Category: Finance

Retirement Investment Options in the U.S.

With a living cost that keeps rising, it is mandatory that you think about how to save money, and if it’s possible while enduring little risks and high returns. You need to fit together the best way you can incomes and lifestyle goals so that you become able to make yourself comfortable during your retirement years. The whole idea is about preserving the money you already have, and the earlier you start saving for retirement, the more money you will be able to have for sure in the future. That said, it is never too late to start planning for retirement, and we are here to give you some helpful advice. In order to make the plan efficient, you must be ready to sacrifice some returns to lower the risks. You must learn how to balance risk and return. Here is a list of the most popular investment options to consider.

Annuities

Annuities are financial products that pay out a fixed stream of payments to an individual, primarily used as an income stream for retirees. Payments are provided monthly, quarterly, annually or by a lump sum payment during retirement. They are created and sold by financial institutions or through your broker. Their job is to accept and invest funds from people and, upon annuitization, give a stream of payments later. Once the payments start, the contract enters the annuitization phase.
The pros: You get tax-deferred growth of earnings. No annual contribution limit. A regular and consistent income source during retirement.
The cons: very high expenses, potential early withdrawal penalties, and payments may be taxed as regular income and you don’t get an extra death benefit.

Bonds

Bonds are actually just debt securities where you invest money to an issuer on a loan basis, it can be a company or the government. Once you buy a bond, you extend a loan to the bond issuer for a certain period of time. In exchange for the loan, the issuer pays you a specified interest rate regularly (it is also called the coupon rate). When the bond reaches the full term, the issuer should repay the loan (or full value) on the bond. You may find them on the Over-the-counter (OTC) markets including securities firms, banks, brokers and dealers. Some of the corporate bonds are listed on the New York Stock Exchange. U.S. government bonds and can be purchased on a program called Treasury Direct.
The pros: some bonds have no risk, some are tax exempt and many are an even low risk. The benefit is you know the return on your income and often it will have better returns that other short term investments.
The cons: It’s possible they could default and you would receive no return but this is uncommon. If you sell before the bond matures can also incur penalties..

Cash Investments

Cash investments are generally low-risk and can range in the time frame of the investment. They provide returns via interest payments. You can invest directly through financial institutions, your broker, your local bank or credit union.
The pros: they are easily redeemable, and often FDIC insured. They also are low- to no-risk.
The cons: they have a low return and can include withdrawal penalties.

Direct Reinvestment Plans (DRIPs)

DRIP is a plan proposed by a company. It allows you to automatically reinvest any cash dividends by purchasing more shares or fractional shares on the dividend payment date. Instead of receiving your quarterly dividend check, the company, transfer agent or brokerage firm managing the DRIP puts the money, on your behalf, directly towards the purchase of extra shares. Many DRIPs offer you the chance to start with a very small number of shares or low dollar amount and they support fractional shares.
The pros: this is a convenient means of reinvesting, it is also often commission-free and you may get a discount on purchases.
The cons: you always owe taxes on cash dividends even though you never receive the cash.

401(k)s and Company Plans

401(k)s and other company plans (or defined-contribution plans) concern you as an employee. You  contribute to the plan through a payroll deduction each pay period. You are the one who decides what percentage of your salary will be taken and the deduction is taken automatically out of each paycheck. Sometimes, your employer may also contribute to the plan with a matching contribution. To create such a plan, refer to your employer’s Human Resources team or Human Capital department.
The pros:  Often your contributions can be tax-deductible and also may grow tax-deferred. Some employers offer matching contributions (which is essentially free investment capital). If necessary, you can often borrow from the plan (in case of hardship) and pay back into it at a later time.
The cons: you get early withdrawal penalties and annual limits on contributions.

Exchange Traded Funds (ETF)

Exchange traded funds are investment funds that track broad-based or sector indexes, commodities and baskets of assets. They have access to nearly any asset class or sector, so ETFs offer exposure to markets that have traditionally been challenging for individual investors to get into, such as commodities and emerging markets.
The pros: they are very popular because they trade just like stocks on regulated exchanges. ETFs are tax efficient investments, boast low cost ratios, they can be sold short and purchased on margin. They offer diversity in a single investment and provide intraday trading access.
The cons: certain ETFs are taxed at a higher rate and big-ask spreads can be large.

Individual Retirement Accounts (IRA)

You can open an IRA yourself. If you have a spouse, each of you will have an IRA. The important thing to know is that an IRA is not an investment, it is an account where you keep investments such as stocks, bonds, and mutual funds. You get to choose which one you want and can change the investments if you wish. In many cases, you can have more than one type of IRA.
The pros: For traditional you have immediate (deductible) tax benefits and your investments grow tax deferred. There are also a myriad of investment options with differing risk/reward benefits.
The cons: There are limits on annual contributions and some eligibility restrictions, often early withdrawal penalties and you may be immediately taxed on your income.

Stocks (Equities)

Stocks represent partial ownership in a corporation. When you purchase a share of stock you are buying a little piece of the company. Investors purchase stocks for a variety of reasons, including the growth potential, liquidity, and dividend payments. Also, they consistently outperform other investments.
The pros: capital appreciation, diversity and voting rights.
The cons: prices can vary dramatically and you have high risk investment.

Mutual Funds

These are a managed grouping of stocks or bonds that are managed by professional brokers. They divide these groupings into a set shares that are intended to diversify your portfolio.
The pros: Letting professional brokers manage the performance, diversification of.your portfolio, often there’s liquidity and affordability.
The cons: There is a risk vs reward scenario as well as you’re still engaged in stocks and bonds. Costs can be high and your income can be taxed (depending on how you invest).

Conclusion

Your investment options for retirement can change over time to align with your goals, risk tolerance, and investment horizon. Also, retirement planning is not only about finances – you must know when you will retire, where you will live, and what you will do. This is why it is so important that you learn which options are available. Finding the perfect plan for you will take time and effort, and your main task will be to consider an investment’s advantages, disadvantages, risks, and rewards before making any decisions.

Everything You Need To Know About Mortgage Refinancing

When we are speaking of the term mortgage refinancing we are addressing the process of replacing an initial mortgage, or possibly multiple mortgages. This process can potentially save you thousands of dollars ifyou evaluate all aspects of the process. Whether you are looking to pull out equity or reduce your monthly payment, it’s important to focus on the different costs associated with mortgage refinancing.

When to refinance?

One of the biggest factors affecting the most convenient time for a mortgage refinancing is your own financial situation. If you have a stable job and good earnings it might be the perfect time for you to refinance. Steady income will definitely give you the advantage to become an eligible borrower for the loan with lower interest rates.

Becoming aware of the interest rate fluctuations, or better said interest rate growth, is in your best interest. Once you get a feeling that the bank or your lander will raise the rates it might be just the time for you to step in and refinance your mortgage.

Refinancing might be a good idea if you are planning to continue living in the same home for more than the next 5 years and especially if your home has gained some value. Keep in mind that the perfect scenario for refinancing your mortgage is the one in which your home has the same value or more of what you owe, otherwise it might not be so wise for you to embark on the adventure of refinancing.

Try to walk in the shoes of your mortgage loan officer in order to pick the best time for refinancing. When taking year-end bonus into consideration, one can only conclude that the best time during a year to get a loan is near the end of the fiscal year. If the goal is to get as many borrowers and close as many deals as they can, your mortgage loan officer might make a better offer for you in order to reach his own goals. This can also be applied to the time of the month you are choosing for refinancing, as some of the mortgage loan originators probably have certain monthly numbers they need to reach.

Benefits Of Mortgage Refinancing

Many people are opting for mortgage refinancing due to different reasons. Evidently, the end goal is for you to benefit from it, and thus this action must be taken into consideration prudently. One of the benefits of taking a mortgage refinancing is a better mortgage rate. Fluctuations of mortgage rates might actually be astoundingly beneficial for some borrowers, saving great deal of money by refinancing their mortgage. The interest rate of the potential loan or maybe even current credit situation is why many people opt for refinancing in order to get lower monthly payments.

Another benefit of refinancing your mortgage is that you can shorten the term of your mortgage and even switch from the adjustable rates to fixed rates. This way it is possible to pay off the mortgage much faster and save money during that period of time as the mortgage rates on shorter periods can be much lower and your monthly payments won’t be rising to an insanely big amount.

Combining two mortgages into one is another great side of refinancing your mortgage. People usually do this in order to refinance their original mortgage at a lower rate. What is great about combining two mortgages is that one can get a single monthly payment instead of two or even more.

What to consider when refinancing your mortgage?

The first thing you need to consider when thinking about refinancing your mortgage is the reason you want to get the loan. Make sure to enter the process of refinancing only if you have thought it through thoroughly. In addition, you should keep in mind that you need to be very well informed if your goal is to get the best deal. Before you even go to your preferred mortgage loan officer make sure you are familiar with your credit history and current credit situation, that is, if you are aiming for better interest rates.

It will be wise to put a little extra time in estimating your home’s value. Compare the values of similar homes nearby, search the market and maybe even postpone the refinancing if the value of your home is lower than you’ve expected. In addition you will want to take into consideration all the refinance loan costs and fees, gather all the required documents, and do your research before committing.

How to compare rates

The best way to compare rates is simply to gather as many mortgage proposals as you can. Gather information from great number of lenders and different types of lenders as well.The one thing you should be focused on is to search for the lowest mortgage rate but as well to be careful and look for the low closing costs. This leads us to selecting the right lander for you as one of the crucial steps in refinancing mortgage. Take your time and gather various proposals and use the competitors’ rates to negotiate for better terms. The more prepared you go to your potential lander the better your chances are to get a favorable loan with lower rates and lower fees. Negotiating is a big part of the whole process, so you should keep that in mind. This way you might get the deal you are searching for and save thousands and thousands of dollars.

This mini-guide to refinancing your mortgage should steer you in the right direction and give you some essential information about the whole process. Be sure to gather as much information as you can to be fully for this process. Take one step at a time and think through all your options to make the best decision for your financial situation.

Things to Know About Online Auto Insurance

Are you planning to purchase auto insurance? Or do you already have insurance but are searching for an alternative insurance provider? Car insurance is not only mandatory but it is beneficial not only for you but for your family and passengers as well. It gives financial protection when a car’s driver, passengers and other people are physically hurt during a collision and other liabilities that may happen as a result of the incident. It also provides financial protection if your car is damaged due to natural causes or disasters and during collision with stationary objects.

The good news is, you can now buy auto insurance online. With internet technology becoming advanced through the years, more and more people are turning to online options including the purchase of auto insurance. Let’s take a look at the advantages and disadvantages of buying auto insurance online:

Advantages of Online Auto Insurance

  1. There is no insurance agent or middle man involved. You do not have to negotiate or talk with an insurance agent when you purchase online and this allows you to save money in the process.
  1. You can purchase anytime whether it’s day or night time. Regardless if you’re in town or on vacation in another country, you can still purchase auto insurance and you can do so whether it’s 6 in the morning or 12 midnight.
  1. You can acquire a copy of pertinent insurance documents anytime you want. You can get a copy of important documents anytime you request for it if you purchase your auto insurance online.
  1. All essential information is readily available to you. Online auto insurance companies and providers have FAQ’s set up on their websites and all you have to do is look through and read all the information indicated.

Disadvantages of Online Auto Insurance

  1. There is no one to assist you when you file a claim. Since you acquired your car insurance online there is no insurance agent to assist you when filing claims which can be daunting during a stressful time such as a time of loss due to car accidents.
  1. You have to do all the research on your own and be your own auto insurance expert. There is no one to assist you and you have to know the technicalities and vital information all by yourself.
  1. You still have to call someone through an automated system. There will be times when the answers you are looking for may not be found on the information provided online so you still have to contact an 800 number which can be time consuming and impersonal as well.
  1. You need to be computer-literate or should be comfortable using a computer. Being computer-savvy is important as you have to fill up online quote forms and if  you’re not at ease using a computer then you have to think twice if you really want to purchase your car insurance online.

Important Tips When Buying Auto Insurance Online

  • Canvass first and visit websites of online auto insurance providers and be sure to compare quotes.
  • Make sure to visit your state’s insurance department as it contains websites of state-licensed insurance companies, consumer guides on auto insurance and price comparisons of competing insurance companies.
  • Price should not be the only consideration when buying car insurance online. You should also ascertain that you have equivalent coverage amount and be sure to scrutinize the terms of agreement.
  • Check out consumer satisfactions databases like ConsumerReports.org to check the financial stability of an online auto insurance provider.
  • Ask around and seek recommendations from trusted friends and colleagues

The following are the various types of car insurance coverage:

  • Collision insurance – It covers car damages during an accident including the replacement and repair of the insured car.
  • Medical payment coverage – It covers payment of medical costs resulting from an accident.
  • Liability coverage – It helps cover costs for injuries and property damage to other people whom you are legally accountable within a covered accident.This type of coverage is mandatory in most US states for you to be able to drive your own vehicle.
  • Comprehensive insurance – It provides extra coverage in the event of an accident aside from collision and this includes vandalism, accident involving animals and weather-related incidents.
  • Uninsured motorist coverage – It allows protection against hit-and-run incidents and drivers who are uninsured.
  • Personal injury protection coverage – It covers medical expenses as well as loss of income resulting from a covered accident.
  • Underinsured motorist coverage – It helps cover the costs in the event of an accident with another car whose driver has no adequate insurance to shoulder the expenses.
  • Towing and labor insurance – This can only be availed if you already have existing comprehensive car insurance and provides reimbursement for towing and labor costs during car repairs.

Here are the steps to walk you through when filing an auto insurance claim in the event of a car accident or when you are liable for physical damages involving your car:

  1. Notify the police of the accident immediately so they can prepare a police report.
  2. Be sure to document and collect all the information concerning the accident as you will have to provide your insurance company with the details.
  3. Contact your car insurance right away and most preferably from the scene of the accident. Your car insurance company will assist you should you need help in towing your vehicle, among other things.
  4. A claims specialist shall be assigned in processing your claim. Be sure to provide him/her with all the necessary information concerning the accident. The assigned claims specialist is also there to assist you and answer all your questions related to your claim.
  5. Once the claims specialist has finalized all research you will then receive a cost estimate of the repairs that shall be done and any deductible payments that need to be settled. Upon mutual agreement of the terms, you can already claim your vehicle for the needed repairs.

Having a car takes on a great level of responsibility on your part and having auto insurance is necessary for your own safety as well as for your family and loved ones. Purchasing car insurance especially online is becoming a popular option for car owners these days allowing for more seamless and hassle-free transactions.  Most importantly, you are confident and assured that your car, your life and the life of others are secured and covered.

Advantages of Home Loans

Many of us dream of the same thing: finally getting your dream home. The best way to make that fantasy come true with the high real estate prices is a home loan. They come along with a lot of responsibilities but also a lot of rewards. It also gets mortgaged with a bank, or a non-banking financial institution until you repay completely the loan. The title deed of the house is held by the lender until the housing loan amount is repaid in full with the due interest. You must also go through all the options to see which one will fit your plans, and we are here to help. So is owning a home right for you? Here are the main reasons why people decide to own instead of rent.

1) The tax benefits

You can get a tax rebate along with your house loan which will put a fair amount of money back in your pocket, each year. Both mortgage interest and property tax payments can be deductible from federal and state taxes. For example, you have the mortgage interest deduction. It is one of the largest tax breaks offered to homeowners. This option is especially lucrative at the beginning of your mortgage when the major part of what you pay monthly is applied to interest.

2) You are building equity

It is also called the dollar value of your home that actually belongs to you. You calculate it by subtracting the amount you owe on your home loan from the complete value of the house, and the leftover is the home equity. There are two ways to build it :

  • When you make your monthly mortgage payment, a piece of it goes toward reducing the amount you owe on your loan, and this increases your equity. You can consider this as a form of savings.
  • When the value of your home increases, you gain more equity.

Of course, if in the future you need some money you can tap into it. You have the possibility to borrow against your home equity for education or medical expenses and home improvements. You can as well use it to pay off high-interest credit card debt.

3) Your credit history gets stronger

When the other lenders see that you buy a home and pay your loan always on time, you get more chances to make future great deals. You are a serious borrower and if they choose you, they don’t take risks. It can be useful when you decide to make any new investment when you buy a car, for example.

4) It makes it easy to create your dream home

Homeownership is great when you know that you are free to create whatever environment you like. You don’t need to ask for approval from a landlord. You can finally make your dreams come true. If you want to have pets, to rearrange the floors, do some painting, or add an extra room… Anything that can make your house perfect.

5) It is always a good idea for investment

Staying in your home for a long time can increase in value its price and give you a satisfying return on your investment. When you choose this option, you can be sure in most of the cases that you are right. Also, it saves you from paying rent, and paying for a loan is much more profitable. Although, you must be careful and think about what kind of home loan is the best for you.

Below, you can find some different options for home loans:

Conventional mortgage: This one is the most commonly used type of home loan, and usually gets the best rates. It can last for 15 or 30 years. There is at least 10% for a down payment and a good credit. You have the option “interest only” when you don’t pay any principal in your payment. They have a bit lower payment, and when you make a regular payment you don’t pay off any of the loan balance.

Mortgage insurance: it is important to be aware of this option. This is an additional cost you bear if you put less than 20% on your house. It is intended to protect your lender in case you don’t make payments anymore. When you have at least 20% equity, make sure that you request mortgage insurance be removed (as it’s an unnecessary cost and is not tax deductible).

FHA mortgage: The main benefit of an FHA mortgage is a lower down payment requirement. It’s only 3.5% and is often more flexible with lower credit scores. This makes it easier to qualify for an FHA loan. It’s ideal for first time home buyers.

VA loan: There are more than 25 million veterans eligible for VA financing. You must have served on active duty, no dishonorable discharge and have served a minimum of 90 days during wartime, or 181 continuous days during peacetime. For military borrowers, the VA loans are the best on the market. They have a lot of advantages: they are very flexible, they have no down payment, you can reuse them and the government guarantees them.

USDA rural housing loan: This one can only be used in some specific areas and towns, and they are very flexible. They were designed to improve housing in rural areas. They have a variety of options: you can get it as a single- and multi-family housing, child care centers, fire and police stations, hospitals, libraries, nursing home, schools…

Adjustable rate mortgage (ARM): Their rate is not constant, it can start low but increase after one or several years and it usually gets higher. Be careful with this option because it has got in trouble many house owners, in fact sometimes the rates increase faster than expected.

203k Rehab loan: It allows you to borrow money with only one loan for both home purchase and improvement. They are guaranteed by the FHA, which is great for the lenders as they take less risk when offering you this loan. That way it’s is easier for you to get approved for the loan.

What You Need to Know about Financial Retirement Investments

Are you looking forward to retirement? Even if you’re still a few years away from retirement you should already be contemplating the best financial retirement investment options.  By doing so, you will be able to enjoy your retirement years and the fruits of your labor. It also ensures that you don’t have to rely on your kin, the welfare system or anyone else financially.

There are many types of financial retirement investments available but here are the most common:

Individual Retirement Account (IRA)

It is a type of savings account that is meant to help one save up for retirement and provides tax advantages. The types of IRA’s are the following:

  • Traditional IRA – it may be deductible or non-deductible depending on the nature of contribution and withdrawals at retirement are taxed as income while all transactions and earnings have no tax impact.
  • Roth IRA – withdrawals are usually tax-free, all transactions have no tax impact and contributions are done with after-tax assets.
  • SEP (Simplified Employee Pension) IRA – it may be set up by self-employed persons like freelancers, small business operators and independent contractors and follows the same withdrawal taxation rules as a traditional IRA.
  • SIMPLE (Savings Inventive Match Plan for Employees) – it is tailored for small business and self-employed persons, has the same taxation rules like a traditional IRA and all contributions are tax-deductible.

Advantages:

  • You can transfer your IRA funds.
  • It is easy to maintain and you don’t need approval to use your money.
  • You have control on how you invest your savings.

Disadvantages:

  • Your IRA funds are subject to income taxes and a tax penalty of 10% if you withdraw before reaching the age of 59.
  • You cannot use your IRA funds if you’re planning to secure a loan.
  • Your IRA funds may not be protected from creditors but this depends on a state’s law.

401(K) Plan

It is an employer-sponsored retirement plan for eligible employees and may also include a profit sharing feature. Investments are usually automatically deducted from an employee’s pay check and employers often match the contributions of employees (although this is optional and determined by the employer).

Advantages:

  • With a 401K plan your money grows and is initially tax deductible
  • You only pay taxes once you withdraw it upon your retirement.
  • You will get a significant return of investment if you invest it wisely.

Disadvantages:

  • You can only withdraw your 401K plan once you reach the standard retirement age of 59.5.
  • It is not FDIC (Federal Deposit Insurance Corporation) insured therefore it is subject to losses if not invested wisely or in the case of a down market.
  • If you withdrawyour 401K plan before retirement age you are subject to a 10% penalty and  pay the taxes of the amount you withdraw

Stocks and Shares

It is a share in a company’s ownership and represents a claim in a company’s earnings.  The more stocks you acquire, the greater your ownership stake in a company.  Your money can grow quickly if you invest it in stocks and shares but with much higher risk.

Advantages:

  • Stocks are liquid which means that they can be bought and sold allowing you immediate access to cash.
  • It has potential for significant gains as compared to bonds and other investment options.
  • You have the freedom to participate in a company’s growth and entitled to its profits and benefits via dividends and capital gains as a stockholder.

Disadvantages:

  • Stock price can be very volatile and prices can become erratic.
  • Stock values can drop significantly putting your investments at high risk.
  • There are acquisition and sales costs associated with buying and selling.

Bonds

It is a fixed income investment wherein a corporate or government entity borrows funds from an investor for a certain time at a fixed interest rate.  It is used by states, corporations and governments to finance specific projects and is usually publicly traded on exchanges.  The 3 main categories of bonds are:

  • Municipal bonds – issued by states and municipalities
  • Corporate bonds – issued by companies
  • S. Treasury bonds – referred to as a government treasury along with notes and bills

Advantages of Bonds:

  • It is often liquid and can be sold in large quantities without any effect on price.
  • There is a bi-annual fixed interest payment and fixed maturity lump sum.
  • There is legal protection and bondholders can still retain the recovery amount should a company go bankrupt.

Disadvantages of Bonds:

  • Price changes instantly affect mutual funds that hold the bonds.
  • Bond prices become volatile based on the issuer’s credit rating.
  • It is subject to various risks like credit risk, exchange rate risk, inflation risk and reinvestment risk, among others.

 

Having a clear understanding of popular financial investment options allows you to decide more clearly on the right investment option that works best for you.  Whether you plan on investing in stocks, bonds, IRA or 401K, what is essential is to invest your hard-earned money wisely so you will be financially independent and be able to enjoy your retirement for years to come.