • Like any equity-based investment, you could lose money.
        • The individual real estate deals included in real estate crowdfunding platforms tend to be more speculative than those in publicly traded REITs.

    Real estate crowdfunding investing is primarily for those who have a desire for higher-than-average returns, and are willing to accept higher than average risk.

    Direct Ownership vs. REITs vs. Real Estate Crowdfunding

    To help you decide which real estate investment is best for you, we’ve prepared the following table:

     Direct OwnershipREITsReal Estate Crowdfunding
    Minimum investment$20,000 and up, with the rest financed$500 and up, but varies considerably by REIT$0 to $10,000 or more
    FeesSeveral thousand dollars in closing costs, plus carrying costs if expenses exceed rentUp to 10%$0 to 3%
    Professional managementNoYesYes
    Investment expertise neededHighLow/noneHigh/moderate
    Best forSelf-directed investors with real estate investment experienceInexperienced investorsInvestors willing to accept high reward/high risk

    Fixed Income Securities

    The main purpose of fixed income securities is to add stability to your investments. Unlike stocks and real estate, which can fluctuate in value, fixed income securities maintain their value, while paying you interest. Adding at least a small allocation to this asset class can reduce the overall volatility in your portfolio.

    You should decide on a certain percentage of your investments that will be held in fixed income securities. Generally speaking, the older you are, the higher the fixed income allocation should be. Conversely, the younger you are, the lower it should be.

    We’re going to focus on four different types of fixed income securities: bonds, US Treasury securities, high yield savings products, and peer-to-peer lending.

    Bonds

    A bond is a debt security with a term of 20 years or more. They’re typically available through investment brokers, and can be purchased in amounts of $1,000, but you may be required to buy them in blocks of 10.

    They’re issued by corporations and governments. Bonds issued by state and local governments are referred to as municipal bonds, and are exempt from federal income taxes. They’re also exempt from state income taxes in the state of issuance. Municipal bonds are good for taxable accounts, but not retirement accounts, since those accounts are tax sheltered.

    If you don’t want to purchase individual bonds through an investment broker, you can also buy them through either ETFs or mutual funds. This will also enable you to diversify among hundreds of bond issues within each fund, as well as reduce the risk that comes with holding individual bonds.

    US Treasury Securities

    These are considered the safest investments in the world, because they’re fully guaranteed by the US government. Treasury bills run from four to 52 weeks. Treasury notes have terms of two to 10 years. Treasury bonds are 30 years. All can be purchased in denominations of $100. Current returns on all US Treasuries are well in excess of 2% APY, even on the shortest maturities.

    There are also “TIPS”, or Treasury Inflation Protected Securities. They pay interest, and add additional principal to provide protection against inflation. However, the interest rate paid on TIPS is lower than on other Treasury securities, and the additional principal is taxable on an annual basis.

    All US Treasury securities are available through Treasury Direct, where they can be bought, held and sold, free of charge.

    High Yield Savings Products

    These include savings accounts, money markets, and certificates of deposit (CDs). They’re available at nearly all banks and credit unions. But the vast majority of local banks and credit unions pay only microscopic interest rates. The better option is to invest through online banks, which offer much higher rates.

    For example, CIT Bank is currently offering high yield savings accounts that pay over 2% APY, with a minimum investment of $100. Meanwhile, Ally Bank and Capital One 360 each currently offer CDs paying well over 2% APY with no minimum investment.

    Investment brokers typically offer CDs, but they charge a fee to purchase them. But if you invest directly through the issuing bank, no fee is involved.

    Peer-to-Peer (P2P) Lending

    P2P lenders are online lending platforms where consumers come to borrow money – generally for unsecured personal loans – and investors come to buy those loans. The underwriting process is generally easier for a borrower, and the interest rate is often lower than what they can get with a bank. Meanwhile, investors can get much higher rates of return than they can through traditional bank assets, or even US Treasury securities and bonds.

    The top two P2P lending platforms are Lending Club and Prosper.

    P2P lending pays higher rates than you can get on bank investments. But you should also be aware that it carries more risk. The personal loans you’re investing in are not secured, and are subject to default. In addition, P2P lending has certain financial requirements to participate. But if you have at least $100,000 to invest, you’ll easily meet those requirements.

    Perhaps the best use of P2P lending is to include an allocation in your fixed income portfolio. The higher interest rates will increase the overall return on your fixed income investments, without dramatically increasing risk.

    Bonds vs. US Treasury Securities vs. High Yield Savings Products vs. P2P Lending

    If you’re looking for a diversified fixed income portfolio, you may want to invest in two or more of these investments. The table below will provide you with a side-by-side comparison to help you make that decision.

     BondsUS Treasury SecuritiesHigh Yield Savings ProductsP2P Lending
    Minimum investment$1,000 - $10,000 $100 and up$0 and up$25 to $1,000
    Fully designed portfolioNo unless purchased through a fundNo unless purchased through a fundYes, with REITsNo
    Ongoing portfolio managementNo unless purchased through a fundNo unless purchased through a fundNoNo
    Fees$1 to $10 per bondFree if purchased through US TreasuryFree if purchased through bank or credit unionAbout 1% per year
    Available for IRAsYesNoYesYes
    Best forExperienced investors with large portfoliosInvestors of any size looking for completely safe investmentsInvestors of any size looking for completely safe investmentsInvestors looking for high fixed rate yields, with risk

    Final Thoughts on How To Invest $100K

    Just as is the case with smaller sums of money, you should start by having an emergency fund holding living expenses for at least three to six months. You should also pay off any high interest credit cards, since the rates you’re paying on those are almost certainly higher than what you can earn on your investments.

    And while $100,000 is an excellent nest egg, you should have a comprehensive strategy to increase it with additional contributions.

    That should start with participation in a retirement plan. If your employer offers a plan, you should absolutely participate. At a minimum, you should contribute the minimum contribution necessary to get the highest matching contribution from your employer.

    For example, if your employer provides a 50% match up to 3%, you should contribute a minimum of 6% of your income to the plan, to get the 3% match. That will give you a cumulative 9% annual contribution.

    THE LINK BELOW NEEDS TO BE CREATED

    If you don’t have an employer sponsored plan, you should start an IRA account, either traditional or Roth. And if you’re self-employed, you should set up a SEP IRA, SIMPLE IRA or Solo 401(k) plan. Each will provide higher contribution limits than an IRA.

    Contributing to a retirement plan will ensure that at least some part of your investment portfolio is tax sheltered. But you can and should make regular contributions to taxable accounts as well.

    The basic strategy should be to grow your $100,000 portfolio into something much bigger, through a combination of investment earnings and regular contributions.

    Note: This article is about how to invest $100,000, but the strategies provided are also relevant if you’re investing $200,000, $250,000, $300,000 – all the way up to half a million dollars. If you fall outside this range, check out one of these articles for a more personalized description of your investing options.

    How To Get Out Of Debt

    How To Get Out Of Debt

    According to the Federal Reserve, Americans hold over $1 trillion in credit card debt. To further that, loans total over $2.8 trillion.

    Let’s face it – most of us are in debt.

    In fact, according to the U.S. Census Bureau, about 62% of American adults carry credit card debt balances and nearly 18% of Americans carry student loans.

    You’re probably wondering “what can I do to get out of debt”?

    Well, you can sit here and worry about it. Or you can ignore it and keep racking up the debt.

    I have a better solution – let’s pay it off.

    In this guide, I’ll walk you through how to get out of debt, covering every step you need to take along the way. Let’s jump right in by finding out where your debt lies and how much of it you have.

    Find out how much debt you have

    The first step in getting out of debt is understanding how much you owe. While this might be one of the scarier parts of paying off your debt, it’s one of the most critical. In fact, one study showed that households thought they owed nearly 40 percent less than what they actually owed.

    So how do you figure out what you really owe?

    The easiest way is by pulling a copy of your credit report.

    Pulling your credit

    The first thing to know is that in the United States, there are three national credit reporting agencies:

    These agencies house and update the credit history of nearly all American consumers. Each of the three credit reports will look different, but they’ll have almost the same information. Almost.

    There are some differences between reports, which is why you’ll want to pull all three the first time you’re checking your debts. One of the most common differences is a minor debt that is listed on one credit report but not another. While these debts may have been eliminated, it’s always helpful to see what’s out there in case you need to file a dispute.

    To get a copy of your credit report directly from each of the credit reporting agencies, just do to their individual websites (linked above) and they’ll have a link to obtain a copy of your credit report. Alternatively, you can go to annualcreditreport.com.

    Remember – you’re entitled to one free copy of your credit report from each of the credit reporting agencies per year. More than likely, they will try to upsell you on a product, but you’re not obligated to pay anything for a basic copy of your report. Some of these products are helpful for monitoring or getting more information, so feel free to take advantage, but I want to be clear that you don’t have to pay for your credit report.

    Once you receive a copy of your credit report (available electronically), you’ll have the opportunity to review it to add up each of your debts. Here is an excellent sample credit report that Experian put out there – they go over each section of the report in detail so you know exactly what you’re looking at.

    Each entry on your credit report will have the total balance you owe as well as the estimated minimum payment. Keep in mind that this is not always 100 percent accurate, so you’ll want to check in with your creditors to make sure – especially when you’re trying to get out of debt (more on this below).

    Check with your creditors

    Once you have a copy of your credit report, finding the creditors that hold your debts should be pretty easy. Most of your creditors will have a website where you can log into your account. If you haven’t done that yet, simply call them and they’ll walk you through setting up an account online. For creditors that don’t have that option, just give them a call. Most times the phone number will be listed for the lender on your credit report for simplicity.

    When you speak with them, you’ll want to know how much your total outstanding balance is and how much your minimum payment is. It’s also helpful to understand how the minimum payment is calculated, so you can estimate how it will change as your balance goes down. This is common for credit cards, as it’s typically a percentage of the total balance (but each credit card issuer is different).

    Action items

    Obtain and review all three copies of your credit report and write down the following on a piece of paper:

    1. The total balance you owe
    2. The minimum payment
    3. The creditor and their corresponding information (i.e., website, phone number)

    Confirm the balances and minimum payments with each of your creditors by calling them or checking online. This will be your guide for the rest of the way as you work toward a plan to get out of debt.

    Decide on a payment method

    Now that you have a better understanding of how much debt you have and where it’s sitting, it’s time to think about how you’ll attack the debt. One of the biggest problems I see is that we noodle on ideas and don’t take action.

    It’s really important that you think about how you’ll take action here. It’s one thing to plan all of this out on paper, but actually moving money out of your account to make debt payments is a whole different ballgame.

    The snowball method

    The debt snowball method was made famous by financial guru Dave Ramsey years ago. It’s a catchy spin on a very basic financial concept. Basically what the debt snowball is trying to do is help you pay off debt by looking at it more psychologically, not mathematically.

    The basic process of the debt snowball goes like this:

    1. List out all of your debts, from smallest to largest
    2. List out the minimum payments for each debt
    3. Throw as much as you possibly can at the smallest debt first while making the minimum payments on everything else
    4. Once a debt is paid off, you add that minimum payment to the next debt on the list (i.e., creating a “snowball”)
    5. Repeat steps 3 and 4 until your debts are paid in full

    Let me give you an example to show what this might actually look like. Let’s say you pulled your credit report and called your creditors to validate, and found that you have the following debts:

    Loan IssuerBalanceAPY
    Minimum Payment
    Chase$4,50015.00%$90
    American Express$2,00019.99%$40
    Capital One$15,00018.50%$300
    Local credit union (car loan)$20,0004.00%$400

    For now, we’ll ignore mortgages and home equity lines. Dave Ramsey says to hold off on paying down your mortgage until your other debts are wiped out, but you can work on paying off a HELOC early.

    Following the debt snowball method, I’ll list the debts in order of smallest to largest balance, followed by the APY and minimum payment:

    1. American Express credit card – $2,000 / 19.99% / $40
    2. Chase credit card – $4,500 / 15.00% / $90
    3. Capital One credit card – $15,000 / 18.50% / $300
    4. Credit union car loan – $20,000 / 4.00% / $400

    At first glance, it would make the most mathematical sense to pay off the American Express credit card, then move on to the Capital One credit card, based on the interest rate you’re paying. You could even make the argument to tackle the Capital One credit card first because the balance is high and you have a high interest rate.

    But the debt snowball method ignores math and focuses on psychology – remember? By putting every extra dollar you have toward that first balance on American Express, you’ll have it paid off a lot quicker, wiping out one of your four debts.

    Feels pretty good, right?

    After you’ve wiped out the American Express credit card, your debt snowball would look like this:

    1. Chase credit card – $4,500 / 15.00% / $90 + $40 (previous American Express minimum payment) = $130
    2. Capital One credit card – $15,000 / 18.50% / $300
    3. Credit union car loan – $20,000 / 4.00% / $400

    So you’re “minimum payment” on the Chase credit card is now $130 because you’ve “snowballed” the minimum payment from American Express onto that. This will help you pay it off faster. And when you’re throwing every extra dollar you can at that debt, it’ll go even quicker.

    Here’s a great video of Dave Ramsey himself explaining the debt snowball process:

    The avalanche method

    Another popular strategy for paying off debt is what’s commonly referred to as the “avalanche” method. Unlike the snowball method, which is more rooted in psychology, the avalanche method focuses on what makes the most sense mathematically.

    Instead of paying off the debt with the lowest balance first, the avalanche method focuses on paying off the debt with the highest interest rate. Again, this makes sense mathematically. The rest of the process is similar to the snowball method, in that you take the minimum payment you were making on the highest interest rate debt, and apply it to the next highest interest rate debt.

    Just to make sure we’re all on the same page here, I’ll go through another example – this time using the avalanche method. Let’s take our same debts from above, only this time we’ll order them by the interest rate to follow the avalanche method:

    1. American Express credit card – $2,000 / 19.99% / $40
    2. Capital One credit card – $15,000 / 18.50% / $300
    3. Chase credit card – $4,500 / 15.00% / $90
    4. Credit union car loan – $20,000 / 4.00% / $400

    So with this method, the first debt you’d go after is the American Express credit card. You’d throw every single dollar you had at that debt while making the minimum payments on all the other debts until it was paid off. Then you’d take that minimum payment and roll it onto the next highest interest rate debt. Here’s what it would look like after you’ve paid off the Amex card:

    1. Capital One credit card – $15,000 / 18.50% / $300 + $40 = $340
    2. Chase credit card – $4,500 / 15.00% / $90
    3. Credit union car loan – $20,000 / 4.00% / $400

    The next highest interest rate debt is the Capital One credit card, which originally had a minimum payment of $300, but now has a “minimum payment” of $340 since you rolled the $40 Amex minimum payment onto this card.

    You’d go on and on with this method, snowballing your payments, until all your debts were paid in full.

    Action items

    This is where the rubber meets the road. Remember when I talked about taking action? This is your time to do it.

    So many people come up with big plans for paying off their debt, but they never see it through. These two methods are proven and will work, as long as you’re disciplined.

    So here’s your action item:

    Choose one of these two methods. Yes, there are other methods out there for paying off debt, but for now, choose one of these two. They’re easy to follow and proven to work.

    Once you’ve selected a method that makes sense for you, set up autopay on each and every debt account you have. Set it up for the minimum payment, that way you make sure you’re not missing payments, and you’re on track to follow this method.

    Finally, set up a budget (more on this below) to follow very strictly. Take every extra dollar you can possibly find and throw it at your highest priority debt – whether that’s the one with the lowest balance or the highest interest rate.

    Stick to this for at least 60 days before you re-evaluate how everything is working. Charles Duhigg, the author of The Power of Habit, indicates that new habits take at least 30 days to form for most people. If you don’t give yourself a chance to change, you never will.

    So pick a method, set up autopay, and stick to this for at least 60 days before doing ANYTHING. Trust me, you’ll be happy once you see the progress you’re making.

    Cut spending and/or raise your income

    Here we are – step 3. Progress is being made! Now that you’ve figured out what you owe, gotten everything organized, and figured out a debt repayment plan, it’s time to accelerate the heck out of this process.

    The two most effective ways to create extra disposable income to pour onto into your debt paydown are to cut your spending and earn more money. Let’s dive into some ways you can do both.

    Cut your spending

    Wouldn’t it be nice to just snap your fingers and be able to spend less? It’s not that easy, but it is simple. The best way to cut your spending is by creating a budget. Yes, a budget.

    If you haven’t given up on me yet, thanks.

    Trust me on this one – I used to be terrible at budgeting. I thought that as long as I didn’t overdraw my checking account and my bills were paid each month, I was fine. I would take any extra cash I’d have and throw it into savings.

    Obviously, that doesn’t really work long-term. I had no plan. I was just floating by each month hoping for the best.

    A budget gives you a plan. It helps you stay super-connected with your money.

    But in order to effectively budget, you have to see where your money is going. Otherwise, it’ll be like throwing darts at a wall while you’re blindfolded. You’ll make the attempt, but you’ll have no target.

    Track your spending

    The first step here is to load your accounts into a tool like Mint or Personal Capital. Both of these tools do a great job of telling you where your money has gone. I don’t personally like them for budgeting, because it’s very backward-focused, but they do an excellent job telling me where my money has gone so I can make a more effective budget. You can follow this guide to learn more about using Mint to track your spending.

    Create a budget

    Once you’ve figured out where your money is going, it’s time to create a budget. I am completely biased when it comes to budgeting, but it’s only because it changed my financial life. I used to be horrible at budgeting money (see – above). I tried different budgeting methods and none of them worked. Then I found You Need A Budget.

    You Need A Budget (or YNAB) is different because it forces you to budget the money you already have. This is different than using a traditional budgeting method, where you’d guess at how much money you should be spending in a variety of categories throughout the month. That’s forecasting – not budgeting.

    And according to Jesse Mecham, creator of YNAB, it’s why most of us fail. We forecast what we think we should spend and when we can’t meet those expectations, we quickly give up. That’s what happened to me.

    I’m not going to go into extreme detail on how to create a budget with YNAB – mostly because they have gobs of information on their site, including training videos and classes. So I will just give you the basics.

    In order to cut your spending, you need to create a budget using only the money you have in your accounts right now. Whether you use the YNAB software or a piece of paper – it doesn’t matter. You only budget money you have right now.

    YNAB calls this giving every dollar a job. Every single dollar that you earn should have a job – whether it’s to save, spend, invest, or pay off debt. Once you do that, you need to follow your spending and get very intimate with your money.

    This means tracking every dollar.

    If you want to get out of debt, you need a system that will help you cut your spending big time. When you’re ready to take the leap and create your first budget, check out this great article on how to set up a budget using YNAB.

    One of the things I love about Jesse’s philosophy is, he doesn’t care whether you use his tool or not. He is truly trying to help others manage their money better and reach financial freedom quicker. You can read about his story and the philosophy behind YNAB in his book that was recently released, You Need A Budget. That’s actually a great starting point.

    Other budgeting methods

    Okay, I’ll get off my YNAB soapbox (I told you I was biased) for now. If that methodology doesn’t work for you, no worries. The point here is that you’re cutting back on your spending – and in order to effectively do that, you need a budget that works for you. Here are some other popular budgeting methods:

    • 50-20-30: this is a very common strategy for budgeting, and for many people it works. The basics are that 50% of your money goes toward necessities, 20% goes toward debts, and 30% goes toward everyday spending. You can manipulate this however you want, but the framework is there to give you a basic starting point. You can learn more about this budget here.
    • Cash-based: a simple method of budgeting is by only using cash. It becomes difficult when you go to pay for things like rent or gas for your car, but having a finite stack of money each week or month will limit you to how much you can spend. For many people, this works really well.
    • 60% solution: this is an old-school method that former MSN Editor-in-Chief Richard Jenkins created and made popular years ago. The basics are that you put 60% of your pre-tax money toward “committed expenses” (rent, food, and other needs) while the other 40% gets split into four categories, each getting 10% – retirement, long-term savings, short-term savings, and fun money. I’ll be honest, I tried this method years ago and failed. It might work for you though.

    Raise your income

    You should always create a budget and find ways to cut your spending. But sometimes that will only take you so far. The next thing you need to do is find new ways to increase your income. Here are some ways to do it.

    Ask for a raise

    The first, and probably most obvious, method of getting more money is to ask for a raise at your current job. According to AAUW, the current pay gap between men and women is about 20 percent. A recent study done by Payscale surveyed about 30,000 people, finding that 43 percent of those people had asked for a raise. Out of that 43 percent, 44 percent got a raise. That may not seem like a significant number, but in a study of 30,000 people, 57 percent of those people didn’t even bother asking for a raise. Of those who did (12,900), nearly 6,000 of them got the raise they asked for.

    Hockey legend Wayne Gretzky said it best – you miss 100 percent of the shots you don’t take. If you don’t bother asking for a raise, you’ll never get it. If you do, there’s a chance you will. What’s the worst that can happen? Your boss will say no, and you can move on (see below – looking for a new job).

    CNBC personal finance writer Jessica Dickler says that “it’s a good time to ask your boss for more money: The job market has the lowest unemployment in 18 years, starting salaries are better and wages are finally picking up.” If you do decide to ask for a raise, there are a few rules to follow. In her article, Michael Erwin, a senior career advisor with CareerBuilder, gives four things to consider when you’re asking for a raise. Be sure to check that out.

    Get a new job

    If you don’t get a raise, or simply want to find a new career, the next best way is to start looking for a new job. More and more people are favoring job-hopping – and it’s for a variety of reasons. One of the major reasons is that you tend to make more money when you leave a company for a new one.

    According to Cameron Keng of Forbes, “the average raise an employee receives for leaving is between a 10% to 20% increase in salary. Obviously, there are extreme cases where people receive upwards of 50%, but this depends on each person’s individual circumstances and industries.” That’s a lot of money you could be leaving on the table by staying in your current job.

    But looking for a new job isn’t always a walk in the park. You need to build up your resume, make sure your networks are intact, and be very aggressive with looking for jobs. You may also have to be open to relocating, taking time off for interviewing and considering new career paths. It’s not easy. Once you’re ready to get serious, though, TopResume put together a nice list of things you need to think about before you start the job hunt.

    Pick up a side hustle

    If neither of the above options is for you (or even if they are) you should consider picking up a side hustle to pad your monthly income. What’s crazy is that 37 percent of Americans now have a side hustle, according to a recent Bankrate survey. Side hustles can be full-blown jobs or just quick ways to make cash. I’ve done both – but they have different approaches.

    If you’re just looking for a quick buck, you can do all kinds of side jobs online – like running tasks for TaskRabbit or Amazon Mechanical Turk. You can check out a laundry list of ways to make money fast here. Doing quick side jobs like this is a nice way to get started, but I don’t really consider it a full side-hustle.

    To take it a step further, you should consider hustles that you can build a real income with. For example, I work full-time and have built a lucrative career on the side as a freelance writer, niche site builder, and I now run a profitable digital marketing agency. My advice is to find something you’re passionate about and learn as much as you possibly can about that topic. Then find a way to work it into a second career on the side.

    For example, if you want to become a freelance writer, start writing. Learn everything you can about it and get good at it. Then start offering your services to people and building a network. And trust me, this you don’t have to work for peanuts. Raj Jana is a great example. He built a multimillion-dollar side hustle while he was working full time. Sujan Patel, the co-founder of Web Profits, did the same thing. And if you haven’t heard about Pat Flynn by now, you just need to read his story. He now makes millions of dollars a year after losing his job and starting a side hustle.

    So get serious about it. Find something you’re interested in and passionate about, and find a way to make it a real side hustle. Start with quick jobs to earn extra money, then blow it up into a real second income. This will help add to your existing income and help accelerate your path to having no debt to your name.

    Action items

    If you’re serious about paying off your debt, you absolutely must create a budget for your spending. I know I raved about YNAB, but you don’t have to use that if it’s not for you. I don’t care if you track your spending on a napkin – just find a way to do it. You need to understand how much money you have coming in, and exactly where that money is going. Then you need to plan for purchases and cut back as much as you possibly can.

    Beyond that, you should immediately ask your boss for a raise. There’s no harm in doing it – the worst they’ll say is no. Regardless of that, you can start picking up side jobs and building a profitable side hustle while you’re working full time.

    Exhausted yet?

    You should be.

    Paying off debt isn’t a sprint – it’s a marathon. It’s easy to get into debt, but it takes a lot of time and dedication to get out.

    Take advantage of other tools to help you get out of debt

    By now you should have developed a pretty solid plan for paying off your debt. You’ve identified where your debt is at, how much you owe, and how you want to start paying it off. You’ve also determined what you’re spending and where, and begun developing a budget. You may have also started thinking about ways to earn extra money to move this process along even quicker.

    Great work.

    Now it’s time to look at other tools that are out there to help you even more.

    Debt consolidation loans

    A debt consolidation loan can be an excellent option when you’re looking to pay off your debt. There are a couple of ways of looking at this, too. The first, obviously, is the money-saving aspect. By consolidating your debt into a single loan, you can take advantage of one, lower monthly payment. This should save you money on a monthly and long-term basis.

    The second reason this is helpful is due to the psychology behind not having a ton of balances in many different places. Even using our example above, we had four debts at four different places. That’s four monthly payments, four interest rates to manage, and four headaches each month (at least).

    Consolidating your debt into one spot can save a bunch of stress and just make the whole debt paydown go quicker. To do this, you need to first identify a company or bank that you want to consolidate with. We recommend going with EVEN Financial – they scour the internet for the best loans available and present the ones that perfectly suit your needs. But, you can also check into your local bank or credit union to see if they have any better options for you.

    If you go with a company like EVEN, the process is incredibly easy. You are basically taking on a new loan that you can use to pay off your debts. Just tell EVEN how much you want to pay off, submit an application, and assuming you qualify, you’ll be approved in a few minutes. From there, you will receive a deposit for the amount you need, and you can pay off your debts right away (it usually takes about a week, end-to-end).

    If you use a bank or credit union, they would most likely take your account information and balances, and pay them off for you. This is similar to how a balance transfer works (see below). Regardless of what you decide, you should at least explore your options with a debt consolidation loan – it can save you thousands of dollars in the long-term.

    Balance transfers

    Another really good option for consolidating your balances is a balance transfer. This can be done without even applying for a new loan – which is what makes it attractive to so many people. A balance transfer is basically paying off one credit card with another by using a promotional rate.

    The benefits in doing this are that you don’t (necessarily) have to apply for a new credit card – you may already have a balance transfer promotion available; as well as the consolidation aspect of simplicity and money-saving. By moving your balances to one card, you will save time, energy, and money – just like you would with a debt consolidation loan.

    The downside to a balance transfer is that you are only on a promotional rate. Once that rate ends, your balance reverts back to the default rate on the credit card – which is often much higher. You’ll also have to pay a fee to transfer your balance in most cases, so be mindful of that.

    To do a balance transfer, first, check your existing credit cards to see 1) if you have enough space to move the balance to, and 2) if you have any promotional rates available. You can do this by checking online or by calling your creditor.

    If you’ve found an offer, you can almost always do this process online. Simply type in your account numbers and corresponding balances, and your credit card company will do the rest. They’ll make fast, electronic payments to your creditors to pay them off, bringing your balance to their card.

    If you don’t have a balance transfer option available, you can apply for a new card – assuming you meet the qualifications. In fact, new applications and new cards tend to have the best offers available. Many times you’ll see a 0% promotional offer, good for up to 18 months. That gives you a year and a half to knock out your debt at zero interest.

    Budgeting apps

    Depending on what you did with your budget above, you may want to create a budget on the fly and have your money plan with you wherever you go. That’s where budgeting apps come in. Here are some of the best to get you started:

    PocketGuard

    The goal of PocketGuard is to keep you from overspending each month. Once you connect your accounts, it tracks your spending versus what you have in your account. It will pick up on any recurring subscriptions you have, as well as your overall monthly income, bills, debts, and savings. I highly recommend this app if you have a problem with overspending.

    Wally

    Wally is a good app if all you want to do is create and manage a budget. It doesn’t have all the bells and whistles of some of the other apps you’ll see, like Mint or PocketGuard, but it does a fine job at tracking your spending. If you want something easy and no-frills, go with this app.

    Mvelopes

    Building on the envelope concept, Mvelopes is designed to be used if you follow a cash-based budget (as discussed above). There’s manual work involved with this app, and it’s pretty much useless for debit and credit cards, but if you’re stuck on cash, this app is perfect.

    Action items

    Although you have a firm plan in place for knocking out your debt, it doesn’t mean you shouldn’t take full advantage of some excellent tools out there to help you along the way. By consolidating or transferring your balances, as well as looking into new apps, you can become a debt-paying guru in no time.

    My ask at this point is to simply explore these options. Consolidation won’t be for everyone, for example. So explore these options and see if any of them work for you and your lifestyle.

    Other tips to reduce debt

    When it’s all said and done, the above guide should give you a very solid path toward paying off your debts. But just in case you want even more ideas, here are some additional tips for paying off your debt:

    1. Look into credit counseling

    Consumer credit counseling is a service that’s offered to people who are in debt. They’re non-profit organizations that will negotiate lower payments on your behalf. In many cases, this has little to no impact on your credit, unlike a hardship program (see below).

    Essentially, these companies will walk you through a budget of your monthly income and expenses. They’ll give you advice on how and where to cut back. Then they’ll ask which accounts you want counseling on and ask you to close those accounts.

    Once the accounts are closed, the organization will contact your creditor and negotiate a reduced rate. Banks are likely to negotiate with these organizations because they have pre-existing relationships, and the success rate of paying the debt back is higher in working with a credit counseling program.

    This is considered a hardship option, so only go this route if you have exhausted all other options. To learn more about credit counseling, go here. You can also find a list of trusted credit counseling organizations here.

    2. Ask about a hardship program

    Credit card debt is unsecured – meaning that there’s nothing the bank can do (besides destroying your credit) if you don’t pay. Unlike secured debt, such as a home or car, there’s nothing that can be taken from you if you don’t pay your credit card balance.

    That’s one of the primary reasons banks offer hardship programs. Basically, this is an internal debt management program your credit card company will put you on in order to pay off your debt. They’ll close your account and reduce your rate so you can pay it off quicker. They’ll also make a note on your credit file that will tell other creditors the balance is in a debt management program (this may or may not hurt your credit score).

    To do this, call your credit card company and tell them you’re having a hard time paying your balance and ask what types of options they have to help you pay it back. Remember – this should only be done after you’ve exhausted other options since a hardship program is considered a negative credit event by most lenders.

    3. Ask family

    Asking family members can be incredibly awkward and uncomfortable, but it might be one of your best options if all else fails. Family members, once past the uncomfortableness, will many times loan their loved one’s money at no interest.

    Now, while this may be one of your best options from a financial perspective, it’s one of the worst from a relationship perspective. I’ve had relatives destroy their relationship within the family because of money issues. Think about it – what happens if you can’t pay the money back?

    Be cautious about this option, and only use it if you’re in dire need and have no other options. If you reach this point, here are some tips on how to ask your family to borrow money.

    Don’t forget to establish an emergency fund

    All this talk about paying off debt and you’re probably focused on doing everything you can to get rid of debt. But what happens if there’s an emergency, such as a major car repair or medical bill?

    If you’re throwing everything you can at your debt, you may have nothing left to cover these types of expenses, so you will find yourself getting right back into debt.

    This is one of my key disagreements with Dave Ramsey’s philosophy. He says you should keep $1,000 and put everything else toward debt. I think you should build up an emergency fund, of at least six months, while you’re paying off your debt.

    This means balance.

    This means that with an effective budget, you should have room to save a little bit and put money toward debt. That way you’re building up emergency savings in case anything happens.

    How to build an emergency fund quickly

    Assuming you’ve followed this guide to this point, you’ve already tracked your spending and created a budget. Those are the first two steps to creating an emergency fund. Here are some additional things to do:

    Pocket lump sums

    Instead of using things like a bonus or a tax refund to buy something, sock it away in a savings account. It’s hard sometimes when you have a huge influx of cash to not want to do something with it, but just think of your emergency fund as a holding place for money you will do something with. It’s still your money, you’re just saving it for a more defined purpose down the road.

    Find ways to save little bits

    Every little bit helps. You can use an app like Acorns to round up your purchases to the nearest dollar and invest the difference. So for example, if you spend $47.25 at the grocery store, Acorns will round that up to $48 and invest $0.75. This may not seem like a lot, but if you consider the amount of money you’re already spending, carving out little bits here and there will help.

    You can also do this more manually by finding cheaper alternatives to things you’re already buying. For instance, go to Aldi instead of Whole Foods. You can save a ton of money on the same types of foods by purchasing generic brands.

    Automate your savings

    David Bach, the author of The Automatic Millionaire, says that you should pay yourself first and live off the rest. He’s talking about automation. If you automate your savings, after a while you may not even know it’s missing. You’ll begin to live off of what you have left from your paycheck, while the rest is sitting in a savings account somewhere.

    Simply set up an auto contribution within your bank’s online banking system and you’re good to go. I have a set amount of money transferred to my savings account every week for instance. It’s great because I feel like I never know it’s there, to begin with, but then my emergency savings balance grows over time.

    Will I ever get out of debt?

    If you put your mind to it, stay focused, and follow this guide – yes. In fact, here are some of the best success stories of people who have overcome tremendous amounts of debt:

    Conclusion

    Whew. Well, there you have it. The ultimate guide to paying off your debt. Since this was a beast of an article, let me recap it for you, in case you skimmed.

    Here are the steps you need to take to pay off your debt:

    1. Find out how much debt you have
    2. Decide on a payment method
    3. Cut your spending and/or increase your income

    Once you’ve carved out a plan for that, it’s time to up your game a bit. Here are some other things to do:

    • Use other tools to help you get out of debt faster
    • Look at alternative options
    • Don’t forget your emergency savings account

    Now I want to hear from you:

    What steps did you follow to get out of debt, or how are you working your way through your existing debt now? Please share in the comments section below!

    How To Invest $500,000 Responsibly And Make Your Money Grow

    How To Invest $500,000

    We’ve written extensively about how to invest generally, but there’s something fundamentally different about investing with as high a sum as $500,000. If you’re investing smaller amounts, your emphasis will necessarily be on growth. But something changes with a portfolio of $500,000. You now have something to lose!

    Where can you invest with $500,000? At this level, income and capital preservation become much more important. This is especially true if you are either retired or nearing retirement age.

    Once again, you don’t need to be an investment expert to invest safely and responsibly. The more you can automate your investment activities, the less stressful investing will be. And after all, isn’t the whole point of having money to live a stress-free, happy life?

    Without further ado, let’s investigate the investment of options available at $500,000.

    Where Can You Invest with $500,000?

    Just as is the case with lower investment amounts, with $500,000 you can focus on stocks, real estate, and fixed income securities. But in this analysis, we’re going zero in on four different investment strategies:

    Each deserves a place in a portfolio of $500,000 or more. What it mostly comes down to is your own risk tolerance, and the specific allocation you’ll use between the four.

    Capital Preservation

    Whether it’s an emergency fund or a portfolio of bonds, capital preservation needs to be worked into every portfolio size. The purpose of capital preservation assets is to make sure that at least a portion of your portfolio will retain its value even in the worst of equity markets.

    That will minimize overall losses to your portfolio, as well as enable you to keep liquid assets available to take advantage of the depressed prices bear markets create.

    The safest assets for this purpose are fixed income securities. These include bonds, high yield savings products, and US Treasury securities. You can use any one of these asset classes for capital preservation, or even a mix of two or more.

    Investments Emphasizing Capital Preservation

    Bonds. These are debt securities issued by corporations and governments. They usually have a term of 20 years or longer, and are available in amounts of $1,000. They can be purchased through investment brokers, that sometimes require you to buy them in blocks of 10. You can also check out Worthy – they make buying bonds easy and cheap.

    Interest rates on bonds are higher than they are on shorter term securities, and your principal is guaranteed at maturity. They can provide long-term capital preservation, and can even rise in value in a declining interest rate environment.

    High yield savings products. These include savings accounts, money markets, and certificates of deposit (CDs). They’re available through banks and credit unions with:

    • Terms ranging from three months to five years
    • Minimum denominations of $0 to $10,000 or more
    • Free of charge when purchased directly through the issuer

    Most local banks and credit unions paid very low interest on these securities. A better option is to invest through online banks, like Ally Bank and Capital One 360, that pay much higher rates.

    US Treasury securities. These securities represent US government debt. They can be bought, held, and sold – free of charge – through Treasury Direct. They also offer Treasury Inflation Protected Securities (TIPS), that pay interest, and add principal for protection against inflation.

    The securities carry terms ranging from four weeks to 30 years, and can be purchased in denominations of $100. At this writing, US Treasuries are paying over well over 2% APY on all maturities.

    Comparing Capital Preservation Assets

    Asset/FeatureBondsHigh Yield SavingsUS Treasuries
    Minimum investment$1,000 to $10,000$0 to $10,000100
    FeesAbout $10 per bondNone if purchased directly from issuerNone if purchased directly from issuer
    LiquidityDepends on the bond issueHighHigh
    Risk of loss of principalHigh in a rising interest rate environmentNoneNone if held to maturity, but high on bonds in a rising interest rate environment
    Where to buyInvestment broker or WorthyBanks, credit unions, online banksUS Treasury Direct, but also brokers for small fee
    Best forIf you believe interest rates will fallSafety and liquiditySafety and liquidity

    Income Generation

    All the capital preservation assets listed above pay interest, which means they also generate income. But that income level is usually limited to the 2% to 3% range. There are other assets that can generate higher income levels.

    There’s a trade-off with higher yielding assets. There’s a possibility you could lose some of your principal, however, there’s a also a good chance you’ll see capital appreciation if the value of the underlying assets increase.

    What are those assets?

    High Dividend Stocks

    Many stocks pay dividends. But some stocks pay above average levels, and have strong track records of both paying and increasing dividend payouts steadily over many years.

    These stocks are referred to as dividend aristocrats. A stock must meet the following qualifications to be considered a dividend aristocrat:

    • Be in the S&P 500
    • Have 25+ consecutive years of dividend increases
    • Meet certain minimum size and liquidity requirements

    With that kind of profile, dividend aristocrats also have strong potential for capital appreciation. In a way, that qualifies them as both income and growth assets.

    They can be purchased through an investment broker, though there are exchange traded funds (ETFs) that specialize in these stocks. The ETFs can also be purchased through investment brokers.

    Real Estate Investment Trusts (REITS)

    REITs are basically mutual funds for commercial real estate. A single REIT can hold dozens of properties, including apartment buildings, shopping centers, and office buildings. Like mutual funds, you can choose the specifics. For example, you can choose a fund that invests in properties located only in major metropolitan areas. You can also choose the fund based on the type of property held, for example, industrial warehouses.

    Since REITs are legally required to payout at least 90% of their income to their investors in the form of dividends, they can be an excellent source of above average income.

    REITs have produced annual rates of return of 9% over the past five years, which compares favorably to the return on stocks over the same period.

    Dividend.com lists more than 200 dividend paying REITs, some of which pay over 10% annually. REITs can be purchased through investment brokers.

    Peer-to-Peer (P2P) Lending

    P2P lending platforms are where you can invest in loans made directly to borrowers. The loans are typically unsecured personal loans, used for an unlimited number of purposes. The interest rates are considerably higher than what capital preservation assets pay.

    There are investors claiming steady returns of 10% or more on platforms like Lending Club and Prosper.

    Naturally, an investment that pays at that level will involve a significant degree of risk. With P2P loans, there’s always the possibility of default. If so, you can lose some more all of the principal invested in any loan.

    It’s best to use P2P loans as a small allocation in your income generating portfolio, that will increase the overall return. But due to the degree of risk, it should not comprise 100% of this asset allocation.

    Comparing Income Generation Assets

    Investment/FeatureHigh Dividend StocksREITsP2P Lending
    Minimum investmentVaries by stock price and number of shares purchased$500 and up$25 to $1,000
    Fully designed portfolioYes, with funds, no with individual stocksYesNo
    Ongoing portfolio managementNo, unless purchased through a fundYesNo
    Fees$0 to $6.95 depending on investment broker used0.1About 1% per year
    Potential for capital appreciationYesYes, on some REITsNo
    Potential for lossYesYesYes
    Available for IRAsYesYesYes
    Best forInvestors looking for high income and growth potentialInvestors looking for high income and growth potentialInvestors looking for higher returns than on safe assets

    Growth

    High dividend stocks and REITs do have the potential to provide growth. But since their primary function is income generation they’re not specifically included in this category.

    The primary growth-related investment is stocks. That’s because the average annual rate of return on stocks has been 10% since 1928. For this reason, stocks must be a major allocation in your portfolio.

    Stocks can be purchased in one of three ways:

    • Individual stocks
    • Funds (mutual funds and ETFs)
    • Robo-advisors

    Let’s look at how each works, as well as the advantages and disadvantages that go with them.

    Individual Stocks

    With an investment portfolio $500,000, you can certainly invest in a portfolio of individual stocks, and still have plenty of funds left over for the other investments in this article. For example, you can allocate $200,000 toward $10,000 in each of 20 companies. That would give you diversification comparable to a mutual fund, but still leave you with $300,000 to invest elsewhere.

    Individual stock advantages:

    • You can choose the stocks you find most attractive, based on your own criteria.
    • If you have a knack for picking stocks, you may be able to outperform funds.
    • You may periodically identify a new or under-priced stock, that increases in value many times over the years.
    • Investing in individual stocks works best for experienced investors, with a demonstrated track record of successful investing.

    Individual stock disadvantages:

    • You can suffer major losses if you lack sufficient investment skill.
    • Trading fees can make owning individual stocks more expensive than other forms of ownership.
    • You’ll need to investigate and evaluate each stock you purchase, then decide the right time to sell each.

    Keeping your portfolio adequately balanced between various companies can be a certified nightmare.

    Where to invest in individual stocks. Fidelity, Ally Invest and TD Ameritrade are all comprehensive investment platforms, designed for the self-directed investor. They also charge very reasonable trading commissions.

    Funds – Mutual Funds and ETFs

    A fund is a portfolio of stocks. A mutual fund selects what the fund manager believes to be the best performing stocks, in an attempt to outperform the market. But they have higher expense ratios than ETFs, and often come with a load fee between 1% and 3%.

    ETFs are index-based funds. The fund is tied to an underlying index, like the S&P 500. These funds are considered passive investments, since they match the market, and don’t try to exceed it. But this is also why they have lower fees than mutual funds.

    Fund advantages:

        • No need to pick and research stocks.
        • Funds provide built-in diversification.
        • You can buy and sell funds just like individual stocks.
        • You can invest in specific industry sectors, like IT, energy or healthcare.

    Fund disadvantages:

        • Very few funds ever outperform the general market, and never consistently when they do.
        • Fees on mutual funds can be high, which will reduce your returns.
        • There are now thousands of funds, making choosing the best ones as difficult as picking individual stocks.
        • Funds can generate taxable gains even when the stock market is falling.

    Where to invest in funds. You can buy, hold and sell funds with the same investment brokers where you can trade stocks. ETFs typically have the same trading commissions as individual stocks.

    Mutual funds usually have higher commissions, as well as load fees and higher expense ratios than ETFs. But you can also purchase funds through fund families, like Vanguard, where no additional fees will be charged for trades.

    Robo-advisors

    At Autopilot Finances we like robo advisors, even for large portfolios. They can completely remove the job of picking individual investments, as well as managing them. This will be especially important if you don’t have much investment experience. A robo-advisor can handle the technical side of investing, while you concentrate on funding your account.

    The robo-advisor phenomenon is not more than a decade old. Yet there’s already been a steady growth in both the number of robo-advisors, and the investment specializations they work with. But one fact is certain with nearly all robo-advisors, and that’s that they emphasize investing in stocks.

    In most cases, stocks will be held through low cost ETFs. In a typical robo-advisor, your stock portfolio will be allocated across between six and 12 individual stock ETFs. This will give you broad exposure to the entire stock market, both domestic and foreign.

    Betterment and Wealthfront are two general purpose robo-advisors, and the most popular in the industry. Each provides complete portfolio management an annual rate of just 0.25%.

    We also like M1 Finance, because it offers an opportunity to pick the investments in your portfolio. Using an investment methodology they refer to as “Pies”, they offer either platform-designed pies, or you can create your own, using a mix of up to 100 ETFs and individual stocks. The platform will then fully manage each pie for you. What’s more, M1 Finance charges no fee for their service.

    Comparing Growth Asset Options

    Method/FeatureIndividual StocksFundsRobo-advisors
    Minimum investmentVariesNo minimum on EFTs, generally $3,000 for mutual funds$0 and up
    FeesTrading commissions $0 to $6.95 per trade$0 to 3% on purchase or sale0% to 0.50% per year
    Potential to outperform the marketHigh, depending on your investment skillsLowVery low
    Potential to underperform the marketHighLowVery low
    Available for IRAsYesYesYes
    Professional managementNoYesYes
    Investment expertise neededHighModerate/lowLow/none
    Best forSelf-directed investorsModerately experienced investorsInexperienced investors

    Speculations

    With an investment portfolio of $500,000 or more, you have the kind of capital to consider a limited number of investment speculations. With 90% to 95% of your portfolio invested in the assets above, you may want take a chance holding 5% to 10% in one or more speculations.

    Speculating combines the potential for big gains with a high risk of loss, including total loss. Not all investors are willing to go that route, but we’re opening up this discussion in case it may interest you.

    There are dozens of speculative investments, but we’re going to focus on three of the most common:

        • Direct real estate ownership
        • Real estate crowdfunding
        • Precious metals and cryptocurrencies

    Direct Real Estate Ownership

    Real estate is generally considered to be a safe investment, at least with owner occupied residential property. But owning investment property directly has the potential to both provide incredible long-term gains, and also significant losses.

    The most common way to invest in real estate is through the purchase of rental properties. The basic idea is you purchase the property and rent it out at what will hopefully be a monthly profit. After a few years, as the value of the property increases, and the mortgage balance declines, you can sell the property for a big windfall.

    However, there are a few risks that could change that outcome:

        • You may not be able to rent the property for enough to cover the monthly expenses. If so, you’ll be subsidizing your tenant(s).
        • Tenants can degrade or even destroy the property.
        • You can be sued by your tenant.
        • The value of the property may not rise, and may even decline in certain market conditions.
        • Individual properties are generally not very liquid.
        • The property could develop a series of structural deficiencies that will force you to pour large sums of money into it on a regular basis.

    The potential to make a lot of money with direct real estate ownership is high. But the list of potential negative outcomes above indicates how speculative it can be.

    Real Estate Crowdfunding

    Real estate crowdfunding is actually legally considered to be speculative investing. It’s for that reason that most real estate crowdfunding platforms require you to be an accredited investor. If you have $500,000 in investments, you may not qualify as accredited based on your net worth (which must be at least $1 million, not including your primary residence), but you may qualify based on a minimum annual income of $200,000.

    If that’s the case, you’ll have your choice of real estate crowdfunding platforms to choose from.

    But understand that this is a high-risk undertaking. Much like owning investment real estate directly, this is a true high reward/high risk venture. You’ll have a choice to invest in either high interest real estate debt, direct equity participation, or a combination of both. You may be investing in commercial buildings, like apartment complexes, or individual fix-and-flip deals.

    The potential to earn more than you can with REITs is certainly there, but so is the potential to lose some or all your investment. You’ll also have to tie your money up for several years, as these investments are highly illiquid.

    Still, if you want to invest in commercial real estate, there are several platforms to investigate. Examples include:

    Precious Metals and Cryptocurrencies

    There are all kinds of speculations, loosely referred to as “hard assets”. We’re going to focus only on precious metals and cryptocurrencies, since they’re probably the most common.

    Gold and silver are mainly a play on fear. They tend to react well to crisis, particularly inflation, international instability, and lack of faith in paper currencies. They had an outstanding run in the 1970s, and then again in the early 2000s. Both were times of ongoing crisis.

    But the problem with precious metals is that they tend to languish or decline during normal times. This is what creates the high reward/high risk combination that makes precious metals speculations.

    You can own precious metals in bullion form, such as with coins and bars. You can also hold gold through an ETF, like the SPDR Gold Shares (GLD) ETF. There are also a number of gold-based mutual funds, however these are more about gold mining stocks than the metal itself. They can be extremely volatile, and hardly qualify as investments in the conventional sense.

    Cryptocurrencies are a very new development, and poorly understood by the average person. But the investment potential stems from 2017, when the value of cryptocurrencies exploded. For example, the price of Bitcoin went from $960 at the end of 2016, to a high of well over $18,000 in December, 2017.

    That kind of price action is bound to draw attention. However, more recently Bitcoin has fallen back to the $3,600 level. If you timed it perfectly, you made a fortune. If you didn’t, you got crushed.

    But that’s the way it is with speculations, and that’s why any money put into them should be held at an absolute minimum.

    Final Thoughts on Where Can You Invest with $500,000

    As you can see, the investment options available with $500,000 are practically unlimited. More than anything else, it will come down to your asset allocation.

    A hypothetical portfolio might look like this:

        • Capital preservation, 15%
        • Income generation, 30%
        • Growth, 50%
        • Speculations, 5%

    But that’s just an example. Your allocation should depend on your own investment goals, time horizon, and risk tolerance. Invest some time determining what those are, and the best portfolio allocations for you will fall right into place. After that, it’ll just be a matter of deciding exactly how you’ll invest in each asset category. This article will help you do that.

    Note: This article is about how to invest $500k, but the strategies presented are equally relevant if you have $750,000 or even higher. If you fall outside of this range, read one of these articles for more personalized advice on investment strategies.

    How To Invest $100,000 Safely While Making It Grow Fast

    How To Invest $100,000

    Investing $100,000 can be daunting because of the magnitude of the task at hand. There are so many categories to choose from. Stocks, bonds, mutual funds, ETFs and REITs. High-yield savings products, treasury securities and P2P investing. What should your portfolio mix be, how willing are you to risk your capital? These questions can keep a person awake at night.

    In this article we’ll get into all that, and more.

    Introduction: How To Invest $100,000

    Because $100,000 provides more investment options, we’re going to focus primarily on asset classes, and then suggest platforms where they can be acquired and held.

    There are three basic asset classes:

    • Stocks
    • Real estate
    • Fixed income securities

    Below is a detailed discussion of each of the three, as well as the best investment platforms to acquire them through.

    Stocks

    If you read any articles or listen to any financial experts talk about long-term investing or retirement, you’ll see or hear a heavy emphasis on stocks.

    There’s an excellent reason for this.

    Stocks provide equity ownership of companies that represent the means of production of both the national and global economies. Put another way, stocks represent ownership in the business organizations that create wealth.

    As a long-term investor, looking to build your own wealth, stocks need to form the cornerstone of your investment portfolio.

    For the past 90 years, the stock market has had an average annual return of about 10%, based on the S&P 500 Index. That isn’t to imply you can expect a 10% return each year. But that is the long-term average, and you need to be heavily invested in it.

    Where to Invest in Stocks

    One of the advantages to having a portfolio at least $100,000 is that you have a choice as to how you will invest in stocks. There are three basic ways to do this:

    Robo-advisors

    Here at Autopilot Finances we strongly encourage you to try a robo-advisor, at least when you’re starting out. They’ll invest your money for you based your age, time horizon, investment goals and risk tolerance. Robo-advisors design and manage your portfolio at a very low fee. It’s autopilot investing at it’s best, since all you need to concern yourself with is funding your account.

    Betterment and Wealthfront are the two most popular robo-advisors. Each will provide you with a diversified portfolio of stocks and bonds, and in the case of Wealthfront, real estate. Each will manage your portfolio for a very low fee of 0.25%.

    Another very interesting robo-advisor is M1 Finance. What makes it unique is that while it works like a robo advisor, you can actually choose the investments in your portfolio.

    It works on a concept called “Pies”. Each pie is a portfolio dedicated to a certain investment goal. The platform has more than 60 prebuilt pies, but you can also create your own. Each pie has as many as 100 “slices”, which can be ETFs or individual stocks. Once you’ve created a pie, it’s then automatically managed by the platform.

    Best of all, M1 Finance has no minimum investment, and charges no fees to manage your account.

    Invest in Individual Stocks

    You can invest $60,000 in the stock of 12 different companies, with an average investment of $5,000 each. That’s like creating your own mutual fund. The best way to do this is through investment brokers.

    If you’re a self-directed investor, and you want to choose your own stocks, it’s best to work with a diversified investment platform. Examples include Fidelity and Ally Invest. Each platform offers trades on stocks and ETFs at a low $4.95 per trade.

    TD Ameritrade is another excellent investment platform, though trading fees are a little bit higher, at $6.95. Best of all, all three platforms also offer a robo-advisor option, should you decide you want to have part of your portfolio professionally managed.

    If you’re an active trader, which we don’t recommend, Robinhood and Firstrade offer free trades.

    Funds

    You can choose to invest in stocks through either exchange traded funds (ETFs) or mutual funds. This will give you an opportunity to invest in a portfolio of stocks, without having to concern yourself with the day-to-day tasks of managing it.

    ETFs are generally based on underlying market indexes. For example, the most common index is the S&P 500. Others can include sectors, like energy stocks, health care stocks, and emerging market stocks. ETFs are considered passive investments because they are not actively traded. The only trades made are to keep the fund consistent with the underlying index. For this reason, ETFs have lower expense ratios than mutual funds.

    ETFs can be purchased through investment brokers, generally at commissions equal to those for stocks.

    Mutual funds are typically actively managed. Rather than investing in an underlying index, the fund invests in a more narrow selection of stocks that are expected to outperform the general market. This is fundamentally different from ETFs, which only attempt to match the performance of the market.

    Mutual funds can be purchased through stock brokers, but the commissions are usually higher than they are for stocks and ETFs. They can also be purchased through mutual fund families, such as Vanguard or T. Rowe Price.

    If purchased through fund companies, there is generally no commission. But many mutual funds have what are known as load fees, which can be equal to between 1% and 3% of the fund value.

    Because of load fees, and the fact that very few mutual funds actually outperform the market consistently, investors heavily favor ETFs.

    Individual Stocks vs. Robo-advisors vs. Funds

    Here are the three methods of investing in stocks compared side-by-side:

     Individual StocksRobo-advisorsFunds
    Minimum investmentVaries$0 and upNo minimum on EFTs, generally $3,000 for mutual funds
    FeesTrading commissions $0 to $6.95 per trade0% to 0.50% per year$0 to 3% on purchase or sale
    Available for IRAsYesYesYes
    Professional managementNoYesYes
    Investment expertise neededHighLow/noneModerate/low
    Best forSelf-directed investorsInexperienced investorsModerately experienced investors

    Real Estate

    With a portfolio of $100,000, you have three options to invest in real estate:

    • Direct ownership of property
    • Real estate investment trusts (REITs)
    • Real estate crowdfunding

    Direct Ownership

    With $100,000 you’ll have sufficient funds to invest in an individual property. Unlike owner-occupied residential real estate, you can’t purchase an investment property with a minimum down payment of 5% or less. Investment properties normally require a down payment of at least 20% of the purchase price.

    If you wanted to purchase a property for $150,000, and rent it out to tenants, you would need a down payment of $30,000.

    With a $100,000 investment portfolio, you’ll be able to do this, and still have plenty of capital left over for other investments.

    Advantages:

    • You’ll be the sole owner of the property, and take 100% of the profits
    • There are significant tax advantages to owning rental real estate, including depreciation expense and favorable long-term capital gains tax rates.
    • The profit potential on a single property can be high, particularly if the property is located in a strong housing market.

    Disadvantages:

    • A property will require a large down payment, which will reduce your ability to buy multiple properties.
    • The down payment requirement will reduce the amount of money you’ll have available for non-real estate investing.
    • In a declining real estate market, you could lose money.
    • Rental real estate is a hands-on venture, that can often get messy.
    • There may be times when your expenses will exceed your rental income.
    • Real estate isn’t as liquid as other investments, so your money will be tied up for years.

    Direct ownership of investment real estate is highly specialized, and more complex than other types of investing. Carefully consider if you want to get involved on a direct basis.

    Real Estate Investment Trusts (REITs)

    In a real way, REITs make real estate investing no more complicated than owning mutual funds. In fact, a REIT is basically a mutual fund for real estate. The fund purchases the properties, manages them, then pays income to the investors. By law, REITs are required to pay 90% of their income to their investors as dividends.

    In recent years, returns on REITs have been comparable to those of stocks. But since real estate often moves in a different direction than stocks, it offers an opportunity to continue earning high returns even during a bear market in stocks.

    REITs typically invest in commercial real estate, including office buildings, retail space, industrial space, and large apartment complexes.

    You can purchase REITs through investment brokers, in much the same way as mutual funds. And because the REITs are publicly traded, you can usually sell them quickly. In the meantime, you can collect a steady stream of income, without ever getting your hands dirty.

    Real Estate Crowdfunding Platforms

    These are essentially peer-to-peer (P2P) investment sites, where investors buy either loans or equity positions in real estate investments provided by sponsors. The sponsors are basically the entrepreneurs behind individual deals. They either own the property, or are redeveloping it, either to rent it out, or to flip for a profit. They’ll come to the platform either looking for financing or to sell equity shares in the particular project.

    This type of investing is both complicated and sophisticated. First, many real estate crowdfunding platforms require that you be an accredited investor. That requires a minimum annual income of $200,000, a minimum net worth of at least $1 million (not including your house), or both. Even with $100,000 to invest, you may not qualify.

    But there are other sites that allow you to invest even if you are not accredited. For example, with Groundfloor you lend money to property sponsors who are doing property flips. You invest in slivers of loans, called “notes”. You can spread a $5,000 investment across 500 different loans, at $10 per note.

    Meanwhile, Rich Uncles and Fundrise enable you to invest in private REITs. Those trusts invest in commercial real estate, and claim to provide higher returns than publicly traded REITs.

    Though real estate crowdfunding platforms claim to provide higher returns, there are some downsides:

        • Private REITs are not liquid, and will require you to remain invested for several years.
        • Like any equity-based investment, you could lose money.
        • The individual real estate deals included in real estate crowdfunding platforms tend to be more speculative than those in publicly traded REITs.

    Real estate crowdfunding investing is primarily for those who have a desire for higher-than-average returns, and are willing to accept higher than average risk.

    Direct Ownership vs. REITs vs. Real Estate Crowdfunding

    To help you decide which real estate investment is best for you, we’ve prepared the following table:

     Direct OwnershipREITsReal Estate Crowdfunding
    Minimum investment$20,000 and up, with the rest financed$500 and up, but varies considerably by REIT$0 to $10,000 or more
    FeesSeveral thousand dollars in closing costs, plus carrying costs if expenses exceed rentUp to 10%$0 to 3%
    Professional managementNoYesYes
    Investment expertise neededHighLow/noneHigh/moderate
    Best forSelf-directed investors with real estate investment experienceInexperienced investorsInvestors willing to accept high reward/high risk

    Fixed Income Securities

    The main purpose of fixed income securities is to add stability to your investments. Unlike stocks and real estate, which can fluctuate in value, fixed income securities maintain their value, while paying you interest. Adding at least a small allocation to this asset class can reduce the overall volatility in your portfolio.

    You should decide on a certain percentage of your investments that will be held in fixed income securities. Generally speaking, the older you are, the higher the fixed income allocation should be. Conversely, the younger you are, the lower it should be.

    We’re going to focus on four different types of fixed income securities: bonds, US Treasury securities, high yield savings products, and peer-to-peer lending.

    Bonds

    A bond is a debt security with a term of 20 years or more. They’re typically available through investment brokers, and can be purchased in amounts of $1,000, but you may be required to buy them in blocks of 10.

    They’re issued by corporations and governments. Bonds issued by state and local governments are referred to as municipal bonds, and are exempt from federal income taxes. They’re also exempt from state income taxes in the state of issuance. Municipal bonds are good for taxable accounts, but not retirement accounts, since those accounts are tax sheltered.

    If you don’t want to purchase individual bonds through an investment broker, you can also buy them through either ETFs or mutual funds. This will also enable you to diversify among hundreds of bond issues within each fund, as well as reduce the risk that comes with holding individual bonds.

    US Treasury Securities

    These are considered the safest investments in the world, because they’re fully guaranteed by the US government. Treasury bills run from four to 52 weeks. Treasury notes have terms of two to 10 years. Treasury bonds are 30 years. All can be purchased in denominations of $100. Current returns on all US Treasuries are well in excess of 2% APY, even on the shortest maturities.

    There are also “TIPS”, or Treasury Inflation Protected Securities. They pay interest, and add additional principal to provide protection against inflation. However, the interest rate paid on TIPS is lower than on other Treasury securities, and the additional principal is taxable on an annual basis.

    All US Treasury securities are available through Treasury Direct, where they can be bought, held and sold, free of charge.

    High Yield Savings Products

    These include savings accounts, money markets, and certificates of deposit (CDs). They’re available at nearly all banks and credit unions. But the vast majority of local banks and credit unions pay only microscopic interest rates. The better option is to invest through online banks, which offer much higher rates.

    For example, CIT Bank is currently offering high yield savings accounts that pay over 2% APY, with a minimum investment of $100. Meanwhile, Ally Bank and Capital One 360 each currently offer CDs paying well over 2% APY with no minimum investment.

    Investment brokers typically offer CDs, but they charge a fee to purchase them. But if you invest directly through the issuing bank, no fee is involved.

    Peer-to-Peer (P2P) Lending

    P2P lenders are online lending platforms where consumers come to borrow money – generally for unsecured personal loans – and investors come to buy those loans. The underwriting process is generally easier for a borrower, and the interest rate is often lower than what they can get with a bank. Meanwhile, investors can get much higher rates of return than they can through traditional bank assets, or even US Treasury securities and bonds.

    The top two P2P lending platforms are Lending Club and Prosper.

    P2P lending pays higher rates than you can get on bank investments. But you should also be aware that it carries more risk. The personal loans you’re investing in are not secured, and are subject to default. In addition, P2P lending has certain financial requirements to participate. But if you have at least $100,000 to invest, you’ll easily meet those requirements.

    Perhaps the best use of P2P lending is to include an allocation in your fixed income portfolio. The higher interest rates will increase the overall return on your fixed income investments, without dramatically increasing risk.

    Bonds vs. US Treasury Securities vs. High Yield Savings Products vs. P2P Lending

    If you’re looking for a diversified fixed income portfolio, you may want to invest in two or more of these investments. The table below will provide you with a side-by-side comparison to help you make that decision.

     BondsUS Treasury SecuritiesHigh Yield Savings ProductsP2P Lending
    Minimum investment$1,000 - $10,000 $100 and up$0 and up$25 to $1,000
    Fully designed portfolioNo unless purchased through a fundNo unless purchased through a fundYes, with REITsNo
    Ongoing portfolio managementNo unless purchased through a fundNo unless purchased through a fundNoNo
    Fees$1 to $10 per bondFree if purchased through US TreasuryFree if purchased through bank or credit unionAbout 1% per year
    Available for IRAsYesNoYesYes
    Best forExperienced investors with large portfoliosInvestors of any size looking for completely safe investmentsInvestors of any size looking for completely safe investmentsInvestors looking for high fixed rate yields, with risk

    Final Thoughts on How To Invest $100K

    Just as is the case with smaller sums of money, you should start by having an emergency fund holding living expenses for at least three to six months. You should also pay off any high interest credit cards, since the rates you’re paying on those are almost certainly higher than what you can earn on your investments.

    And while $100,000 is an excellent nest egg, you should have a comprehensive strategy to increase it with additional contributions.

    That should start with participation in a retirement plan. If your employer offers a plan, you should absolutely participate. At a minimum, you should contribute the minimum contribution necessary to get the highest matching contribution from your employer.

    For example, if your employer provides a 50% match up to 3%, you should contribute a minimum of 6% of your income to the plan, to get the 3% match. That will give you a cumulative 9% annual contribution.

    If you don’t have an employer sponsored plan, you should start an IRA account, either traditional or Roth. And if you’re self-employed, you should set up a SEP IRA, SIMPLE IRA or Solo 401(k) plan. Each will provide higher contribution limits than an IRA.

    Contributing to a retirement plan will ensure that at least some part of your investment portfolio is tax sheltered. But you can and should make regular contributions to taxable accounts as well.

    The basic strategy should be to grow your $100,000 portfolio into something much bigger, through a combination of investment earnings and regular contributions.

    Note: This article is about how to invest $100,000, but the strategies provided are also relevant if you’re investing $200,000, $250,000, $300,000 – all the way up to half a million dollars. If you fall outside this range, check out one of these articles for a more personalized description of your investing options.

    The Easy 4-Step Guide To Mastering How To Budget

    How To Budget

    Many an essay has been written about budgeting, articles published, spreadsheets primed and filled. A Google image search reveals complicated pictures of income and debt, with convoluted arrows pointing every which way, and color-coded lines that look like they could have been painted by Kandinsky. By the look of it, budgeting could be the most complicated financial tool a person could master.

    But budgeting is really not all that scary. In this article, I’ll show you how to make a simple, clean budget – one that you’ll realistically be able to stick to without spending too much of your day keeping track of it.

    How to budget

    There are four simple steps to budgeting, and I present them to you in order of importance.

    1. Calculate your income
    2. Determine your essential expenses
    3. Set out how much you’d like to save each month
    4. Spend the rest on whatever you want

    I’ll delve into each of these categories.

    IncomeStep 1: Calculate your income – How much do you have coming in each month?

    This is the simplest, most important step in the budget. If budgeting is a pie, and we’re figuring out how large each slice should be, then this step is determining how big the pie is.

    What we’re looking for is your after-tax monthly income. So if you get paid weekly, subtract your taxes and then multiply that number by four. If you get paid monthly, just subtract taxes and you’re set to move onto step 2.

    ExpensesStep 2: Determine your essential expenses – How much do you need to spend?

    To figure out which of your expenses are essential, ask yourself this question: Can I live reasonably well without it? Housing, for instance, is an essential expense. You don’t want to make yourself homeless in your zeal for budgeting. Your annual subscription to Croquet Quarterly Magazine, though, might not make the cut.

    Here are some other examples of essential expenses:

    • Utilities
    • Transportation
    • Groceries

    SavingsStep 3: Set a savings goal – How much would you like to set aside?

    There is no right answer for how much you should be saving. Of course, there is a wrong answer: 0. But other than that, each person will want to be saving a different percentage of their income.

    Many factors will come into play here, including your individual results to Step 1 (people with a large incomes might be more willing/able to save a lot) and Step 2 (people who have low expenses might be able to save more). You’ll also want to consider other needs – Are you the kind of person who places a premium long term financial security? Or maybe you’d rather live in the moment, spending most of what you make and only saving the scraps?

    The point is, though, that this is the section where you invest in your future.

    SpendingStep 4: Spend at your discretion – Splurge on whatever you like!

    By now you should have three numbers:

    • Your total income
    • Your essential expenses (this should be smaller than your total income)
    • Your savings rate (this should also be smaller than your total income)

    The rest is just math. Take your income and subtract the other two. Whatever is left is the amount of money you can spend on yourself. Treat yourself to a fancy restaurant, go see a show, maybe even re-subscribe to the Croquet Quarterly Magazine if that’s your thing.

    Budgeting methodologies: How much should you spend on each category?

    There’s no right answer for how much you should be spending on essentials, or saving, or splurging. There is a general rule of thumb I’m going to teach you, and that’s the 50/20/30 method. It goes like this:

    50/20/30 Budgeting Methodology
    Essential expenses50% of your income
    Savings
    20% of your income
    Discretionary spending30% of your income

    You can use this to guide you in your decision making, but I urge you not to treat it as law. As I said earlier in the article, some people will spend more on essentials because they really value a nice living space – and that’s perfectly fine! Others might hate cooking at home and will spend most of their meals eating out. And you know what, that’s fine too, if you can cut down on other expenses.

    The goal is, though, to maximize the Savings category. But don’t be too hard on yourself. If you sell your car to cut down on essential expenses and drop your friends because you don’t want to waste your money on Friday night beers, you’re budgeting wrong.

    Budgeting apps

    There are a lot of budgeting apps out there, but most of them are filled with all sorts of add-on capabilities that make the bulky, bloated, and hard to use. Some are so complicated, and demand so much of your time, that I think they’re actually counterproductive – they’re more likely to make you stop budgeting than start.

    I’m going to recommend Personal Capital as the budgeting tool people should be using. Not because it’s the simplest, or even the best for budgeting, but because of its investing platform.

    Many of you reading this article are just starting to get into the world of personal finance. And that means that you probably don’t have too much money. But once you master budgeting, I believe you’ll quickly start to see savings pile up. And the next question will become: What should you do with the money you’ve saved.

    The answer is investing. If you’re there already, read this article on how to invest. But that brings be back to Personal Capital – their app isn’t really a budgeting app – it’s an investing platform with budgeting capabilities. You’ll get all the budgeting capabilities you need with their free version.

    The idea is to get you used to the Personal Capital platform so that once you have money saved up, you’ll be able to transition very easily into investing. Personal Capital offers free, automated analysis of your investments, making it a great all around personal finance choice.

    Conclusion

    The world of personal finance isn’t as scary as people make it out to be. I’m sure you see that budgeting, at least, is easy as pie. Believe me, so is the rest.

    Tips & Tricks On How To Invest $10,000 Safely & Easily

    How To Invest $10,000

    If you have $10,000 or more, hopefully you’re already investing at least some of it. But you may be unaware of exactly how many investment options you have. With the many investment platforms available, particularly online, you have practically unlimited options with $10,000.

    The main concern should be making sure your portfolio is invested in the right places, and includes the best mix of asset classes for your investment objectives.

    In this article, we’re going to take a high altitude view of investing, then drill down into the specifics of where you can invest with $10,000. By the end of it, you should know exactly where you want to invest your money, and how to go about doing it.

    Start By Building A Strong Foundation

    1) Emergency Fund

    Start with the basics. Have an emergency fund that has sufficient liquid cash to cover your living expenses for between three and six months. You can use any of the recommended fixed income investments in this article for that purpose.

    2) Pay Off High-Interest Debt

    Next, pay off any high interest credit cards you have, or at least have a plan in place for doing so. This is much more important than it seems at first glance. If you have a credit card that charges an interest rate of 19.99%, you’re very unlikely to find an investment that will pay a similar rate consistently. Paying off high rate credit cards is one of the very best investments you can make!

    To read more about strategies that will help you get out of debt, click here.

    3) Build A Diverse Portfolio

    Once you have an emergency fund in place, and your high interest credit cards paid off, you should look to diversify among different asset classes.

    Those should include the following:

    Stocks. You can hold these as individual stocks, or through mutual funds or exchange traded funds (ETFs). Stocks should dominate your portfolio, because they represent growth assets.

    Fixed income assets. These assets add stability to your portfolio. They retain value when stocks are falling. They also act as a store of cash, so you can begin buying more stocks once the downturn is over.

    Real estate. With the arrival of real estate investment trusts (REITs) and real estate crowdfunding platforms, real estate is becoming increasingly popular in investment portfolios. It’s a way of adding a hard asset to a portfolio made up primarily of paper securities. As well, real estate often moves in a direction counter to stocks.

    Where Can You Invest with $10,000?

    Earlier, we listed three asset classes – stocks, fixed income assets, and real estate – as recommended holdings in a $10,000 portfolio. Now we’re going to tell you how to buy those to create the optimally diversified portfolio. In general, there are four avenues to consider – and you should utilize as many as you like.

    • Robo-advisors
    • Investment brokers
    • Real Estate crowdfunding platforms
    • Fixed income securities: high yield savings accounts, certificates of deposit (CDs) and US Treasury securities

    You’ll most likely want to have your portfolio spread across three or four different platforms to best include all three asset classes. For example, stocks (REITs) are best held through either a robo-advisor or an investment broker. Real estate crowdfunding platforms are where you can invest in specific REITs and individual real property deals. But banks and the US Treasury are the best places for fixed income assets.

    Let’s look at all four.

     Robo-advisorsInvestment brokersReal Estate crowdfunding platformsFixed income securities
    Best ForInvestors who prefer professional portfolio management at low feesThose looking to invest in mainly in stocks, and/or in self-directed investingThose looking to diversify some funds into real estateThose looking diversify their portfolios by adding safe investments

    Robo-advisors

    We recommend robo-advisors for investors with just about any amount of money. There are enough robo-advisors to accommodate all portfolio sizes.

    The primary attraction of robo-advisors is that they create a portfolio for you, handle all the investment management, and do it all at a very low fee. They are the perfect passive way for people to invest in stocks and other assets.

    They primarily invest in stocks through ETFs, and focus mainly on portfolio allocation. For example, if you’re in your twenties or thirties, they may hold something like 90% of your portfolio in stock-based ETFs, and 10% in bond-based ETFs. It’s all determined by your age, time horizon, investment goals, and risk tolerance.

    Betterment and Wealthfront are the two most popular standalone robo-advisors, and either is a good choice.

    • Betterment has no minimum investment, and charges a 0.25% annual management fee.
    • Wealthfront has a $500 minimum to invest, and also charges an annual management fee of 0.25%.

    But with $10,000 to invest, your robo-advisor options open up considerably.

    Most large investment brokers now offer robo-advisor services. This presents an excellent opportunity to have some of your portfolio professionally managed, while also being able to engage in self-directed investing through the same platform.

    If you like that idea, Charles Schwab (see below) offers its Schwab Intelligent Portfolios robo-advisor. The minimum investment is $5,000, but there is no annual management fee for the account.

    E*TRADE (see below) offers a similar arrangement. You can do self-directed trading on the E*TRADE platform, while also having some of your money professionally managed through E*TRADE Core Portfolios. You’ll need a minimum investment of $5,000, and the annual management fee is 0.30%.

    Investment Brokers

    With $10,000 to invest, you can choose just about any investment broker in the industry. We’ve listed the brokers below because each offers features you’re likely to find attractive, either because of the quality of the platform, low trading fees, or the availability of a robo-advisor service.

    With at least $10,000 you also have more investment options. With smaller dollar amounts, you’re limited to investing with either low minimum robo-advisors, or ETFs. With at least $10,000, you have those same choices. But you also have the ability to invest in mutual funds and individual stocks.

    A typical mutual fund minimum investment is $3,000. You can invest in one and still have plenty of money left over for other investments.

    And with stocks, $10,000 gives you the ability to invest in several companies. You can spread $2,500 across 10 different companies. That will give you adequate diversification, with money left over for other investments.

    Real Estate Crowdfunding

    This investment category is a mixed bag. Most real estate crowdfunding platforms require you to be an accredited investor. That requires a minimum annual income of $200,000, a minimum net worth of at least $1 million (not including your house), or both. Even with $10,000 to invest, you may not qualify as an accredited investor.

    But you can still invest with real estate crowdfunding platforms that don’t require you to be accredited. Three examples include:

    Groundfloor. You invest in property flipping deals (like on the TV show Flip or Flop. You’re not actually participating in the flip directly, but buying slices of flip-related loans, called “notes”. You can spread an investment $2,000 across 200 different loans, at $10 per note.

    Rich Uncles. This platform invests in real estate investment trusts (REITs) that invest in commercial real estate. They generally require a minimum initial investment of $500.

    Fundrise. This platform also enables you to invest in REITs that invest in multiple commercial projects. The minimum initial investment is between $100 and $1,000, depending on the specific REIT you choose.

    One of the downsides to investing with real estate crowdfunding platforms is that the investments and the REITs they offer are private. That means they cannot be sold once you make your investment. You’ll need to stay with your investment until it pays out, and that can be several years.

    Publicly Traded REITs

    The alternative is to invest in publicly traded REITs. These work much the same as crowdfunding REITs. They’re basically mutual funds for commercial real estate projects. Each fund holds and manages several properties, and they can be segmented based on geography or property type (like apartment complexes, retail, or office buildings).

    You’ll be paid dividends, based on both interest or rent income, as well as capital appreciation. And since the REITs are publicly traded, you can sell your shares at any time.

    You can purchase publicly traded REITs on any of the investment brokers listed in the previous section.

    Fixed Income Securities: Bonds, US Treasury Securities, and High Yield Savings Products

    You won’t get rich investing in fixed income securities, but that’s not their real purpose. No, their real purpose is capital preservation. Stocks, real estate, and virtually all equity type investments involve a healthy amount of risk. Fixed income securities need to be included in your portfolio to provide at least some protection from the volatility that’s a natural part of equities.

    In other words, this portion of your portfolio is low-risk – so even if the market takes a downturn and you lose some money on your other investments, these will stay safe.

    For that reason, you should hold a certain percentage of your $10,000 in fixed income securities. Exactly what that percentage will be will depend on your age and risk tolerance.

    If you invest a robo-advisor, a certain percentage of your portfolio will be allocated to fixed income securities automatically. And if you invest through an investment broker, you can hold these securities through either ETFs or mutual funds.

    With that information in mind, let’s look at each of the three major categories of fixed income securities.

    Bonds

    The term “bonds” itself is confusing. Investors and media sources often lump all fixed income securities under this title. In reality, a bond is a long term that security, usually 20 years or longer. They can be issued either by corporations or government agencies.

    Bonds issued by state and local governments are referred to as municipal bonds. They have the advantage of being tax-free for federal income taxes, as well as from state income taxes in the state of issuance. They’re best held in taxable accounts, since they can provide a source of tax-free income. (Conversely, they make little sense in retirement accounts, since those are already tax sheltered.)

    Bonds are commonly available through investment brokers. They are generally purchased in amounts of at least $1,000, and often in blocks of $10,000. There’s usually a small fee for the purchase and sale of bonds.

    For most investors, especially at the $10,000 level, the better way to own bonds is through either a mutual fund or an ETF. Not only are funds more convenient, but they’re also more diversified. You can invest a few thousand dollars in a fund that holds bond issues from hundreds of companies and governments.

    If you want to buy bonds, check out Worthy – they make the process easy, they offer a high return on their products, and they have a very low minimum investment.

    US Treasury Securities

    These are considered the safest investments in the world, because they’re fully guaranteed by the US government. They offer terms of four weeks to 30 years, and in minimum denominations of $100. They currently pay over 2% APY on all securities offered. They also offer a unique product called Treasury Inflation Protected Securities (TIPS). These
    pay interest, and add additional principal to provide protection against inflation.

    US Treasury securities are available for direct investment through Treasury
    Direct, free of charge.

    High Yield Savings Products

    These include savings accounts, money markets, and certificates of deposit (CDs). They’re available at nearly all banks and credit unions. But you should be aware of that the vast majority of local banks and credit unions pay only microscopic interest rates. The better option is to invest through online banks, which offer much higher rates.

    For example, online banks such as CIT Bank, Ally Bank and Capital One 360 currently offer CDs and some high yield savings and money market accounts paying over 2% APY.

    Investment brokers typically offer CDs, but they charge a fee to purchase them. If you invest directly through the issuing bank, no fee is involved.

    Robo-Advisors vs. Investment Brokers vs. Real Estate Crowdfunding vs. Fixed Income Investments

    $10,000 is a point at which you can begin spreading your investments across different investment platforms and asset classes. That’s one of the most critical strategies when it comes to investing. Below is a summary table of the four different investment platforms we’ve covered in this article. It should help you too be able to work each category into your portfolio.

    Platform/FeatureRobo-AdvisorsInvestment BrokersReal Estate CrowdfundingFixed Income Securities
    Minimum investment$0 - $5,000 and up$0 and up$5 - $10 and up$0 and up
    Automatic depositsYesGenerallyVaries by platformYes
    Fully designed portfolioYesETFs and mutual funds are mini-portfoliosYes, with REITsNo
    Ongoing portfolio managementYesMany brokers also offer robo-advisorsYesNo
    Fees0.25% - 0.50% per year$0 to $6.95 per tradeNone for Groundfloor and Rich Uncles, but most have feesFree when purchased direct from the issuer
    Available for IRAsYesYesYesYes

    Don’t Forget Retirement Investing

    With $10,000 to invest, some of it should be used for intermediate term purposes. This can include investing for any needs that will occur between now and retirement. That can be saving money for the down payment on a house, for a college education for your children, or just to have a growing portfolio available for any need that may arise.

    But at the same time, you should also be investing for retirement.

    If you have an employer sponsored retirement plan, like a 401(k) or 403(b) plan, you should participate in it. You won’t be able to move any of your $10,000 directly into an employer plan. But you can begin making contributions out of your income. Best of all, some employers offer a limited employer match on your contributions.

    If you aren’t covered by a plan at work, you should open an IRA. That can be either a traditional or a Roth IRA. With a traditional IRA, contributions are tax deductible, investment earnings are tax deferred, and the funds are taxable as ordinary income when they’re withdrawn.

    With a Roth IRA, contributions are not tax deductible, investment earnings are tax deferred, but the funds can be withdrawn tax-free, beginning at age 59 ½, and as long as you have participated in the plan for at least five years.

    Either plan is self-directed, which means you can hold the account with most of the investment platforms included in this article.

    If you’re self-employed, you have additional retirement account options, that offer more generous contribution amounts. These include a SIMPLE IRA, SEP IRA, or Solo 401(k). They’re also self-directed, and suitable for any of the investment platforms in this article.

    Retirement plans will add tax deductible contributions and tax deferred investment income to your investment mix.

    For a complete guide to retirement accounts – and to figure out which one is right for you – check out this article.

    Final Thoughts on Where Can You Invest with 10K

    If you have at least $10,000, not only should you be investing, but you should also be spreading your money across different asset classes and at least two or more investment platforms. That will give you an opportunity to balance both growth and capital preservation, as well as to take advantage of income opportunities from a variety of sources.

    Note: This articles presents the best way to invest $10,000, but the strategies will work just as well if you have $25,000, $50,000, or even as much as $75,000. If the amount you have available falls outside of that range, we recommend you check out one of these articles for more personalized advice.