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5 Ways to Prevent Identity Theft from Happening to You

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Padlock and stack of credit cards on top of laptop

Padlock and stack of credit cards on top of laptop

It’s a sad but true reality: you are still not so safe when it comes to identity theft. In fact, identity theft tops the list of consumer complaints that are reported to the FTC every year.

But what can you do to protect yourself?

Well, actually, you can do a lot of things. They have an awesome list of what to do if it happens to you (don’t panic), but follow this list below to protect yourself from having your identity stolen in the first place:

1. Use a Password Manager

Do not use the same password for everything! Stop doing that! Instead, use a password manager (we like Dashlane), which lets you create a master password, then once you use that, the system will generate very strong passwords for every new account you create. It’s the same (to you) as using the same password everywhere, but it’s far more secure. Hey, at this point, I don’t even know the password to my Twitter account. And that’s the way I like it.

2. Watch Your Mailbox

This is tough, because you’re going to watch your mailbox to see if anything is missing. Are any of your bills going missing? Make sure you sign up for paperless billing for as many places as possible, but keep an eye out on your mailbox, especially if it’s close to the road. Identity thieves can take credit card preapprovals and sign up as you.

3. Closely Monitor Your Bank Activity

Every day, log in to your bank account, and make sure you (or the person who shares your bank account) can identify every charge. The credit card companies are likely to pick up incongruencies like ordering pizza from a city you’ve never been to, but they’re less likely to notice charges made in your own town. The best identity thieves will add small payments here and there, and see if you notice, before going on a shopping spree.

4. Consider A More Secure Way to Pay Online

Instead of your credit card, use something like paysafecard when shopping online. Paysafecard is a reloadable gift card that comes in various denominations, and when  you use it to pay online, you don’t have to enter any personal details. It’s like paying cash online, except without the purse snatchers.

5. Check Your Credit Every Year

Even when you slip in your diligence, you should set a calendar reminder to check your credit once a year. Or, better yet, sign up for a free CreditSesame account, which will check your credit, and monitor it monthly, for free.

Getting your identity stolen is a stressful and painful situation that is fun for absolutely nobody (except, of course, the person who stole your identity to eat pizza in Las Vegas at the Bellagio). An ounce of prevention is worth a pound of cure, right?

How To Choose the Best Investment For Your Goal

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Here’s the most-asked question I get asked at parties: where do you put your money to make it grow best?
It seems like an easy question but the answer is complicated, isn’t it?
Gurus who want to keep you in the dark use labels for investing like “hard” and “difficult”….and it can be. However, on the most basic level, it also can be the easiest thing in the world. You just need to start.
But why don’t people start? Most people I worked with were worried they be wasting their money on horrible investments. They were frozen and couldn’t choose the right path. I can see their point: the last thing anyone wants to do is invest all of their money and lose it quickly.
The good news? It is’t too late to start. At any age you can let your money start making you money. If you don’t want to go it alone, let’s talk about how to choose investments and finding good help.

Lots of Reasons To InvestInvesting

To us all, the idea of investing seems foreign at first. “I put my money in this thing and it makes money on it’s own? How does that work?” At first, ideas like “bonds”, “stocks”, “REITs” and others are like reading a new language.
That’s why you don’t start with the types of investments.
Start with your goals. Some people invest to make money quickly in the stock market while others are trying to make money slowly over time. Once you know your goal, then determine your risk. Different options offer different risks/rewards, so starting with what you want out of an investment drives the decision of where to invest. Investors with large sums might choose to invest in individual businesses while smaller investors can pool their money by buying into a mutual fund or exchange traded fund.

How Should You Invest Your Money….Personally?

Here’s the deal: I don’t know.
Since there are so many investment options and an unlimited number of goals you could be trying to achieve, you might decide to hire a consultant. Good helpers in your corner can help you decide what is best for what you want and the time-line you are looking at. When I was an advisor, I’d limit the choices to the ones that really mattered so my clients could focus on making money instead of worrying about just how many choices there were. Skilled advisors don’t just throw investments your way….they think of strategies that you may not have considered. Investing decisions might need to happen quickly, and if you don’t monitor your investments you could end up not only losing money but losing confidence in your strategy, which is even worse.
How do you find a good firm? I’d talk to friends first. Conduct interviews with advisors using some great tools like this checklist from FINRA. Good investment firms expect to be asked about their performance, how they work with clients and specifically what you’ll need from them. A good firm should feel like you’re hiring a partner more than buying a sales pitch.

What Else Can An Investment Company Provide?

I was always surprised when people would only want to deal with me for one or two investments. In fact, I became adamant that I knew about your whole portfolio, whether I was helping “babysit” your money or not. Every company is different, but many offer more than just investment consultation. Instead of finding someone to help you invest (something you can do on your own), look for someone to help you monitor your investment, give you advice along the way, and help you manage your tax liability, estate planning and budget issues. Not only should your advisor help you make the right decision based on your wants and needs, but they should make sure that you manage your portfolio well when markets turn sour (and they will).  Without a firm hand on the rudder, you might spend too much time looking at your investment and trying to determine if it is going well. Investment statements and prospectuses can also be ugly beasts as well and a good company can help decipher what’s important information and what’s garbage.
Ultimately, your investment decisions are up to you but a good pro can add to the bottom line. Find a company that can earn your trust and start letting your money make money.

5 Benefits of Investing in Real Estate Through Private Lending

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Real estate investing is a key ingredient for creating a long-term investment plan that will maximize your wealth and can even lessen your risk. But it seems like there are limited options available to you, considering most investors don’t have the necessary time or experience to do it successfully. You can:

Purchase your home. Although this is considered more consumption than investment, this is still an investment in real estate with potential appreciation.

Purchase rental property. Most people have heard about the ups and downs of owning rental properties, but collecting monthly rent from tenants is great way to generate income. The downside is the need to manage the property yourself or hire a property manager to directly handle tenant and property issues.

Purchase REITs. Similar to purchasing stocks, a real estate investment trust is a corporation that raises money by trading on major exchanges, and it pays investors 90 percent of its taxable profits via dividends.

Buying real estate doesn't necessarily mean dropping a ton of cash into the ground.

Buying real estate doesn’t necessarily mean dropping a ton of cash into the ground.

Besides these options, there’s another that the majority of real estate investors are unaware of: investing in real estate through private lending. As a private lender, you essentially become the bank. You lend your money to other investors (borrowers) and charge an appropriate interest rate for the use of your money. Here are some of the benefits of real estate private lending:

1) Monthly cash flow: The borrower pays you interest every month, which is typically between 8 and 15 percent.

2) Security: Your investment is secured by a lien on a tangible piece of real estate. That gives you collateral when lending your money, aside from just the soundness of the borrower. Typically, you shouldn’t loan more than 75 percent of the property’s current market value, giving you some cushion in the event that the property’s value decreases.

3) Diversification: Real estate private lending gives you the ability to diversify your portfolio — and not only from a real estate perspective. If you want to create current income, it’s another fixed-income option.

4) Lower volatility: You can better manage the market risk if you keep your real estate loans short term.

5) Passive investment: Instead of learning the nuances of real estate development, construction, management, etc., you can lend to other experienced real estate investors who do all the work. You just act as the bank and receive interest payments, and your money is returned at the end of the investment.

Being a real estate private lender is a great way to get exposure to real estate without doing all the work. But you still have to understand some of the risks involved. The market value can cause properties to quickly increase or decrease in value due to local and national factors.

Borrower credit can also be volatile; you need to make sure the borrower is in stable financial condition and can pay back the loan. Also, verify that the borrower’s investment strategy is solid.

Finally, make sure you have good legal representation to draft loan documents, coordinate the transaction, ensure your loan is properly recorded, and see that agreements are in place to protect you as the lender.

Real estate private lending is a great way to get exposure to real estate and generate passive income for your investment portfolio. As with any investment, you need to understand the risks involved and do your homework before jumping in headfirst. But if done right, real estate private lending can generate some of the best risk-adjusted returns in the marketplace.

Jeff Carter is the managing director and founder of Grand Coast Capital Group, where he oversees all aspects of the business. Grand Coast Capital Group is a national private lending firm based in Boston that provides creative short-term financing to real estate investors, builders, and developers across the country.

6 Simple Steps to Financial Health

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6 Simple Steps to Financial Health The Free Financial Advisor

Organizing your finances can be a daunting task. And because of your fears, you’ve been avoiding the  process for quite some time. But it must be done if you desire to achieve the financial freedom you’ve been  dreaming of. Simplicity is the key. Here are a some big steps that’ll help you create a clear action plan:

 

 1. Get Organized

Do you have piles and piles of old statements from service providers, creditors or financial institutions  lying around? If so, grab a shredder and purge. Doing so should take away some of the anxiety that  accompanies getting your financial life in order. And for those items you need to keep, consider purchasing a small filing cabinet and organizing the documents by type. To determine what to keep, for how long, and what you can toss, check out this chart on USA.gov.

Also, opt-in for electronic statements; they’re usually available and eliminate the frustration that arises when you need to access an important document at the drop of a dime.

2. Conduct an Audit of Your Financial State

Next, you’ll need to assess where you stand financially in order to come up with a feasible plan to take your finances to the next level. To do so, create a comprehensive list of your assets and liabilities. This should include any retirement accounts, securities, income and outstanding debt balances you have on hand, just to name a few.

Once you’ve done so, list any sources of income you receive each month and the estimated expenditures. (For the latter, track account activity for at least one month to get an accurate figure).

3. Implement a Spending Plan

There are tons of software programs to choose from, or you can do things the old-fashioned way. Regardless of which method you use, here are a few key points to keep in mind:

• Every dollar should have a name on it before the month starts. The more stringent the plan is, the higher the chances of compliance.

• If your outputs exceed your inputs, you are left with no choice but to make cuts. Many ignore this pertinent tidbit of advice because they figure as long as the bills are paid, nothing else matters. That’s until a financial emergency arises.

• The plan should be helping you build a cushion, pay down debt and accomplish any goals you have in mind, simultaneously. If not, you won’t be motivated to stay on track.

4. Fund Your Safety Net

Life happens, and you may need a financial infusion to get out of the hole. And there’s no easier way to send your finances haywire than robbing Peter to pay Paul. That’s why the first order of business on your spending plan should be paying yourself to ensure your emergency fund is receiving the boost it needs each month.

5. Create a Debt-Management Plan

Before you decide to aggressively attack the outstanding debt balances, bring any delinquent accounts current. This is important to minimize the damage done to your FICO score for recurring delinquencies, not to mention the excessive late payment fees, interest and penalties. If you’re having a tough time formulating a plan due to limited income, consider making cuts to the variable expenses in your spending plan.

6. Capitalize on Existing Resources

Be proactive and take advantage of all the free tools at your disposal. A host of financial institutions offer online bill-pay as an added perk of being a member or for a small fee. In additional, there are spending tracking features to help you identify problematic areas and make adjustments moving forward. If you’re an AOL user, you’re granted complimentary access to Lifelock’s identity theft protection services, which can protect your personal information from fraud and preserve the financial freedom you’ve worked so hard to achieve. Most importantly, remain vigilant of your account activity at all times to confirm the activity is accurate.

What my $25,000/year College Tuition Didn’t Teach Me

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What Kevin's 25000 college tuition didn't teach him

It’s been about eight years since I graduated college. I was 22 at the time and excited to start my career. I started off working as a mortgage banker at a local Chicago bank getting paid a small monthly draw and commission.

I know what most of you are thinking. Why would you go straight for commission based job right out of college? The short answer is that real estate has always been my passion. Luckily in college, I was able to save up a little money doing affiliate marketing with online gaming sites. I had very little debt and was living comfortably.

It was about a year down the road after I graduated that I things started to spiral out of control, and before I knew it, I saw my finances spiraling a bit out of control. How did this happen? I knew everything about net present value, gross domestic product, and calculating an internal rate of return. However, one thing I had no clue about was  personal finance.

Building and Establishing Credit

Colleges simply don’t put enough emphasis on how important your credit score is. It’s a three digit number that determines how much credit you’re given and will have a huge impact on your future finances. Most students typically have what’s called a “thin file” report. A thin file report means that there aren’t enough trade lines on to provide a FICO score.

The underlying problem with this is that it’s hard to establish a credit score when you can’t obtain it. I established credit by becoming an authorized user on a family member’s account. After a short while, I was able to get a small $500 limit account. I slowly began to build my credit score and my creditors increased my limit over time.

I never knew how important credit was when I was 22 years. It wasn’t until I got into the mortgage industry where I saw the enormous difference in a homeowner’s mortgage rate that a few points could make.

Using Credit Responsibly

We’re all guilty of this. We overextend our credit, and we dig ourselves a hole too deep to climb out of. Having a large credit limit almost gives you a sense of “free money” to use. Your monthly payments are small enough to the point where you think you can afford to keep a large balance. In 2007, credit card companies didn’t need to require the fine prints of “By only paying the minimum payment, it will take you 27 years to pay off your debt.” It wasn’t in those exact words, but you get my drift.

The Credit Card Act of 2009 now requires creditors to show on the statement how long it would take to pay off a balance if the customer only makes the minimum payment, as well as the total interest cost to pay off the entire balance in 36 months. Unfortunately, that wasn’t the case in 2007.

And Then it Went Downhill

A few years later after I got my first credit card, my credit limit went from $500 to $20,000. I had credit card offers coming in my mail every single day. They clearly wanted my business and were offering a nice incentive to sign up (usually a ton of airline miles).

It wasn’t long before I overextended my credit. I found it more difficult to payday my debts and was never able to see real progress.

What exactly do you do in this situation? I couldn’t recall any classroom lectures on how to convince credit card companies to lower your interest rate. It was up to me to do my research and figure it out myself. At the end of the day, I was able to set up a payment arrangement plan with my creditors (similar to that of what credit counseling companies provide).

Personal finance is something that needs to be mandated in schools. No matter how book smart you are, your lack of knowledge in personal finance can make or break your future.

This is a guest post from Kevin Yu, a Senior Associate at Avant and managing editor at ReadyForZero. He also blogs for the Huffington Post and is part of the start-up incubator, Y-Combinator.

Evaluating a Single UK Stock–a Beginner’s Walkthru

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I recently discovered a the UK stock Playtech, so I looked it up at BigCharts.com (link). Imagine my surprise when I saw this:

Screenshot 2015-04-17 13.30.16

 

Wow! So, is this a good company? Well, there are some issues I need to look at, especially since I’m in the US and this company is in the UK. First, I discussed in a post today over at Stacking Benjamins the importance of evaluating the macro conditions that exist around a stock….like the economy and how the sector’s performing as a group. Besides that, I also need to dig into the numbers and see how this stock would look in my portfolio.

Before I actually begin digging into this company, traded on the London Stock Exchange, I also need to evaluate something else: my experience with this stock is going to be different than that of a UK based investor. Why?

Because I’m investing dollars and not British pounds.

Trading dollars for this company makes my transaction a little more complicated. I could actually have a horrible return even though the stock performs well if the dollar falls in value against the British pound. Many investors who jump on international companies forget that this is an important part of success or failure over the short run when choosing international positions.

….so, let’s take a look.

 

The Dollar Is Strong

Let’s take a quick look at free site DollarstoPounds.com to measure how the dollar compares:

Screenshot 2015-04-17 13.53.40

 

As you can see, the dollar has been strengthening. According to this interesting piece on TheStreet.com, it appears that any Fed move should make the dollar even stronger. That’s good news for international investments, and especially in this case for an investment in the UK if I’m an American investor.

 

The Company – A Profile

According to their website, Playtech is the world’s largest provider of online gaming solutions. They work with many different gaming companies, from big names like Sky and Titanbet to much smaller firms.

Because we already looked at gaming companies from a macro level in our Stacking Benjamins piece, let’s dive into the numbers.

 

Fundamental Analysis

Looking at the numbers is called “Fundamental Analysis” by investors. That means we’re going to research how the company makes money and evaluate just how sound things are financially. Just like you know more about a family by looking at their budget, cash flow and debt, we’ll get a better feel for how this company performs by looking at this data. Most probably, we’ll create a list of questions we should ask ourselves before we invest. I’m always surprised by my digging….it feels a little like financial CSI. Ha!

 

How To Look For Fundamental Data

If you’re just going to take a cursory look at a company (the scope of today’s article), many people like using Yahoo! Finance. I don’t. Why not? Because what I’m interested in are trends. I want to see revenues improving. I also want earnings to be improving, and I want to compare debt levels against prior years. These numbers will tell me a quick story about the company. I may not get the full story, but just a set of current data at Yahoo! doesn’t help me at all.

Instead, I went to my brokerage site, which happens to be TDAmeritrade. I also have an account at Scottrade. Let’s compare.

First, it’s difficult to make sure that you’ve got the right company when you’re looking at foreign investments. At TDAmeritrade, they show two different stocks:

Screenshot 2015-04-17 14.04.59

Luckily, I know, these are actually two ways you can buy the same company. We’ll go into that another day…..but for now, I want to use the one that gives me the most data. Clicking the depositary receipt investment gives me no data. The other gives me what I’m looking for.

At Scottrade, when I ask for Playtech, it actually shows me three…..and I go with the Grey Market one (middle). It’s the same company.

The middle one is our winner!

The middle one is our winner!

 

At Scotttrade I also can look at prior year data…..I just prefer the graphs at TDAmeritrade that Scottrade omits.

While this gives me all the data...I love graphs. Yum.

While this gives me all the data…I love graphs. Yum.

 

 

So What Do We See? Good Stuff?

Revenues will show us if the company is making more money every year. We want a company that’s growing sales. Is that the case for Playtech?

You can see above, that revenues have grown year for the last four years. That’s good news.

In many cases your investigation will spur questions. In this case, it’s “if revenues are going up, are expenses staying in check?” We’ll need to find an answer to that before investing.

 

Earnings

One quick way to look at expenses is through the eyes of earnings. Revenues are “top line” numbers. It’s money coming in the front door. But if a company spends all that revenue and doesn’t make a profit, who cares? We don’t want more sales alone….we also want to see more money going to investors. We can monitor that through looking at earnings. If a company grows sales they might have acquired another company that had solid sales or they may have hired a ton more people. If earnings don’t rise also, we have a problem.

Let’s switch over to TDAmeritrade to look at earnings. Here it is:

Earnings last year were down. Hmmm....

Earnings this year are expected to be down. Hmmm….

 

As you can see, earnings are good so far, but next year they expect them to drop. That gives us MORE questions….why is the stock so hot if everyone expects the company to earn less in the future?

 

Debt

While I don’t see debt as a negative all the time, just like it can sink your personal financial situation, too much debt can sink a company. Let’s take a look:

Where the heck did that debt come from?

Where the heck did that debt come from?

 

Where did this new “long term debt” line item come from in Q4 of last year? The stock is up AND there’s new debt AND analysts expect earnings to drop? There’s clearly something going on.

…and So On….

We’re not nearly done, but can you see how we’re forming questions about the stock as we read the numbers? Sharon Lechter (co-author of Rich Dad Poor Dad) told me on our Stacking Benjamins podcast that numbers tell a story that you want to learn how to read. In this case, I go to the news on Playtech and find this: Playtech Enters Foreign Exchange Market. Investors clearly like the synergy that this might create, even though over the short term they think the company will have lower earnings and had to take on debt for the transaction.

 

So Do I Buy?

In this case, I’m going to hold. The inconsistent earnings growth and new acquisition frighten me. There’s too much up in the air about how successful Playtech can be marketing Forex trading to it’s online gambling clients. I don’t think they’ll fail….I just don’t know…..and that’s enough of a reason for me to look elsewhere.

 

Home Improvements Worthy of Your Tax Refund Check

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Home Improvements Worthy of Your Tax Refund Check The Free Financial AdvisorWhether you’re to looking to increase the value of your home for resale or switch things up to give it a fresh new look, your tax refund check provides the opportunity to do so. And no, an extreme overhaul, like the ones you see on HGTV, isn’t required.

Here are some cost-efficient ideas:

Paved Driveway

Tired of saturating your vehicle in dirt each time you leave or return to your home? How about the rocky ride along the way? A paved driveway, comprised of asphalt or concrete, is the perfect solution. You’ll no longer have to step into grass or dirt each time you open the car door, which is especially important if you’re constantly having to tidy up the floors because of dirt being tracked into your home.

New Roofing

Are you constantly forking over cash to contractors to fix that leaky roof? If so, it’s time that you give your home the new roof it deserves. Champion Home Exteriors, which offers expert installation and Advanced Protection® Technology Advanced Protection® on Lifetime single choices, has an array of affordable options to choose from.

Finished Basement

A finished basement makes an excellent addition to any home that could use some extra square footage. It’s ideal for a game room, play area, movie theater, home office or an oversized bedroom, just to name a few. If you’re going to be housing a relative in the near future, a finished basement is also the perfect place to create a mini-apartment for their added privacy.

New Air Conditioning Unit

Is your air conditioning unit on its last leg? Since you have some extra cash on hand, now’s the time to start searching for a replacement. Just be sure to consider additional factors, such as the Seasonal energy efficiency ratio (SEER) and quality of the unit’s components. While it’s tempting to go with the cheapest unit, you could spend much more than you initially anticipated over time, in the form of energy costs and repairs. Energy efficient units may qualify you for Residential Energy Credits. See IRS Form 5695 to learn more.

Mini-Kitchen Remodel

It’s not necessary to invest thousands of dollars to completely overhaul the kitchen. A better option is to freshen up the paint, refinish or replace or the flooring, and swap outdated appliances for energy-efficient models.

If your appliances are not that old, a local expert like Mesa az appliance repair can help fix them and look as good as new.

Upgrade Outdoor Living Space

Adding a screened patio or fence can work wonders for your backyard. And with the right decor, it can quickly be converted from a standard space for the children to play to a stunning space for entertaining guests.

New Garage Door

By installing a new garage door, you will alleviate yourself of manually lifting the door (on outdated models) while adding a new look to the exterior of your home. And you’ll no longer have to get soaked on those rainy days.

Not only will these home improvements will give your home a new look and feel, but you may be able to derive tax benefits on select upgrades. See IRS Publication 530 for additional guidance.

Can a Robo-Advisor REALLY Beat Passive Investment Strategies?

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If you’re familiar with the basics of investing, then I’m sure you’ve heard of terms like “mutual funds” and “ETFs.” In a recent Yahoo! Finance article, robe-advisor firm Wealthfront challenges the status-quo by saying that their direct investing approach will beat ETFs at their own game.

Can a Robo-Advisor REALLY Beat Passive Investment StrategiesThe Free Financial Advisor

Really? So will this happen? Let’s take a look.

In case you aren’t too familiar with the concept or you just need to shake off the rust, diversifying your investments is a  central idea to finance. Mutual funds and exchange traded funds (known as ETFs), hold diversification as their central  tenant.

Diversification, of course, is the whole idea of being able to have all of your eggs in one omelet, but just don’t put all  your  eggs in one basket.

And, so long as you remember, the idea is as long as one region, sector, industry, or even point of view (like normal  goods, depression goods, sin goods, etc.) suffers significant hardships then you still have the remainder of your  portfolio to offset potential losses.

Finance at its finest.

It’s true that diversification has taken greater steps forward over the last few decades. In fact, the advancements of technology have taken the realm of finance into a brand new idea (or at least they claim it to be a new phase anyway). With the ability to program, process, compute, and spit the world into algorithms and complex math formulas, the world of finance has continued to churn out more sophisticated ideas in less time than it takes us to compose thoughts.

So, for me, the idea of robo-advisors is the obvious next move in a long line of advances.It’s also why, just like with every other advancement, strong proponents of robe-advisors think they’re not only the future, but they will bring the future to us now.

The Truth About Robo-Advisors – ETF + Tax Efficiency

The specifics about using these robo-firms is that they truly are nothing “new.” In fact, just like you could argue that robots themselves are nothing more than a scaled up version of programmed commands, the way in which they operate is truly basic as well. By programming in rules for these robo advisors to follow, the basic idea is that a robot or program can execute trades to sell off a falling stock, take a position in a similar stock (at least a comparable one from the indexed position), but still manage to capture the losses of the original stock. The end result is that the investor retains the original (at least similar) makeup of the ETF which was owned in the beginning, but they have also captured losses with a hefty tax benefit as well (currently up to $3,000 can be used to reduce taxable income annually). It’s not the system that is so sophisticated; it’s a simple set of algorithms and rules that just happen to be carried out to perfection.

I’m not the only one calling robo-advisors ETFs. Burton Malkiel (one of those arguable “founding fathers” of modern finance) is calling this the next big thing. He says robo-advisors, in fact are not a fad or a substitute, but a more efficient upgrade onto existing ETFs. The idea is that this strategy truly is, at it’s heart, an exchange traded fund and comes with all of the benefits of a normal fund; it just has the added bonus of positive tax implications.

Furthermore, the most important point to make isn’t just the ability to save $3,000. (By the way, if you are willing to toss aside $3,000 just for fun, I’m sure there are a few places you could send it if you just email me!). While the $3,000 annual tax harvest truly can add up to be a pretty impressive chunk over the course of several years, the fully implemented strategy is about deferring the tax liability. Over the course of the entire portfolio life (or even for a long time), a “tax loss harvesting system” as it has been called will accumulate and will allow investors to have significant taxable benefits on their side all while obtaining the original assets for pennies on the dollar.

As Malkiel puts it, “tax deferral translates into real money when the savings can be reinvested and compounded.”

What is a robo-advisor, then? Basically, it’s an EFT with an option to supercharge and grow due to the tax benefits.

Marketing To The Masses – You and Me

Some have already pointed out that this strategy is not necessarily brand new, but it has been used by some institutional investors in the past. The benefit of course is that while institutional investors and the rest of the elite may have had access to this, they probably don’t pay much attention to the engine under the hood. By refining this strategy, robe-investing could be a major jump with smaller players coming into the picture for their piece of the pie.

Of course, just like most “new strategies,” there are already some naysayers. And who is to say they are wrong?

That being said, if you don’t have a history book handy it still won’t be hard to remind any investing buff the way that diversification pioneers were treated when they brought about prior items such as mutual funds, EFTs, or even a modern day stock market on the internet. (Can you even imagine a world without online trading!?). All of them were panned by the naysayers.

The Future of Robo-Investing

So, while there is no-one calling this a sure thing, the simple idea of enhancing current day funds with tax benefits and the ability to jump returns is at least appealing to the full spectrum of investors.

Plus, even if those who invest don’t have the ability to capture as significant a tax advantage as is being proclaimed, the fact of the matter is you are still investing in a vehicle that is an ETF at its roots.

Even if the tax benefit doesn’t fulfill your hopes and dreams, you won’t have to worry about losing out on the market. The worst case scenario is that you have still eliminated risk, diversified your position, and while you might have had your hopes dashed, you haven’t lost a significant position to try and jump on board a new train before it leaves the station. Unless of course you are investing solely in trains, in which case that’s an entirely different lesson for a different day……

Really, This Is About Innovation

Robo advisors are not just bringing about a new product, but they continue to show how thinking outside the box is enabling a significant amount of efficiency and accuracy to be injected into what some regard as the best vehicles out there today. By covering positions even more with a shield, losses incurred in a normal ETF can truly be captured and turned into an advantage. What used to be a boulder sized loss is now literally being catapulted thanks to the next wave of technology.

And while there are some who think that this could be more of a fad and that some net bonuses are being overestimated and not what they are cracked up to be, there are others who think at worst this is just another added service and a potential option for those who do believe in the power of robo-advisors for an investor without the assets to hire a full-fledged pro in their corner. Even if they don’t know where it will lead, it’s thrilling to see new pioneers of investing. Even though Christopher Columbus sailed the ocean blue and discovered the new world, every other sailor on the ship who went along for the ride also made it there as well. These investors don’t need to create or refine this strategy, but they can still possibly tap into a more efficient vehicle and what could be the next “norm” in the marketplace before it becomes too popular.

What’s Next?

As with waves of innovation before this, no one truly knows how this one will play out. There doesn’t seem to be a lot of downside. What’s the worst that could happen? You could take a chance at something new and wind up overpaying for a fairly standard ETF (I’m sure you can already point out a handful of customers and clients who do that anyway but without the upside). While the upside is potentially significant gains that only increase over time. It truly could be an upgraded form of diversification.

The most important thing to do at this time would be to try and decide if this is something for you, as there might not be a lot of opportunity to test it out before the market finds a correction, starts making it more difficult (financially of course) to tap into this possibly proven strategy. On the other hand, I don’t know that trusting all of your money to a robe-advisor is a good idea. When has it ever been a good idea to throw money at the next big thing just because it could be big? After all, there’s a sucker born every minute and if you are going to realize you’re a sucker, hopefully you aren’t burning money in the process as well.

Invest with confidence and caution. Understand the products you want to put your wealth (i.e. your future) in. And above all else, know more about your assets then the people who handle them. This might just be a boy who cried wolf, but with some due diligence and a little bit of faith you could be spring boarding yourself to a more diversified system of nicer returns.

Phil is a firm believer in not just understanding how finance works, but someone who thinks investing and business should be connected to every part of our lives and not just a segment of it. “By reading the thoughts of others, we can get caught up. By merging our views and connecting ideas, we can move forward and grow.”

 

Photo: Frankieleon

Don’t Be Afraid to Refinance: 6 Options to Meet Your Financial Needs

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Paying Down Your Mortgage Free Financial AdvisorThe 2008 recession did a number on the housing market. So many people were behind on their mortgage payments while others lost their homes entirely, and to top it all off, the unemployment rate was sky high.

But amid the rubble, there’s a silver lining: Interest rates are lower than ever.

Because of the circumstances surrounding the crash, the Federal Reserve System started buying mortgage-backed securities in 2008, which drove down the interest rates homeowners were paying. While those purchases have since ceased, the Federal Open Market Committee plans to keep low interest rates for at least the rest of 2015.

That means that now could be the perfect time to refinance your home and bring those payments down.

The Abundant Refinancing Options

Refinancing can seem confusing, but with a little information, it’s pretty straightforward. For our purposes, think of your options in two buckets: You can either refinance simply to get your interest rate down, or you can refinance to raise some cash for unexpected large expenses.

The first option will capitalize on lower interest rates as well as decrease your monthly payment (and possibly your total payment over time). There are a few different options within this loan type, and each option targets a different customer base:

  • Federal Housing Administration streamline refinance: If you have an FHA loan, this streamline is a good option to lower your rate or change the terms of your loan. This option is also good for homeowners with less equity in their homes or less-than-stellar credit scores.
  • Veterans Affairs Interest Rate Reduction Refinance Loan: This loan is specifically for veterans with a VA loan. It will help you lower your interest rate, convert an adjustable rate to a fixed rate, and alter the term of the loan. Like the broader streamline loan, it often requires less documentation and has a lower funding fee.
  • Conventional refinance: Like the above two options, this loan will help you lower your interest rate or change terms. With a conventional refinance, though, you typically need more equity in the home and a higher credit rating.

 

Life happens, and sometimes you have a large unexpected expense, such as medical bills. On the other hand, things might be going well, and it’s time to make some home upgrades. Either way, there are a few options with cash-out refinances, too:

 

  • FHA cash-out refinance: This loan allows you to access up to 85 percent of your home’s value. Customers using this option are subject to both up-front and monthly mortgage insurance premiums. However, make sure you’re up-to-date on the rules, as the FHA has changed them since the housing market’s decline.
  • VA cash-out refinance: Veterans can access up to 100 percent of a home’s value with this option. There’s typically no mortgage insurance, but there’s a funding fee based on several factors, including disability rating, type of veteran, down payment, and how many times a person has used his or her VA loan benefits.
  • Conventional cash-out refinance: The conventional option allows you to access up to 80 percent of your home’s value. Like its streamline counterpart, it usually requires good credit and a decent amount of equity. However, this loan doesn’t require any kind of mortgage insurance.

 

Find the Right Refinancing Plan for You

If this still seems like a lot, simply ask yourself whether you want some cash or simply want to lower your interest rate. Remember: If you’re a veteran, you have access to different types of loans, so always take this into account. Evaluating your situation will help you zero in on what loan suits you.

For example, let’s say you purchased your first home in 2010 through an FHA loan with a 30-year term and a 6 percent rate. You’ve been successful in your job, and you’re not a veteran. While you love your current home, you can’t afford a higher mortgage payment, and you want to pay off your loan as quickly as possible. However, due to a couple mistakes in college, your credit history isn’t the best.

Taking all of these factors into account, your best option would be another FHA loan — possibly a streamline refinance if you don’t need to cash out. This would allow you to lower your rate and term while still taking your poor credit history into account.

Or perhaps you currently have an FHA loan, but you want to look into obtaining a lower rate and term. You have more than 20 percent equity in your home and an exemplary credit history.

In this case, you’d be better off refinancing your FHA loan into a conventional cash-out refinance. Because you have more than 20 percent equity, there would be no private mortgage insurance, which would decrease your current monthly payment. If you decreased your term and rate, payments might go up overall, but they’d be significantly less than what you were paying before.

Refinancing can be daunting, but with interest rates this low, it’s worth your time to do some research and see whether it’s right for you. Still, the process shouldn’t be taken lightly. Make sure you nail down the goals of your refinance, shop around for the right lender, and always weigh the costs against the benefits. If you follow these steps, you can’t lose.

headshotAnnie Doisy is a reverse mortgage expert who helps seniors enhance their lives by taking advantage of the equity in their homes. Annie writes about reverse mortgage information to inform homeowners on how to access the equity in their homes. She believes that staying well versed in all types of mortgages is necessary, regardless of your or your company’s specialty.