Auto

Late Payments, Credit Scores and Credit Reports

A missed credit card or loan payment can have a seriously detrimental effect on your credit report. The golden rule of using a credit card is to make your payments on time every time, building a respectable payment history, avoiding debt, and keeping your creditor happy.

But what happens when you fall behind with your monthly payments; what happens when you miss a single loan or credit card payment as a result of a mistake, an oversight or a lack of funds? How will your creditor react, how quickly will the credit reporting agencies find out, and what options do you have for getting back on your feet?

How Late Payments Affect Your Credit Score

A late payment can reduce your credit score significantly and remain on your report for 7 years. It won’t impact your score throughout that time and the longer you leave it, the less of an impact it will have. However, the impact could be significant for individuals with good credit and bad credit.

As an example, if you have a credit score of 750 to 800, which is towards the upper end, a late payment could knock up to 710 points from your score. More importantly, it will remain on your payment history for years to come and reduce your chances of getting everything from a student loan to a credit card and mortgage.

How Soon do Late Payments Show on Credit Reports

You won’t be hit with a derogatory mark as soon as you miss a credit card payment. The credit card issuer may charge you a fee, but by law, they are not allowed to market it as a missed payment until it is 30 days due. And this doesn’t just apply to credit card debt, it’s true for loans as well.

Providing you cover the payment within 30-days, you can avoid a missed payment mark appearing on your credit report. But as soon as that period passes, your lender will inform the major credit bureaus and your score will take a hit.

Some lenders wait even longer before reporting, so you may have as long as 60 days to make that payment. Check with your creditor to see when they start reporting missed payments.

What About Partial Payments?

Many lenders treat a partial payment the same as a missed payment, especially where credit cards are concerned. If you’re struggling to meet your payment obligations, contact your creditor in advance, tell them how desperate your situation is and inform them that you can meet part of the payment.

They may offer you some reprieve, they may not, but you won’t know if you don’t ask. However, it’s worth noting that this will only impact your score if you don’t cover the remaining credit card payment before the 30-day period is up.

To avoid confusion, we should also mention that this only applies to the minimum payment. Some credit card users get confused with the difference between a balance and a minimum payment.

Simply put, the balance is what you clear at the end of the month to avoid accumulating debt and paying interest. If you fail to pay that balance on time, your debt will simply roll over to the next month, after which you will be required to meet a minimum payment on your debt. If, however, you miss that minimum payment, then you’re at risk of your credit report taking a hit.

Reporting agencies don’t record the difference between a rolling balance and a debt. If you spend $3,000 on your card every month but pay it off without fail and without delay, you won’t accumulate interest and technically, you won’t have debt. However, at the end of the month, the reporting agencies will show that you owe $3,000 on that card, just as they would show if you had accumulated a balance of $1,000 a month for three months and let it rollover.

How Long Does a Late Payment Stay?

A late payment will remain on your credit report for 7 years. But herein lies another confusion. Just because it reduces your score by 100 points and remains for 7 years doesn’t mean you will suffer a reduction of 100 points for those 7 years. 

It generally stops having a major impact on your score after a couple of years and while it will still have an impact in that 7-year period, it will be infinitesimal by the time you reach the end.

How Many Late Payments Can You Make Before it Reduces Your Score?

One late credit card payment is all it takes to reduce your score, providing that late payment was delayed by at least 30-days. However, that doesn’t mean you can forget about it once the 30-day period has passed and it definitely doesn’t mean that all the possible damage has been done.

It can and will get worse if you continue to avoid that payment. Your credit report will show how late the payment is in 30-day installments. When it reached 180 days, your account will enter default and may be charged-off, which will reduce your score and your chances of acquiring future credit even more.

Your creditor may sell your account to a collection agency. If this happens, the agency will chase you for repayment, seeking to establish a repayment plan or to request a settlement. Accounts are often in this stage when a consumer goes through debt settlement, as creditors and debt collectors are typically more susceptible to accepting reduced settlements because the debt has all but been written off.

How to Remove Late Payments from Your Credit Report

Although rare, it is possible to remove late payments from your credit report. There are also numerous ways you can reverse late payment fees, and we recommend trying these whenever you can as it will save you a few bucks.

Here are a few options to remove late payments and late payment fees:

Use Your Respectable History

The quickest way to get what you want is to ask for it. If you have a clean credit history and have made your payments on time in the past, you can request that the fee/mark be removed. 

Write them a letter requesting forgiveness, explain that it was an oversight or a temporary issue and point to your record as proof that this will likely not happen again. Creditors may seem like heartless corporations, but real humans make their decisions for them and, like all companies, they have to put their customers first.

Request Automatic Payments

Lenders have been known to remove late payment fees if the debtor signs up for automatic payments. It makes their job easier as it prevents issues in the future and ensures they get what they are owed, so it’s something they actively promote.

They may make this offer themselves, but if not, contact them and ask them if there is anything you can do to remove the late payment. They should bring this up; if they don’t, you can. It doesn’t hurt to ask and the worse they can do is say no.

Claim Difficulties

If you claim financial difficulties or hardships and make it clear that a late payment will make those difficulties much worse, the lender may be willing to help. Contrary to what you might think, their goal is not to make life difficult for you and to destroy you financially. 

It’s important to see things from their perspective. If you borrow $15,000 and your balance climbs to $20,000 with interest, their main goal is to get that $15,000 back, after which everything else is profit. If you pay $10,000 and start slipping-up, the risk of default will increase. The worse your financial situation becomes, the higher that risk will be. 

If they eventually sell the account to a debt collector, that remaining $10,000 could earn them just a couple of hundred dollars, which means they will lose a substantial sum of money. They are generally willing to help any way they can if doing so will increase their profits.

How to Avoid Late Payments

A late payment can do some serious damage to your payment history so the best thing to do is to prevent it from occurring in the first place. It’s a no-brainer, but this is a common issue and it’s one that countless consumers have every single year. So, keep your credit card and loan payments stable with these tips.

Set Automatic Payments

Occasionally, consumers forget to pay. Life is hectic, they have a lot of responsibilities to juggle, and it’s easy for them to overlook a single payment. If this happens, it should be caught and fixed before the 30-day period ends and the credit bureaus find out. But even then, fees can accumulate, and problems escalate.

To avoid this, set up automatic payments so your minimum payment is paid in full every month. You can do this for all debt, including student loan payments. Just make sure you have the money in your account to meet this minimum charge, otherwise, you could be paying for debt on one account by accumulating it on another.

Set a Budget

A credit card is designed to encourage you to spend money you don’t have. You’re buying things you can’t afford now in the hope or expectation that you will cover them later, only to realize that you’re struggling so much you can’t even cover the minimum payment.

If you ever find yourself in a situation like this, it’s time to analyze your finances and create a sensible budget. You may feel like you have a good idea of what you’re spending each month and how this compares to your gross income, but the vast majority of consumers seriously underestimate their expenses.

Improve Your Credit by Fixing Your Debt-to-Income Ratio

Calculate your debt to income ratio by comparing your total debt (credit card payments, student loans) to your gross income. The higher this is, the harder you need to work, and the less you need to spend on your credit card. 

Your debt to income ratio should be your central focus when seeking to improve your credit score, because while it’s not considered for loan and credit card applications, it does play a role in mortgage applications and is important for calculating affordability.

Conclusion: It’s Not the End of the World

A late payment can strike a disastrous blow to your credit report, but it’s not the end of the world and you do have a few options at your disposal. Not only do you have up to 30 (and sometimes 60) days to make the payment and prevent a derogatory market, but you can file a claim to have it removed in the event that it does appear.

And if none of that works, a little credit repair can get you back on track. Just keep making those payments every month, talk with your lender when you find yourself in trouble, and remember that nothing is unfixable where credit is concerned.

Late Payments, Credit Scores and Credit Reports is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Cash Back, Credit Cards

What Is Cash Back?

What Is Cash Back?

Cash back is a rewards benefit that many credit cards offer to cardholders. By taking advantage of it, you’ll receive back a prespecified percentage of certain purchases you make. Many credit card companies will provide higher cash back rates on certain types of purchases, such as airfare, gas, food and more. Cash back is just one way that credit cards offer rewards, as mileage and points are some alternatives.

Before you spend too much money with your credit cards, make sure you have a financial plan in place. Speak with a financial advisor today.

What Is Cash Back?

The most commonly recognized style of cash back is what you have likely seen advertised as cash back credit cards. This specifically refers to earning a certain percentage of your credit card purchases back as cash rewards. However, cash back rates vary widely, as do the categories that they apply to.

You usually won’t see credit card cash back rates higher than 5%, while 1% is the typically minimum you will earn. Cash back categorization is significantly more complex though, with a merchant category code (MCC) system being the main organizing force.

MCCs run the entire cash back industry, as they ultimately decide how each purchase you make is classified. These designations coincide with cash back rates set by the issuer of your card. For example, you could use your card for a $50 dinner at a steakhouse, which has a “restaurant” code. If your card offers a 2% cash back rate on all spending at restaurants, you’d earn $1 cash back.

Familiar alternatives to cash back include point- and mile-based programs, though many cardholders are partial to cash back. Cash back affords cardholders an independence that is ideal, since you can redeem it for nearly anything.

Popular Cash Back Credit Cards

What Is Cash Back?

Discover, American Express, Mastercard and Visa all have cash back rewards credit cards available for prospective cardholders. Each abide by their own set of regulations, though card issuers decide on cash back rates, promotions and bonuses. Chase, Wells Fargo, Citi and Capital One represent some of the most active card issuers on the market today.

Below are a few examples of what you can expect to earn when looking for a cash back credit card:

Cash Back Credit Cards Card Name Cash Back Rates Cash Back Bonus Costco Anywhere Visa Card by Citi 4% cash back on eligible gas up to $7,000 per year, 3% cash back on eligible travel and restaurants, 2% cash back in-store and online with Costco and 1% cash back elsewhere None Bank of America® Cash Rewards credit card 3% cash back in a category of your choosing, 2% cash back at grocery stores and wholesale clubs and 1% cash back on all other purchases (up to a quarterly cap of $2,500 in combined grocery/wholesale club/choice category purchases) $200 bonus cash back for spending at least $1,000 over your first 90 days Capital One® Quicksilver® Cash Rewards Credit Card Unlimited 1.5% cash back everywhere $150 cash back bonus when you spend $500 during your first three months Citi Double Cash Card 1% cash back on your purchases and another 1% cash back when you pay your bill None Capital One® Savor® Cash Rewards Credit Card Unlimited 4% cash back on dining and entertainment, 2% cash back on groceries and 1% cash back elsewhere $300 cash back bonus for $3,000 spent over your first three months TD Cash Visa® Credit Card 3% cash back on dining, 2% cash back at supermarkets and 1% cash back on everything else Earn $150 cash back when spending $500 within the first 90 days (See Terms) USAA Preferred Cash Rewards Visa Signature Unlimited 1.5% cash back on everything None Blue Cash Everyday Card from American Express 3% cash back on up to $6,000/year at U.S. supermarkets (then 1%), 2% cash back at U.S. gas stations and select U.S. department stores and 1% cash back on other purchases $150 bonus cash back for spending $1,000 over your first six months Getting Cash Back at Retailers

What Is Cash Back?

Picture this: you’re buying some groceries on a Sunday morning, but know you’ll need $40 cash to fill up your car with some gas later. You could swipe your debit card at the supermarket and then head over to the ATM. Or you could ask for cash back right from the cashier, eliminating the extra errand.

The above situation represents the alternative definition of cash back. It’s ultimately the use of a cash register as if you were swiping your debit card at the ATM. When you request cash back from a cashier, your bank account will be charged the amount you asked for. This enables the funds to be pulled from your account so the cash can be placed in your hand.

Although this generally only applies to debit cards, there are a few exceptions for credit cards. Discover® allows cardholders to ask for cash back at more than 50 large retail stores without a transaction fee.

Bottom Line

There are many benefits to utilizing credit card rewards programs. But spending money that technically isn’t yours will always involve some level of risk. If you’re in good financial shape, though, cash back and other types of credit card rewards can help you take more vacations, save money on purchases and more.

Credit Card Tips

  • Managing your credit cards and any debt you accumulate using them is a major part of your long-term financial outlook. Consider working with a financial advisor to make sure you’re managing your money with your goals for the future in mind. SmartAsset’s free matching tool can connect you with up to three advisors in your area. Get started now.
  • If you’re someone who wants freedom when spending credit card rewards, you may prefer cash back to a points- or mileage-based reward system. However, keep in mind that cash back rates are sometimes less than those in point-centric programs.

Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

Advertiser Disclosure: The card offers that appear on this site are from companies from which SmartAsset.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). SmartAsset.com does not include all card companies or all card offers available in the marketplace.

Photo credit: ©iStock.com/SIphotography, ©iStock.com/MJ_Prototype, Â©iStock.com/Juanmonino

The post What Is Cash Back? appeared first on SmartAsset Blog.

Source: smartasset.com

Family Finance, Home Buying, Mortgage Tips

Bundle Up! Winter’s Home-Buying Game Has Changed. Here’s How To Win

How to buy a house this winterViktoriia Hnatiuk / Getty Images

Savvy home buyers know that winter is typically a good time to embark on a house hunt, since much of their competition stays holed up at home until spring. But this winter, buyers might notice that despite the cold and the holidays, they’ve got company.

Lots of it, in fact.

“Normally winter is a good time for buyers,” says realtor.com® chief economist Danielle Hale. However, since the coronavirus kept buyers on lockdown for much of spring, many are making up for lost time by home shopping hard right now.

“This year’s unusual seasonal pattern means that buyers aren’t getting the usual break from the market frenzy that they typically do in the cooler weather,” Hale explains.

As a result, this winter is shaping up to be a seller’s market, with low real estate inventory, high prices, and bidding wars that could give buyers a major run for their money.

This doesn’t mean you should throw in the towel—just that you’ll have to hone your house hunt in new ways to suit the times. Here are some tactics that will keep you ahead of the pack so you’ll be sitting in a new home by the new year.

Secure your financing as soon as possible

Getting pre-approved for a mortgage and securing financing are an essential first step when buying a home. It gives you a clear picture of how much house you can afford, and lets you make an offer as soon as you find your dream home.

Matt van Winkle, a real estate broker and owner at Re/Max Northwest Realtors in Seattle, says this process is more important now than ever.

“Getting pre-approved for a loan is obviously important, but is there anything else they can do to put themselves in a good position?” he says. “Buyers need to be ready to buy a house before they start looking.”

Too often, buyers don’t line up their financing until they find a home they want to buy, van Winkle says. In the current competitive market, waiting to get pre-approval means you could lose out on purchasing a home you love.

“That creates a mad dash and stress to get everything lined up under pressure,” he says. “Get all your financing secured and ready before you look, that way when you find the right home you’re 100% ready.”

Starting early could also help you lock in an ultralow interest rate, which could affect your monthly mortgage payment and mean you could afford a more expensive home. As of Oct. 22, Freddie Mac listed rates at 2.8% for a 30-year fixed-rate loan.

Know what you want before you house hunt

COVID-19 has changed how we live and work. We’re spending much more time at home, and people are looking for different features in their living spaces.

Make a list of your must-haves before you start house shopping—and share your needs with your real estate agent.

Simon Isaacs, broker and owner of Simon Isaacs Real Estate in Palm Beach, FL, says it helps cut down on the number of homes you’ll have to view before finding the right one.

“I would suggest buyers not look at 25 homes,” he says. “If the agent is showing them that many houses, the agent doesn’t know what they want.”

In such a competitive landscape, knowing exactly what you want enables you to act fast when you want to make an offer.

Tour homes virtually first

More real estate agents are embracing virtual tours and remote showings to ease coronavirus safety concerns. In some cases, they’re even limiting in-person showings to the most serious buyers—those with financing already secured, for example.

“Real estate agents in our local market are adjusting to the client’s needs by continuing to provide in-person showings with precautions and also assisting buyers virtually with their home purchases,” says Matt Curtis, owner of Matt Curtis Real Estate in Huntsville, AL.

Virtual home tours, using Zoom or FaceTime, let you view the home from anywhere, and depending on the setup, you might be able to ask questions in real time. So you can narrow down the homes you’re most interested in and physically visit only the ones that best meet your needs.

Don’t dawdle if you want to make an offer

In September, there were nearly 40% fewer homes on the market than during the same month last year, according to a realtor.com report. At the same time, buyer demand has increased, creating an incredibly competitive marketplace. Homes were on the market for an average of 54 days in September, 12 fewer days than last year.

Tracy Jones, a real estate agent with Re/Max Platinum Realty in Sarasota, FL, says the buyers she’s worked with lately have had just a few homes to consider. And, with all the other buyers in a location also looking at those same houses, you’ll need to act fast if you’re interested.

The challenge, she says, is potential buyers have little time to mull things over, and they are pitted against one another.

Isaacs is seeing a similar situation. Wait too long to submit an offer, and another buyer is likely to swoop in with an offer of their own.

“I would say don’t deliberate on buying,” he says. “I’ve had too many clients who were [saying], ‘Should we, shouldn’t we.’ I would say if it’s something that you want to do, do it.”

Make your offer stand out

Since inventory is so low, sellers are getting multiple offers on their homes these days. To make sure yours gets accepted, you’ll need to make it stand out.

Cash offers and inspection waivers are some ways to make your offer more appealing, Curtis says.

A cash offer, if you can afford it, is attractive to sellers because it eliminates dealing with a mortgage lender and often speeds up closings. An inspection waiver comes with lots of risks, since you’re essentially agreeing to purchase a home as is, but the waiver removes any repair negotiations and helps you close faster.

For competitive markets, where you know you’ll be competing directly with many buyers, Jones suggests talking to your agent about escalation clauses. This is a contract addendum where you agree to pay more than other offers (up to a maximum you set).

Bottom line: “Find a strategy to help make your offer stand out amongst the 10, 20, or more offers that may come in on your dream home,” Curtis says.

The post Bundle Up! Winter’s Home-Buying Game Has Changed. Here’s How To Win appeared first on Real Estate News & Insights | realtor.com®.

Source: realtor.com

Family Finance, Personal Finance, Real Estate

What Does a Real Estate Attorney Do?

If you’re planning to buy or sell a house or a rental investment property, you might consider hiring a real estate attorney.

A real estate lawyer can provide legal protection. They can help you navigate the home-buying process, which can be complex.

In fact, many states require a real estate lawyer to be present at closing. 

*TOP CIT BANK PROMOTIONS*
PROMOTIONAL LINK OFFER REVIEW
CIT Bank Money Market 1.00% APY Review
CIT Bank Savings Builder 0.95% APY Review
CIT Bank CDs 0.75% APY 1 Year CD Term Review
CIT Bank No Penalty CD 0.75% APY Review

Even if you live in a state that doesn’t require you to have a real estate attorney, it’s important to have one by your side.

But it’s also important to know who you’re dealing with, what they can do for you, and what’s in it for them.

Real estate attorneys can help structure transactions and closing. They will review documents well in advance before the closing to make sure there are no errors.

Real estate lawyers, however, can only represent one of the parties. The buyer and the seller’s interests can often be in conflict. Therefore, the attorney should never represent both parties. 

Besides representing you in sales transactions, real estate attorneys can represent you in a courtroom as well.

During the home-buying process, disputes between the buyer and the seller may arise that will have to settle in court.

The real estate attorney’s qualifications

A real estate attorney, just as any lawyer, has attended 3 years of law school. In law school, they take courses in law in general, including real property and other real estate classes.

During law school, they may do internships at law firms which specialize in real estate law.

Once they graduate law school, they take to bar exam in the state they want to practice in.

Once they become licensed to practice, they can work in a law firm specializing in real estate law.

The real estate lawyer’s fees

A real estate attorney can charge by the hour or a fixed fee. How much their charge for their services depends on their reputation, their level experience, the level of complexity.

Regardless of the fee, your attorney will discuss it with you. Their hourly fee is typically between $150 to $350.

They’ll draft a retainer agreement and make the necessary disclosures before you can retain them.

The attorney’s role in real estate transaction

Real estate attorneys can have many roles. Their roles will vary depending on whether it is a simple transaction or a complex one, and whether a real estate broker is involved.

In some cases, a real estate broker can handle many aspects of real estate transactions. If that case, the real estate attorney’s role is often limited.

In other instances, the real estate lawyer plays a crucial role in all phases of the real estate transaction.

Nonetheless, a real estate attorney’s roles include acting as a legal counselor, negotiator, advisor and coordinator.

Real estate attorney as a legal counselor

A real estate attorney acting as a legal counselor can handle drafting the proposed contract. If there is a broker involved, the broker will prepare the contract.

But, your attorney will review it for any proposed changes. Your lawyer can also draft the deed and examine title documents.

If you retain a real estate agent or broker, your attorney may also review the broker’s agreement before you sign it.

Real estate attorney as a negotiator

If you hire a real estate lawyer before you sign a contract or before engaging in any contract negotiations, your attorney will assume that role. All communications from the other party or his or her attorney will be directed to your lawyer.

Your attorney will negotiate proposed changes to the contract, including the price of the house. They will review any mortgage contingency clauses.

In addition, your real estate attorney can negotiate the following matters:

  • Personal property to be included;
  • Repairs before closing;
  • The closing date;
  • You may not get a mortgage commitment within the stipulated date in the contract. So, your attorney may negotiate an extension of time to obtain the mortgage;
  • You may need an early possession of the house. Your lawyer can negotiate that.

Real estate attorney as an advisor

You, as a client, may not need strict legal advice. You may just want your lawyer to be present for general advice. If you’re a first time home buyer or an elderly buyer, your attorney can also act as an advisor.

Real estate attorney as a coordinator

Your attorney can also act as your coordinator. Residential closings involve a lot of steps. And not everyone involved will follow them.

So, one of your real estate lawyer’s role is to contact the brokers, the title insurers, the mortgagees. They will also monitor the progress of obtaining financing, title policy, etc.

They will also contact the other attorney to make sure all parties are ready for the closing.

Your attorney’s responsibilities before closing

If you hire a real estate lawyer to represent you either as a seller or buyer, his or her responsibility before closing include the following:

  • Make sure you, as a buyer or seller, can fulfill the requirements imposed by the real estate sale contract
  • Review the title insurance;
  • Check the mortgage commitment;
  • Monitor status of the contract contingencies;
  • Examine closing documents for accuracy;
  • Coordinate closing date and time with the mortgage lender, seller and buyer’s broker;
  • If buyers will not attend the closing, obtain power of attorney for property to cover documents to be signed at closing;
  • Get wire instructions for payment of balance due at closing

In case a dispute arises between the parties, the real estate attorney can represent you in court.

Issues that might arise include damages and earnest money forfeiture, specific performance, misrepresentation, etc.

Do I need a real estate attorney?

Some states require a real estate attorney to be present during closing. They include Massachusetts, Maine, Alabama, Connecticut, Delaware, Georgia, Florida, Kansas, Kentucky, Virginia, West Virginia, South Carolina, Rhode Island, Pennsylvania, New York, North Dakota, Mississippi, New Hampshire, and New Jersey.

If you don’t live in any of these states and the District of Columbia, it’s really up to you if you want to hire a real estate attorney. If you’re just trying to save money and can barely afford to buy a house, you’re probably don’t need a real estate lawyer.

But if your real estate transaction is complex, a good real estate attorney can be an asset.

The bottom line…

Some states do not require you to have a real estate attorney during closing. However, it’s worth the cost hiring one especially if you’re buying a house in foreclosure.

Work With A Financial Advisor Near You

If you have questions beyond hiring a real estate attorney, you can talk to a financial advisor who can review your finances and help you reach your goals. Find one who meets your needs with SmartAsset’s free financial advisor matching service. You answer a few questions and they match you with up to three financial advisors in your area. So, if you want help developing a plan to reach your financial goalsget started now.

*TOP CIT BANK PROMOTIONS*
PROMOTIONAL LINK OFFER REVIEW
CIT Bank Money Market 1.00% APY Review
CIT Bank Savings Builder 0.95% APY Review
CIT Bank CDs 0.75% APY 1 Year CD Term Review
CIT Bank No Penalty CD 0.75% APY Review

The post What Does a Real Estate Attorney Do? appeared first on GrowthRapidly.

Source: growthrapidly.com

Family Finance, Investing

10 Risky Investments That Could Make You Lose Everything

If the stock market crashed again, would you respond by investing more? Is day trading your sport of choice? Do you smirk at the idea of keeping money in a savings account instead of investing it?

If you answered yes to these questions, you’re probably an investor with a high risk tolerance.

Hold up, Evel Knievel.

It’s fine to embrace a “no-risk, no-reward” philosophy. But some investments are so high-risk that they aren’t worth the rewards.

10 Risky Investments That Could Lead to Huge Losses

We’re not saying no one should ever consider investing in any of the following. But even if you’re a personal finance daredevil, these investments should give you serious pause.

Sure, if things go well, you’d make money — lots of it. But if things go south, the potential losses are huge. In some cases, you could lose your entire investment.

1. Penny Stocks

There’s usually a good reason penny stocks are so cheap. Often they have zero history of earning a profit. Or they’ve run into trouble and have been delisted by a major stock exchange.

Penny stocks usually trade infrequently, meaning you could have trouble selling your shares if you want to get out. And because the issuing company is small, a single piece of good or bad news can make or break it.

Fraud is also rampant in the penny stock world. One common tactic is the “pump and dump.” Scammers create false hype, often using investing websites and newsletters, to pump up the price. Then they dump their shares on unknowing investors.

2. IPOs

You and I probably aren’t rich or connected enough to invest in an IPO, or initial public offering, at its actual offering price. That’s usually reserved for company insiders and investors with deep pockets.

Instead, we’re more likely to be swayed by the hype that a popular company gets when it goes public and the shares start trading on the stock market. Then, we’re at risk of paying overinflated prices because we think we’re buying the next Amazon.

But don’t assume that a company is profitable just because its CEO is ringing the opening bell on Wall Street. Many companies that go public have yet to make money.

The average first-day returns of a newly public company have consistently been between 10% to 20% since the 1990s, according to a 2019 report by investment firm UBS. But after five years, about 60% of IPOs had negative total returns.

3. Bitcoin

Proponents of bitcoin believe the cryptocurrency will eventually become a widespread way to pay for things. But its usage now as an actual way to pay for things remains extremely limited.

For now, bitcoin remains a speculative investment. People invest in it primarily because they think other investors will continue to drive up the price, not because they see value in it.

All that speculation creates wild price fluctuations. In December 2017, bitcoin peaked at nearly $20,000 per coin, then plummeted in 2018 to well below $4,000. That volatility makes bitcoin useless as a currency, as Bankrate’s James Royal writes.

Unless you can afford to part ways with a huge percentage of your investment, bitcoin is best avoided.

4. Anything You Buy on Margin

Margining gives you more money to invest, which sounds like a win. You borrow money from your broker using the stocks you own as collateral. Of course, you have to pay your broker back, plus interest.

If it goes well, you amplify your returns. But when margining goes badly, it can end really, really badly.

Suppose you buy $5,000 of stock and it drops 50%. Normally, you’d lose $2,500.

But if you’d put down $2,500 of your own money to buy the stock and used margin for the other 50%? You’d be left with $0 because you’d have to use the remaining $2,500 to pay back your broker.

That 50% drop has wiped out 100% of your investment — and that’s before we account for interest.

5. Leveraged ETFs

Buying a leveraged ETF is like margaining on steroids.

Like regular exchange-traded funds, or ETFs, leveraged ETFs give you a bundle of investments designed to mirror a stock index. But leveraged ETFs seek to earn two or three times the benchmark index by using a bunch of complicated financing maneuvers that give you greater exposure.

Essentially, a leveraged ETF that aims for twice the benchmark index’s returns (known as a 2x leveraged ETF) is letting you invest $2 for every $1 you’ve actually invested.

We won’t bore you with the nitty-gritty, but the risk here is similar to buying stocks on margin: It can lead to big profits but it can also magnify your losses.

But here’s what’s especially tricky about leveraged ETFs: They’re required to rebalance every day to reflect the makeup of the underlying index. That means you can’t sit back and enjoy the long-haul growth. Every day, you’re essentially investing in a different product.

For this reason, leveraged ETFs are only appropriate for day traders — specifically, day traders with very deep pockets who can stomach huge losses.

6. Collectibles

A lot of people collect cars, stamps, art, even Pokemon cards as a hobby. But some collectors hope their hobby will turn into a profitable investment.

It’s OK to spend a reasonable amount of money curating that collection if you enjoy it. But if your plans are contingent on selling the collection for a profit someday, you’re taking a big risk.

Collectibles are illiquid assets. That’s a jargony way of saying they’re often hard to sell.

If you need to cash out, you may not be able to find a buyer. Or you may need to sell at a steep discount. It’s also hard to figure out the actual value of collectibles. After all, there’s no New York Stock Exchange for Pokemon cards. And if you do sell, you’ll pay 28% tax on the gains. Stocks held long-term, on the other hand, are taxed at 15% for most middle-income earners.

Plus, there’s also the risk of losing your entire investment if your collection is physically destroyed.

7. Junk Bonds

If you have a low credit score, you’ll pay a high interest rate when you borrow money because banks think there’s a good chance you won’t pay them back. With corporations, it works the same way.

Companies issue bonds when they need to take on debt. The higher their risk of defaulting, the more interest they pay to those who invest in bonds. Junk bonds are the riskiest of bonds.

If you own bonds in a company that ends up declaring bankruptcy, you could lose your entire investment. Secured creditors — the ones whose claim is backed by actual property, like a bank that holds a mortgage — get paid back 100% in bankruptcy court before bondholders get anything.

8. Shares of a Bankrupt Company

Bondholders may be left empty-handed when a corporation declares bankruptcy. But guess who’s dead last in terms of priority for who gets paid? Common shareholders.

Secured creditors, bondholders and owners of preferred stock (it’s kind of like a stock/bond hybrid) all get paid in full before shareholders get a dime.

Typically when a company files for bankruptcy, its stock prices crash. Yet recently, eager investors have flocked in to buy those ultracheap shares and temporarily driven up the prices. (Ahem, ahem: Hertz.)

That post-bankruptcy filing surge is usually a temporary case of FOMO. Remember: The likelihood that those shares will eventually be worth $0 is high.

You may be planning on turning a quick profit during the run-up, but the spike in share prices is usually short-lived. If you don’t get the timing exactly right here, you could lose big when the uptick reverses.

9. Gold and Silver

If you’re worried about the stock market or high inflation, you may be tempted to invest in gold or silver.

Both precious metals are often thought of as hedges against a bear market because they’ve held their value throughout history. Plus in uncertain times, many investors seek out tangible assets, i.e., stuff you can touch.

Having a small amount invested in gold and silver can help you diversify your portfolio. But anything above 5% to 10% is risky.

Both gold and silver are highly volatile. Gold is much rarer, so discovery of a new source can bring down its price. Silver is even more volatile than gold because the value of its supply is much smaller. That means small price changes have a bigger impact. Both metals tend to underperform the S&P 500 in the long term.

The riskiest way to invest in gold and silver is by buying the physical metals because they’re difficult to store and sell. A less risky way to invest is by purchasing a gold or silver ETF that contains a variety of assets, such as mining company stocks and physical metals.

10. Options Trading

Options give you the right to buy or sell a stock at a certain price before a certain date. The right to buy is a call. You buy a call when you think a stock price will rise. The right to sell is a put. You buy a put when you think a stock price will drop.

What makes options trading unique is that there’s one clear winner and one clear loser. With most investments, you can sell for a profit to an investor who also goes on to sell at a profit. Hypothetically, this can continue forever.

But suppose you buy a call or a put. If your bet was correct, you exercise the option. You get to buy a winning stock at a bargain price, or you get to offload a tanking stock at a premium price. If you lose, you’re out the entire amount you paid for the option.

Options trading gets even riskier, though, when you’re the one selling the call or put. When you win, you pocket the entire amount you were paid.

But if you end up on the losing side: You could have to pay that high price for the stock that just crashed or sell a soaring stock at a deep discount.

FROM THE INVESTMENT FORUM
Investing
6/10/20 @ 6:48 PM
Elite Four47
Question- equity for work
12/29/20 @ 2:51 PM
bob G
Home Repair
9/28/20 @ 3:53 PM
Keron X Willis
See more in Investment or ask a money question

What Are the Signs That an Investment Is Too Risky?

The 10 things we just described certainly aren’t the only risky investments out there. So let’s review some common themes. Consider any of these traits a red flag when you’re making an investment decision.

  • They’re confusing. Are you perplexed by bitcoin and options trading? So is pretty much everyone else.If you don’t understand how something works, it’s a sign you shouldn’t invest in it.
  • They’re volatile. Dramatic price swings may be exciting compared with the tried-and-true approach of investing across the stock market. But investing is downright dangerous when everything hinges on getting the timing just right.
  • The price is way too low. Just because an investment is cheap doesn’t mean it’s a good value.
  • The price is way too high. Before you invest in the latest hype, ask yourself if the investment actually delivers value. Or are the high prices based on speculation?

The bottom line: If you can afford to put a small amount of money in high-risk investments just for the thrill of it, fine — as long as you can deal with losing it all.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to DearPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

Source: thepennyhoarder.com

Estate Planning, Home

Popular Housing Markets During the Pandemic

There’s something weird happening with the real estate markets today. Normally in a recession, demand for rentals goes up while demand for houses goes down. But if there’s anything 2020 has taught us, it’s that everything is turned on its head right now. 

Instead, we’re seeing an interesting trend: despite the ongoing pandemic, home-buying is experiencing higher demand now than they have been since 1999, according to the National Association of RealtorsⓇ (NAR). If you’ve been hoping to buy a home soon, you’re probably already aware of this weird trend, and excited. But is it the same story everywhere? And is a pandemic really the right time to buy? 

How the Pandemic is Changing Homeownership

This pandemic is different from any other in history in that many people — especially some of the highest-paid workers — aren’t being hit as hard as people who rely on their manual labor for income. This, coupled with an ultra-low mortgage rate environment and a new lifestyle that’s not fit for a cramped apartment, is creating the perfect storm of high-dollar homebuyers. 

“I didn’t want to pay someone else’s mortgage to have three roommates,” says Amy Klegarth, a genomics specialist who recently purchased a home in White Center, a suburb of Seattle where she was formerly renting. “I moved because I could afford to get a house with a large yard here for my goats, Taco and Piper.” 

Whether you have goat kids or human kids (or even no kids), you’re not the only one looking for a new home in a roomier locale. According to the NAR report, home sales in suburban areas went up 7% compared to just before the pandemic started. In some markets, it’s not hard to understand why people are moving out. 

Where Are People Going?

Apartments are small everywhere, but they’re not all the same price. For example, homes in cities tend to be 300 square feet smaller than their suburban counterparts. Some of the hottest home-buying markets right now are in areas where nearby rents are already too high, often clustered around tech and finance hubs that attract high-paid workers. After all, if you can’t go into the office and all of the normal city attractions are shut down, what’s the point of paying those high rental costs?

According to a December 2020 Zumper report, the top five most expensive rental markets in the U.S. are San Francisco, New York City, Boston, San Jose, and Oakland. But if you’re ready to buy a home during the pandemic, there are nearby cheaper markets to consider.

If You Rent in San Francisco,  San Jose, and Oakland, CA

Alternative home-buying market: San Diego, Sacramento 

  • Average rent: San Francisco, $2,700, San Jose, $2,090; Oakland; $2,000
  • Average home value (as of writing): San Diego ($675,496) and Sacramento ($370,271)
  • Estimated mortgage payment with 20% down: San Diego ($2,255) and Sacramento ($1,236)

Big California cities are the quintessential meccas for tech workers, and that’s often exactly who’s booking it out of these high-priced areas right now. Gay Cororaton, Director of Housing and Commercial Research for the National Association of Realtors (NAR), offers two suggestions for San Francisco and other similar cities in California. 

San Diego

First, is the San Diego-metro area, which has a lot to offer people who are used to big-city living but don’t want the big-city prices. An added bonus: your odds of staying employed as a tech worker might be even higher in this city. 

“Professional tech services jobs make up 18% of the total payroll employment, which is actually a higher fraction than San Jose (15.5%) and San Francisco (9.3%),” says Cororaton.

Sacramento

If you’re willing to go inland, you can find even cheaper prices yet in Sacramento. “Tech jobs have been growing, and account for 7% of the workforce,” says Cororaton. “Still not as techie as San Jose, San Francisco, or San Diego, but tech jobs are moving there where housing is more affordable. It’s also just 2 hours away from Lake Tahoe.”

If You Rent in New York, NY

Alternative home-buying market: New Rochelle, Yonkers, Nassau, Newark, Jersey City

  • Average rent: $2,470
  • Average home value (as of writing): New Rochelle ($652,995), Yonkers ($549,387), Nassau ($585,741), Newark ($320,303), or Jersey City ($541,271)
  • Estimated mortgage payment with 20% down: New Rochelle ($2,180), Yonkers ($1,834), Nassau ($1,955), Newark ($1,069), or Jersey City ($1,807)

Living in New York City, it might seem like you don’t have any good options. But the good news is you do — lots of them, in fact. They still might be more expensive than the average home price across the U.S., but these alternative markets are still a lot more affordable than within, say, Manhattan. 

New Rochelle and Yonkers

Both New Rochelle and Yonkers are about an hour’s drive from the heart of New York City, says Corcoran. If you ride by train, it’s a half hour. Both New Rochelle and Yonkers have been stepping up their appeal in recent years to attract millennials who can’t afford city-living anymore (or don’t want to be “house poor”), so you’ll be in good company. 

Nassau

“NAR ranked Nassau as one of the top places to work from home in the state of New York because it has already a large population of workers in professional and business services and has good broadband access,” says Cororaton. If you have ideas about moving to Nassau you’ll need to move quickly. Home sales are up by 60% this year compared to pre-pandemic times. 

Newark or Jersey City

If you don’t mind moving to a different state (even if it is a neighbor), you can find even lower real estate prices in New Jersey. This might be a good option if you only need to ride back into the city on occasion because while the PATH train is well-developed, it’s a bit longer of a ride, especially if you live further out in New Jersey. 

If You Rent in Boston, MA

Alternative home-buying market: Quincy, Framingham, Worcester

  • Average rent: $2,150
  • Average home value (as of writing): Quincy ($517,135), Framingham ($460,584), or Worcester ($284,936)
  • Estimated mortgage payment with 20% down: Quincy ($1,726), Framingham ($1,538), or Worcester ($951)

Boston is another elite coastal market, but unlike New York, there’s still plenty of space if you head south or even inland. In particular, Quincy and Framingam still offer plenty of deals for new buyers.

Quincy

If you like your suburbs a bit more on the urban side, consider Quincy. Although it’s technically outside of the city, it’s also not so isolated that you’ll feel like you’re missing out on the best parts of Boston-living. You’ll be in good company too, as there are plenty of other folks living here who want to avoid the high real estate prices within Boston itself.

Framingham

Framingham is undergoing an active revitalization right now in an effort to attract more people to its community. As such, you’ll be welcome in this town that’s only a 30-minute drive from Boston.

Worcester

“Now, if you can work from home, consider Worcester,” says Cororaton. “It’s an hour away from Boston which is not too bad if you only have to go to the Boston office, say, twice a week.” Worcester (pronounced “wuh-ster”) is also a great place for a midday break if you work from home, with over 60 city parks to choose from for a stroll.

Renting Market(s) Average Rent for 1-Bedroom Apartment Housing Market Options & Avg. Monthly Mortgage*
San Francisco, CASan Jose, CAOakland, CA $2,700 San Diego ($2,255) Sacramento ($1,236)
New York, NY $2,470 New Rochelle ($2,180) Yonkers ($1,834)Nassau ($1,955)Newark ($1,069)Jersey City ($1,807)
Boston, MA $2,150 Quincy ($1,726)Framingham ($1,538)Worcester ($951)

*Average home mortgage estimates based on a 20% down payment.

Should You Buy a House During a Pandemic?

There’s no right or wrong answer here, but it’s a good idea to consider your long-term housing needs versus just what’ll get you through the next few months. 

For example, just about everyone would enjoy some more room in their homes to stretch right now. But if you’re the type of person who prefers a night on the town, you might be miserable in a rural area by the time things get back to normal. But if you’ve always dreamed of a big vegetable garden or yard for the family dog, now could be the right time to launch those plans. 

Another factor to consider is job security. And remember that even if you’re permanently working from home today — and not everyone has this ability — living further from the city could limit your future opportunities if a job requires you to be on-site in the city.

Finally, consider this: most homes in outlying areas weren’t built with the pandemic in mind. For example, “… open floor plans were popular, pre-pandemic,” says Cororaton. “If the home for sale has an open floor plan, you’d have to imagine how to reconfigure the space and do some remodeling to create that work or school area.” 

Here are some other things to look for:

  • Outdoor space
  • Area for homeschooling
  • Broadband internet access
  • Proximity to transport routes
  • Office for working from home

Is It More Affordable to Buy or Rent?

There aren’t any hard-and-fast rules when it comes to whether it’s cheaper to rent or buy. Each of these choices has associated costs. To rent, you’ll need to pay for your base rent, pet fees and rent, parking permits, deposits, renters insurance, and more. To buy, you’ll have an even bigger list, including property taxes, maintenance and upgrades, HOA fees, homeowners insurance, closing costs, higher utility bills, and on.

Each of these factors has the potential to tip the balance in favor of buying or renting. That’s why it makes sense to use a buy vs. rent calculator that can track all of these moving targets and estimate which one is better based on your financial situation and the choices available to you. 

In general, though, most experts advise keeping your housing costs to below 30 percent of your take-home pay when setting up your budget. The lower, the better — then, you’ll have even more money left over to save for retirement, your kid’s college education, and even to pay your mortgage off early. 

The post Popular Housing Markets During the Pandemic appeared first on Good Financial Cents®.

Source: goodfinancialcents.com