Saturday, December 15, 2018

6 Tax Myths That Even Smart People Believe

While I am not a CPA nor do I have any special expertise in taxes, I have found that there is a lot of mis-information out there about how US Income Taxes work, even among people who you expect to know better.  Let's take a look at some:

Monday, November 26, 2018

Cutting the Cord: The Financial Side of Growing Up

A moving truck recently came to my house, but I didn't go anywhere.  My daughter did though.  Several months ago she and two friends signed a lease on a house. 

As parents move toward retirement, our kids move toward independent lives, but there are often ties that still bind them financially to their parents.  Let's take a look at some of them, and consider what to do with them.

Health Insurance

Since the passage of the Affordable Care Act, young adults have been allowed to remain as dependents on their parents' health insurance policies whether or not they live with their parents or elsewhere, whether they are married, or whether they are eligible for worse coverage with their own employer.  My employer charges a single fee for children's coverage, whether I have one child or ten.  Since I have to insure my younger daughter anyway, keeping Ms. Moved Out on my policy does not cost me more, and my coverage is better than her employer offers.  I guess I could charge her for her share, but I'm a nice mom.


Who owns your young adult's car?  Depending on when it was bought and with whose money, it could be owned by the young adult or by the parents.  If your child's car is in your name, move-out time is a good time to re-assess that.  Yes, it is going to cost to change the title, and some states will make the new owner pay sales tax, even if the car is given rather than sold, but once your child moves out, you will have no control over the car and as long as it is in your name, you can be held liable for any accident.  

While it is generally cheaper to buy the same amount of coverage as an additional vehicle on a family policy, if you have a substantial policy because of your substantial assets, your adult children who have no savings, student loans and cast-off furniture can generally get by with lower limits. so their overall insurance costs could drop by assuming ownership of their own vehicle. 


Who is paying the young adult's phone bill?  If it is you, do you want to continue to do so?  The family plan may be the cheapest way to finance multiple phones but as the kids move out, consider other options.  Maybe they can pay their share of the bill.  Maybe now that your text-happy teens are gone, the old fuddy-duddys at your house would be fine with pay-as-you-go plan--or maybe not.  

What about the Netflix bill or the Spotify charges?  Do you use those services, or are they really for your adult child?  Are there any other services you are paying for (check your credit card bills for those auto charges) that you won't need or want once your child(ren) move out?

Kids moving out is a bittersweet time for parents.  It is what we want to happen.  It means we did our job and raised independent adults.  Still we miss having them home with us.  

Saturday, November 17, 2018

5 Things To Know About Life Insurance

You May Not Need Life Insurance

As with any other insurance, the purpose of life insurance is to turn an unknown financial risk into a known premium. We are all going to die one day; that is a known fact. What is unknown is whether we are going to die at a time in our life when it would cause a financial hardship for our loved ones. Life insurance doesn’t keep us from dying nor does it comfort our loved ones when we do. Rather, its purpose is to ease the financial strain our death causes those we are responsible for.

Wednesday, November 7, 2018

5 Ways to Invest in Real Estate

When it comes to diversifying your investment portfolio, real estate is a go-to for many people.  People like owning something they can see and understand, and most forms of real estate investment allow that.  

Another big advantage of real estate as an investment is the ability to use OPM--other people’s money.  While buying stock on margin is considered risky, buying real estate with borrowed money is considered normal.  

Let’s take a look at some ways to invest in real estate and consider the advantages and disadvantages of each.

Monday, October 29, 2018

Are REITs a Good Investment?

Investors looking for ways to diversify their portfolio may find that REITs are recommended. This post will attempt to answer the following questions:

What Are REITs?
Are REITs a good investment?
What types of investors should consider REITs?
What are the risks of investing in REITs?
What REITs should I invest in?

Thursday, October 18, 2018

Why Should I Invest in Corporate Bonds?

Investing in corporate bonds is a good way to add income and stability to your investment portfolio. However, many people do not understand why they should invest in corporate bonds. Let’s take a look at some questions people have about corporate bonds, and at some answers.

Thursday, October 11, 2018

Review of Finances: 3rd Quarter 2018

As I set down to write this, the stock market has fallen precipitously in the last week.  Nevertheless these are the figures as of the end of September, 2018.

About 10% of our income automatically goes into our 401k accounts, and in the last three months, that's been about it.  On the spending side, my daughter and I went to New York City and ended up with extra expenses for the plane ride home when our original flight was cancelled due to weather.  I also took a weekend trip to Dallas with college friends.  The start of school and all those fees also hit our bank account.

Let's take a look at the investments:

Friday, September 28, 2018

Levels and Choices in Elder Care

I think many people have a dream of living a long fulfilling life and then going to bed in their own home one night and just never waking up again.  Unfortunately, not many of us go that way.  Most people undergo a period of declining health, mobility, cognition and independence before death.  For some it is a relatively quick process caused by their final illness.  For others it can mean years of being cared for by others.

As we plan our race to retirement we need to consider the types of care available to the elderly as function decreases; how much those options cost; and how we can arrange our lives so that, if desired, we can maintain independence as long as possible.  Let's take a look at some of the options, as well as how to finance them.

Friday, September 7, 2018

Making Money with Affiliate Links

When you read the "How to Make Money Blogging" books that are readily available with a Kindle Unlimited subscription, one source that most mention is affiliate links.  Basically affiliate links allow one customer to earn money by recruiting another customer.  In order to get people to recommend them to their friends, and to get bloggers to write about them, companies offer rewards to those who get other people to sign up via unique links and often give the new customers a bonus as well.  This week I'm going to share my affiliate links with you and let you know what you get for using them, and what I get for referring you.

Robinhood:  Brokerage offering free stock, option and crypto trades.  Use this link and we each get one free share of stock.

Webull:  Another brokerage that offers free stock trades.  Read my review.   They too offer each of us a free share of stock if you use this link.

Motif:  A brokerage that specializes in offering baskets of stocks known as "motifs".  Using this link gets  you three months of their premium service, and I get the same. My review. 

M1 Finance:  This broker also specializes in offering collections of stock or ETFs, which they call "pies".  This link gets both of us $10 to invest.  Read my review of M1 Finance.

Dia&Co:  A styling service for plus-sized woman.  This link gets you your first Dia & Co. box with no styling fee (usually $20), and I get one with no styling fee too.  That's nice because if I don't like what's in the box, back it goes.  I wrote about them here and here.

Stockpile:  Buy stocks by the dollar, not the share.  Each trade is only 99 cents.  This link gets both of us $5.00 to invest. Here is my review. 

Personal Capital:  This robo-advisor offers free investment tracking as well.  Sign up using this link, and then link a qualified investment account and we both get $20.  You don't even have to use their paid services--and I like the way they analyze my investments.  Here is my review. 

Ipsy:  They send you a make-up case every month with five products in it, usually sample-sized.  Its a fun cheap splurge.  I get referral credit, and unfortunately you don't get anything but make-up.

So, which of my links are you going to use today?  Money for  you, money for me, what could be better?

Disease Called Debt

Friday, August 31, 2018

Should I Sue?

According to the ads on late-night television, a car accident could be your path to riches.   See that lawyer and get a big check. Is it really that easy?
This post is not legal advice, and every case is different.  Generally, personal injury attorneys work on contingency fees--they get a portion of the recovery--and they offer free initial consultations during which they evaluate your case and decide whether they want to become involved.  If you are injured in a car accident, it doesn't hurt to see someone.

Still, you may wonder:  "Is it worth it to sue"?  or "How much can I get if I sue?"

Elements that determine the value of a lawsuit

There are three elements that determine the value of a lawsuit:

Friday, August 24, 2018

What to Do Before Disaster Strikes

Right now there are wildfires in the West and a Hurricane is headed for Hawaii.  The end of August and first half of September is prime time for Hurricanes on the Gulf Coast.  Spring floods hit the river valleys, especially in areas that got more snow than usual.  Earthquakes seem to come out of nowhere.  The reality is that any of us could be hit by some disaster (whether individually, or as a community) at just about any time.

Some of us will have at least a little warning of impending problems.  When hurricane warnings go up, you know that you need to pack up valuables and leave town.  While you may be hoping that wildfire doesn't come your way, you know that if it isn't too far away you need to be on guard--the wind can always change.  On the other hand, earthquakes give little warning and your smoke alarm may be the only warning you get of the fire that destroys only your home.

The better prepared we are before a disaster strikes, the more easily we will recover afterwards.

Friday, August 10, 2018

Is Webull a Good Robinhood Alternative?

Is Webull a Good Robinhood Alternative
While some people are fond of online broker Robinhood, which charges no sales commissions, other people are looking for an alternative to Robinhood. One contender is Webull, another commission-free stockbroker.  This article will chronicle my experince with Webull and offer you, my readers, a free share of stock.

I first found Robinhood alternative Webull when I was perusing Google Play for more apps for my phone and Webull was listed as a free online broker.  I hit Google to see what folks had to say about it, and found that it was an alternative to Robinhood if you were looking for a free online broker.  I also saw that you got a free share of stock for trying it, so I did.

Getting Started with Webull

Friday, August 3, 2018

Visiting New York City: Should You Buy an Attraction Pass?

When you start planning a trip to New York City, after a search or two, Google will start showing you ads for attraction passes.  I don't control the AdSense ads on this page but I wouldn't be a bit surprised if one of them is for an attraction pass.  So, should you buy one?  If so, which one?  How should you decide?

Plan Your Ideal Trip

How long to do plan to stay, and if money was no object, what would you during those days?  In order to determine if you should by a New York Pass, a City Pass or Sightseeing Pass, you need to consider what you want to do, and how long it takes to do it.  

If your ideal trip to New York City includes sleeping late, a leisurely lunch, shopping on Fifth Avenue, a Broadway show daily followed by dinner and drinks, you aren't going to get much use from an attraction pass.  On the other hand, if your goal is to see as many of the sights as possible in as short a time as possible, they may be just what you need.

Compare Your Ideal Trip With Your Real Budget and the Attraction Passes

Once you have a rough schedule of what you would like to do, if money permits, look at the attraction pass options and find the one that is right for you.  

We recently took a group of Girl Scouts to New York City.  We knew we wanted to fly in on Wednesday and out on Tuesday, which would give is five full days and two relatively short days.  We wanted to see the Statue of Liberty, the Metropolitan Museum of Art, the Empire State Building and/or the Top of the Rock, the 911 Museum and the Natural History Museum.  Other big attractions that were interesting were Radio City Music Hall, and NBC Studios.  We also knew there were a lot of free attractions, and of course, we wanted to shop.  So, what should we do?

The New York Pass would allow us to see all those attractions, and more.  Hypothetically, looking at our list, we could do the Empire State Building early one morning, the 911 Museum later that morning, Radio City in the afternoon and the Empire State Building at night.  The next day We could do the Statute of Liberty in the morning and the Metropolitan Museum in the afternoon.  A third day could be the Natural History Museum and NBC Studios.  We would then have two full days and two small days to cover the free attractions, or we could add two more days to the New York Pass and see more.  A three day pass is $199 for anyone over 12.  A five day pass is $242 (there is no four day option).  

The Sightseeing Pass can be purchased by the day or by the number of attractions.  While it does not include the Empire State Building, we could see the rest of our preferred attractions.  A three day pass is $199, four days sell for $229 and five days for $244.00.  If we preferred, we could have chosen to buy by the attraction.  Seven attractions would be $165.00, or, if we wanted to spend $199, we could get twelve attractions.  

The New York Explorer Pass is purchased by the attraction. Their list of 82 attractions included everything on the list but NBC Studios.  A seven attraction pass is $169 for anyone over 12.  

The New York City Pass offers a much smaller list of attractions--but most of the biggies are on there.  For $126 per adult, and $104 for each child under eighteen, you can see:  
  • The Empire State Building
  • American Museum of Natural History
  • The Metropolitan Museum of Art
  • Top of the Rock Observation Deck   OR   Guggenheim Museum
  • Statue of Liberty & Ellis Island   OR   Circle Line Sightseeing Cruises
  • 9/11 Memorial & Museum   OR   Intrepid Sea, Air & Space Museum

Be Realistic

Most of these passes offer far more attractions than you can reasonably see in a few days.  They offer boat cruises, art museums galore, tours on foot, and bus tours as well. The thing to realize is that you can't be in two places at one time. 

Look at All the Options

Money was a major concern on our trip, so we chose the City Pass and didn't see Radio City Music Hall or NBC Studios.  However, if those really were on a "must see" list, we could have added Radio City Music Hall for their regular price of $30, and the NBC Studio Tour is $33.00, giving our adults attraction costs of $192 and the girls $167, which is still substantially less than the other passes.  

On the other hand, if you have a bigger "must see" list, or if your list included a substantial number of things not on the lower-price pass, a higher-priced pass might be right for you.  

While all these passes tout how much you save but using them, don't forget to consider other ways to accomplish your goal, especially if you prefer a leisurely paced trip and/or want to do a lot things that are not included on these passes--things like seeing shows or dining out.  New York City also has a lot of fun free things to do; don't forget to leave room in your schedule for some of them.  mans

Also, as noted on my post about free attractions, many of the major attractions offer "pay what you wish" times.  

Enjoy Your Trip

Besides our paid attractions, we saw Grand Central Terminal, Central Park, Brooklyn Bridge Park, The High Line, the Cheslea Market, St. Patrick's, the graveyards of Trinity Episcopal (Alexander Hamilton is buried there) and St. Paul's Chapel.  We walked across the Brooklyn Bridge, visited Federal Hall, and took pictures with the Wall Street Bull and the Mighty Girl.  We explored the New York Public Library and enjoyed lunch in Bryant Park while listening to Broadway songs. Times Square is fun too. 

Disease Called Debt

Thursday, July 26, 2018

Free Things to Do in New York City

New York City is one of those places on many people's bucket list.  Its high cost of living means that it can be an expensive place to visit.  However, if you mix a few freebies in with your paid attractions, it can reduce the price of your visit substantially.  Let's take a look at some freebies:

Broadway in Bryant Park

No, it's not the same as sitting in a Broadway theater watching your favorite show, but the singers at this free lunchtime event do a good job, so grab some lunch, a sunhat, and a blanket and join a few hundred of your best friends and enjoy a free treat.  

Even if it is the season for Broadway in Bryant Park, check the calendar; they offer a variety of performances throughout the year.  See what's on tap when you are in town and enjoy what the locals enjoy.

Walk Through Central Park

When you say "park" and "New York City" in the same sentence, most people think "Central Park".

You can spend the day walking through the park, admiring the statues, and watching the people.  Central Park also offers numerous free performances from Shakespeare to Praise and Worship music. 


Trinity Episcopalian
Elizabeth Ann Seton Shrine

St. Patrick's Cathedral
The tomb of Alexander Hamilton is in the
churchyard of Trinity Episcopal Church
 Before you say that you aren't religious, or that you attend services in a school auditorium, realize that churches, particularly Catholic and Episcopalian churches from the 1800's and early 1900's, are full of artwork such as stained glass, statues and reliefs, and murals.  Many are open during working hours and do not charge an entrance fee (though donations are appreciated). The Episcopal Cathedral of St. John the Divine does charge an admission fee but the gardens can be toured at no cost. 

Staten Island Ferry

Ok, technically the Staten Island Ferry isn't free.  However, it is part of the city transit system and if you have purchased a week-long Metro Card transit pass for $32, you have purchased a ferry ticket. 

These two photos were taken with a point-and-shoot digital camera from the Staten Island Ferry.  While you don't get the expert commentary a tour boat would provide, and while you do not actually get onto Liberty Island or Ellis Island, this isn't bad for a drive-by. 

New York City has other ferries that charge $2.75 per ride,  which is still a bargain way to see the waterfront.

Your Metro Card transit pass also gets you on the Roosevelt Island Tram, an overhead gondola system that travels between Manhattan and Roosevelt Island, which is in the East River.

National Museum of the American Indian

In the old Alexander Hamilton Customs House, the National Museum of the American Indian is run by the Smithsonian.  Seeing the interior of the building is worth the admission price (free).  There are displays of Native American artifacts, art created by Native Americans and artwork by others featuring Native Americans. 

 It features both a substantial permanent collection as well as temporary exhibitions.

New York Public Library

Yes, a library is on the list of things to see in NYC.  First, go visit the original Winnie the Pooh and friends in the children's section.  You can also see Mary Poppins' umbrella.

Then, head to the special exhibits.  Last week there was a big display on the 1960's.  While I was alive, I'm too young to remember this time but the library had newspaper clippings, magazine covers and artifacts to tell the story of this time that is so much like today.  They also had a display of sacred books from Christianity, Judaism, and Islam.  The books are beautiful, even if you aren't a believer.  

Nope, not another church.  This ceiling is inside the library.  Yes,  you need to see it for yourself.

Oh, and don't leave without taking a picture with a lion.

Federal Hall

Federal Hall is where George Washington took the oath of office for the first time.  It is a small building with steep steps but is worth a few minutes if you haven't seen it.  

The Major Attractions

Most of the big things "everyone" goes to New York City to see charge admission--often $25 per person and up. Still, even the budget-challenged can see many of them, with good planning:

The 911 Memorial offers free admission from 5:00 p.m. to closing at 9:00 p.m. on Tuesdays.  Tickets are distributed starting at 4:00 p.m. 

The American Museum of Natural History offers pay what you wish admission.  

Friday nights from 7:00 p.m. to 10:00 p.m. are pay what you wish at the Whitney Museum of American Art.

Many other attractions offer free or pay what you wish at certain times.  While the Metropolitan Museum of Art is on the list, it currently only offers "pay what you wish" to local residents, not to tourists.  

Do you have any free favorites in New York City?

*Part of Financially Savvy Saturdays on brokeGIRLrich.*

Friday, July 13, 2018

Review of M1 Finance--You Can Get $10 of Free Stock

As an investor, minimizing fees is one of my goals.  Most research has shown that paying more investing fees does not result in better outcomes for the investor.

The internet and computerized trading have made it possible to buy and sell securities for no or low fees.  I've written previously about Robinhood, Motif, and Stockpile.  None of those companies would have been economically viable twenty years ago.  Recently, another competitor to them has emerged, M1 Finance.

What is M1 Finance?

M1 Finance is an on-line stockbroker whose specialty is "Pies"--portfolios of multiple stocks and/or ETFs, which can be purchased for no commission or trading fee.  When you open your account, you decide what percent of your money you want allocated to what security.  You can decide whether you want one "pie" (proportionately divided portfolio)  or several.

For example, you could decide that you want your money invested 25% in Amazon, 25% in CVS, 10% in AT%T, and 40% in Vanguard's Total Bond Market ETF.  You would design a "pie" with those percentages and then send M1 some money--$100 minimum to start--and it will be invested that way.  M1 allows investment in fractional shares, and only invests at the first morning opening price.

Keeping Your Account In Balance

Obviously, your pie is not going to stay perfectly balanced for long.  One of those slices is going to outperform the others, expanding its slice and decreasing theirs.  However, when you deposit more money, M1 uses it to put your pie back in balance.  If stocks have fallen, and the bond ETF is now 50% of your pie, your new money will go into stocks until such time as your ratios are back on track.  If you have basically good securities in your pie, this technique helps you buy low.

Of course the other side of that equation is to "sell high".  If you want to withdraw an amount of money (as opposed to wanting to liquidate a particular position), M1 Finance tries to do so in a way that keeps your pie balanced and is tax-advantageous.  However, it does not offer automatic tax loss harvesting.

Finally, M1 has a button you can push to re-balance your pie.  

Opening an Account

Opening an account with M1 Finance is easy.  Go to their website, create an account, link your bank account and then verify the micro-deposits--nothing you haven't done with any other online financial account.  Make your first deposit, which can be as little as $100.

Adopt a Pie

M1 Finance offers "Expert Pies" designed by their firm, or you can create your own pie.  If you have not already done so, when you log on you'll see a button to create a pie, and once you push it, you'll be taken to a screen called "Add Slices".  From there, you can choose stocks, funds, expert pies,my pies or watchlist.  

If you select an expert pie, you are taken to a screen that briefly describes the types of expert pies.  Two are "Income Earners" and "Hedge Fund Followers".  If you click on one of those it takes you to a list of pies.  The list shows the number of holdings, the dividend yield, a performance graph, performance in the last 1, 3 and 5 years and a risk rating.  Selecting one of the pies takes you to a screen that shows the holdings, a description of the pie and a description of the methodology used to select the holdings.  

Some of the pies use stocks, others use ETFs and still others a combination. 

Target Date pies come in five year increments in conservative, moderate and aggressive flavors.  As the target date nears, the portfolio is automatically moved to a more conservative posture.  

Bake Your Own Pie

I've said it before and I'll say it again, even though I'm not an expert and nothing you read here should be construed as financial advice, the majority of your retirement money should be in a diversified portfolio of index mutual funds and/or ETFs.  However, if you want to put a few dollars into individual stocks of your own picking, M1 allows you to do that as well.

If you select "Stocks" in the "Add Slices" screen, you are taken to a stock screener where you can choose to invest in any of 4,258  companies. To help you narrow your search, there are some basic screens such as market capitalization, P/E Ratio, Dividend Yield and Sector.  

A search for Consumer Defensive companies that pay a 3% dividend or more, got me 28 choices.  Since more is better, I sorted by dividend yield, and then looked at the list.  The highest yielding company was Keurig Dr. Pepper but year to date, it was down 72%.  Continuing down the list, United Guardian was 28.2% ytd, and still pays a 5.07% dividend, so I clicked on it, which took me to a page with basic information about the company.  I learned that though it was up this year, long term, things don't look so good.  

If I want to search for a particular stock, I can do that too.  A nice thing about M1 finance is that you do not have to buy an entire share of stock; if you want to invest $100 in Alphabet (Google) you can buy 0.17 shares.  You do not have to wait  until  you have $1188.82.

In any case, I can select up to 100 different securities per pie, and you can create pies until you have amassed 500 different securities. You can decide the weight you want each to have in your pie.

Types of Accounts

Unlike some other no-fee brokers, M1 Finance offers a variety of types of accounts.  You can open an IRA, a Roth IRA, a SEP IRA or a Trust Account. While you cannot open a Custodial Account now, M1 plans to make them available soon.  

M1 Finance is making a bid to be your main broker. While they do not currently offer options trading, and while they only trade at market open every day, they offer a wide variety of stocks and ETFs.  


M1 does not charge a sales commission or an account fee, even with IRAs.  They do charge interest on margin accounts (accounts that let you borrow money to buy stock)  There are a few services for which they charge fees and you can see them here. 

Get $10.00 in Fee Stock

M1 Finance is giving $10.00 worth of free stock to anyone who uses this link (or the other links in this post) to open a first account with them--and they'll give me $10 too if you do.  It takes about two weeks for that money to hit your account, but can you tell me another safe investment that will pay you 10% in two weeks (if you invest the minimum of $100)?  

Disease Called Debt

Friday, July 6, 2018

Mid-Year Review of Investments

Like many financial bloggers, I'm taking a little time now that 2018 is half over to look at how things have gone for us so far this year.  Luckily, the answer to that question is "just fine, thank you".  Our net worth is higher than our next worth at the end of the year, plus what we have saved, so we are moving in the right direction, though like most people with money in the stock market, we haven't gotten rich.

About 10% of our income automatically goes into our 401k accounts, and we managed to save 5% of our income beyond that.

On the spending side, we have paid for a beach vacation for me and my husband and for part of a trip to New York for me and my daughter, besides the normal day in and day out bills.

Let's take a look at the investments:


My husband and I have Roth IRAs and regular IRAs, and a taxable account.  We deposited money in each Roth IRA this quarter and the money was taken from Lending Club and Prosper.   These accounts consist of a variety of mutual funds purchased for us by our ex-financial advisor, along with Vanguard's International Bond Index Fund, Total Stock Market Index Fund, 500 Index Fund, Total Bond Market Index Fund, Dividend Appreciation Fund, Emerging Markets Fund (new this quarter) and REIT Index Fund. In the last year, our rate of return has been 6.3% overall, but year-to-date, our returns are negative. 

One interesting figure Vanguard puts on its statements is your estimated yearly income and estimated yield from each fund, and for your account as a whole. Here are the figures for our accounts:

  • My IRA:  Estimated yield 2.24%
  • My Roth IRA:  Estimated yield 1.99%
  • Husband IRA:  Estimated yield 2.88%
  • Husband Roth IRA:  Estimated yield  2.67%
  • Taxable Joint Account:  Estimated yield 1.6%

My husband's IRA is the largest of these accounts and his return figures are higher than the other accounts because our REIT fund shares are in his accounts and they are high-yielding (4.59%).


My 401k has a year to date positive return.   It is invested in Janus Triton,  Oppenheimer Int'L Small Mid Co A, MFS Government Securities Fund-A , Pioneer Fundamental Growth Fd-A,  and Delaware US Growth Fund-A.  My firm contributes 5% of my salary, and I contribute 6%.  Dividends this year totalled about 1/6 of my take-home check.


My husband's 401K is with AXA and it has increased in value, though not a lot.  He puts in the minimum necessary for employer match.


It is interesting how changing the fee schedule changes my behavior.  Initially, Motif charged a transaction fee when you purchased stock, and that was it.  I invested via a few large chunks of money and then withdrew my dividends and invested them elsewhere.  Then Motif instituted periodic fees for accounts under $10,000.  I left the dividends in the account and deposited more money to bring the account to $10,000.  Next,  Motif started offering free opening price trades, so I used them to buy individual stocks.  When they instituted fees on Motifs (baskets of stocks) they designed, I looked at the ones I had, and sold the underperformers.  Now my Motif account has the following:

  • Buyback Leaders:  A collection of companies that were buying back their stock.  While it has been pretty flat this year, overall, since 2014, it has increased in value over 90%, mostly because of NVDIA, which is up over 900%.  
  • Growing Dividends:  A collection of dividend paying stocks.  It is up about 27% since purchase, whereas the S&P is up 42%.  However, it yields over 2% in dividends yearly.  Most of the stocks that are down are retail stocks, and they are actually gaining a little ground lately.
  • High Yield Dividend:  Another collection of dividend paying stocks.  It is up 16% vs 39% for the S&P, but the average dividend yield is over 3% per  year.
  • Online Gaming World:  This collection of gaming stocks such as Activision/Blizzard, Weibo, and Cheeta Mobile is up over 148% as opposed to the S&P's 37% gain.
  • Things I Like:  I designed this basket, and a lot of it is retail stocks, which I bought at the wrong time.  It is up 10.4%, as opposed to the S&P being up 38.3%.  My winners were Alibaba and Alphabet and my losers are Lending Club and Ascena (Dress Barn/Ann Taylor etc)
  • Online Video:  Includes Netflix and Adobe.  Up 153% as opposed to 37% for the S&P. 
  • Low Beta:  These companies, including McDonalds, are supposed to have a low correlation to the market as a whole.  They pay really good dividends (average is probably close to 4%).  The Motif is up 10.8% whereas the S&P is up 37%
  • NVDIA:  This is a chip maker whose stock increased tremendously in 2017.  When I sold a couple of motifs, I used some of the money to buy more stock in this company. Unfortunately, it has been flat since then.  
  • Adobe:  Another stock that was great last year, but is down since I bought it.
  • CBL:  Up over 27% since I bought it.  This is a mall REIT and pays a dividend over 17% of current price.  
  • Amazon:  Up 7.4% since I bought it.
  • Energy Transfer Partners:  Owns natural gas pipeline etc.  Up 8.52% since I bought it and the dividend yield is over 12%
  • GOV is a REIT that owns buildings rented to government agencies.  Up 30% since I bought it.  Current dividend yield is over 9%
  • Johnson & Johnson.  Down 2% since purchase.
  • Realty Income:  REIT.  Up 2.52% since purchase. Dividend over 4%.
  • Southern Company:  Power company.  Up 6.82 since purchase.  Dividend over 4%
  • Starwood Propertiess (hotel and resort REIT).  Up 1.48% since purchase.  
  • Visa.  Up 3.04%.  I'm dripping all my Motif dividends into Visa right now.  Current dividend 0.6%. 
  • Weibo:  Chinese company that made me a lot of money last year in the online gaming Motif.  However, since I bought these shares they are down.33.8%  Talk about a hit!
  • Walgreens:  Down 11.4%, but at least it pays a 1.87% dividend.  The company is making money so I'm hoping this turns around.  

Lending Club:

While my returns have been steadily dropping for  months, accounting for expected defaults, Lending Club estimates my return since I began the account at about 4.66%   whereas three months ago I wrote that it was 4.58%.  However, so far this year, I've lost more money to defaults than I've made in interest.  Definitely not what I had in mind.

 As my notes mature I'm moving the money to our Roth IRAs. . The economy on the whole is fine now; if I can't make money with Lending Club under this economy, I'm going to lose it big time if things go downhill.  The profits today do not justify the risk.


My returns here have dropped as well.  Three months ago my annualized net returns were 5.09%, and my "seasoned" returns--the returns on notes that are more than ten months old were 4.39%. Those figures have dropped to 4.08% and 3.93%.  As I receive payments from Prosper, they are going to our Roth IRAs.


I play with this account.  If I read an article about a stock that catches my eye, I'm likely to buy $50-100 worth for this account.  So far, I've invested a little under $2,000.  I usually set stop losses to I don't lose too much if the market goes down (and a couple of times I've repurchased for less after a stop-loss sell.  I ran the account through an XIRR calculator and I'm beating the S&P though not by much.

  • AT&T:  10 shares, average price $35.82,  Current price 32.68.  Dividend is $0.50 per share per quarter . No stop loss on this one; I bought it for the dividends.
  • Lending Club:  1 share purchased at $5.51.  Current price $3.74.  No dividends. No stop loss. 
  • Visa:  2 shares purchased at $78.00.  Current price $131.45.  $1.38 in dividends in 2017 and $0.84 so far this year. . I have a stop loss order placed at $125.00.
  • Hormel: 3 shares purchased at $31.80.  Current price 36.82.  2017 dividend was $0,51 per share; current quarterly dividend $0.56 per share.
  • Hanesbrands: 7 shares, average cost $19.20.  Current price $22.12,  Stop loss set at $19.70.  Dividend is $0.15 per share per quarter. 
  • CVS:  4 shares, average cost 70.64.  Current value $64.66.  Dividend is $0.50 per share  per quarter.  No stop loss.  
  • Qualcomm: 1 share purchased October 9 for $52.68.  Collected $1.14 in dividends before stop loss sale for $59.65.  
  • Mattel: 1 share purchased October 30 for $13.87. Current price $16.63. Stop loss sale for $15.00 on January 18. 
  • Ford: 3 shares purchased November 7, 2017 for $12.33.  Stop loss sell for  $11.50 on 1/25/18.  Repuchase for $11.00 on 2/1/18, and another share on August 5 for 11.37.  $0.15 per share in dividends. and then sold (stop loss) 6/25/18 for $11.40.  
  • Cardinal Healthcare.  1 share purchased November 27 for $56.42. Sold 2/5/18 for 64.98.  Repurchased on 2/5 for $64.70.  Stop loss sold again on 3/20 for $67.00, and repurchased for $66.50.  Quarterly dividend is $0.46.  Current price $49.50.
  • Omega Healthcare Investors.  1 share purchased December 6 for $26.75.  Current value $31.70. but my $26.00 stop loss executed on Feb 2 and I did not re-buy.  I did collect $0.66 in dividends so I'm only out a few cents.          
  • Ascena Retail Group. 3 shares purchased December 11 for $2.00.  Current value $3.79.  Stop Loss at $3.50.  
  • Macquarie Infrastructure. 1 share purchased December 26 for $64.18. Sold via stop loss on 2/6/ at $61.85.   Current value $42.82.  
  • Pfizer.  1 share purchased December 26 for $36.17,  Current value $36.35 but I sold on February 5 for $34.15.       
  • Giliad Sciences.  1 share purchased 1/19 for $81.30.  Stop loss sell 2/5 for $80.00. Repurchase for $79.00.  Quarterly dividend is $0.57.  Current value 71,33
  • ProAssurance.  1 Share purchased for $54.98.  Pays a quarterly dividend of $0.31 but its value has fallen to $36.05.  I should have set a stop loss.  
  • Viacom:  2 shares purchased for $33.31 each.  Current value $29.41.  Quarterly dividend of $0.20 per share.  
  • GE:  Another dog.  Purchased 3 shares at average cost of $15.90. Current value $13.41.  Quarterly dividend of $0.12.
  • Altababa:  Purchased 1 share for $80.00.  Current price $73.33.
  • CBL:  Purchased 13 shares for average price of $4.60.  Sold via stop loss at $5.50 on 6/21.  Repurchased at $5.48 (and added two more shares).  Current price $5.76.  Quarterly dividend is $0.20 per share.
  • Gamestop:  Purchased 1 share accidentally.  Decided to see what happened.  Cost was $17.05.  Current price  $14.63. Quarterly dividend is $0.38. 
  • Sprint:  I earned two shares via Robinhood's referral program.  Average value when awarded was $5.37.  Current value is $5.48.  
  • Macys: One share purchased for $24.00.  Current value $36.82. Quarterly dividend is $0.38.
  • GOV:  9 shares, average cost $12.93.  Current value $16.29.  Quarterly dividend is $0.43.  Stop loss set at $15.00.   
  • USA. 18 shares, average cost $6.35.  Current value $6.53.   Quarterly dividend of $0.17 per share.   
  • GLU Mobile:  Trying for a home run here.  20 shares; average cost $5.15.  Current value $6.38.  Stop loss set at $6.00 but I'm hoping for big things.  
  • Zynga:  2 shares awarded via Robinhood's referral program.   Average value when awarded was $4.36.  Current value $4.13.  
  • Delaware Investments Dividend Fund:  5 shares at $11.71.  Current value:  $11.92. 
  • New Residential Investments:  2 shares at $17.58.  Current value:  $18.04.              

 Robinhood is an online broker that now has both an app and a webpage.  They charge no commission and allow you to place limit or market orders.  They also allow you to initiate bank transfers and then invest the money immediately--you do not have to wait for the transfer to complete.  You do have to buy whole shares.

If you use this link to open an account with them, you and I will both receive a free share of stock. Here is a link to my review of Robinhood.


This is an online broker for whom I wrote a sponsored post.  I invested $100 in Johnson & Johnson through them.  They charge $0.99 per trade, so even though they sell fractional shares, I don't recommend investing less than $100.00 per trade.  Stockpile had a promotion where they were giving away $5.00 worth of Apple stock so I got mine.  At the end of the year this account was worth $100.46--Johnson and Johnson has not done well.

If you use this link, you get $5.00 worth of stock to begin your account with them, and I get $5.00 too. I wrote a full review of Stockpile a few months ago.

The Bottom Line

As I noted earlier, we haven't gained much in terms of increased account value, but we have managed to live on what we make, put money in our 401ks and even put a little more away.  It has been a pretty good six months, all things considered.

One thing many investors track is dividends.  By this time last year my dividends totalled $3,656.82.  This year they are up to $5,349.75.

How was the first half of 2018 for you?

Disease Called Debt

Friday, June 22, 2018

Do You Need Long Term Care Insurance?

Today, the average cost of a nursing home is $82,125 per year for a semi-private room, according to US News and World Report.   Generally speaking, except in limited circumstances, this cost is not paid by Medicare or standard health insurance, so many people, especially as they approach the retirement years, wonder if they should buy insurance to cover the cost.  The answer, of course, is "it depends".

What is a Nursing Home?

For the purpose of this article, we are going to define a "nursing home" as an institution that provides complete custodial nursing care of the elderly or disabled who are not able to live independently because of mental or physical condition. Medicare does not pay for nursing home care.

This is different than a "skilled nursing facility" that is attempting to improve the person's health and/or functioning so as to allow them to return home.  The facility may be the same but the function is different.  Medicare pays for up to 100 days of skilled nursing care in a year. 

Does a Nursing Home REALLY Cost over $82,000 Per Year?

While the $82,000 figure is an average, different facilities have different costs and the average cost in some states is far more than in others.  If you are in a low cost state you may not need as much, and if in a high cost state you'll need more.

How Much Is Long-Term Care Insurance?

According to the American Association for Long-Term Care Insurance, the average cost of a policy for a single person, age 55, is about $2,000 per year. This policy would pay $150 per day for up to three years.  If purchased at age 55, a couple would pay about $2,500 per year for benefits of $150 per day for three years.  If one member of the couple used all the days, then nothing would be left for the other.  To compare, if the couple waited until they were 60 to purchase that insurance, the premium would be about $3,400 per year. 

Is Long-Term Care Insurance Worth It?

The rule of thumb about ANY insurance is that most people are going to pay more in premiums than they collect in benefits.  If this wasn't the case, insurance companies would not make money and we all know they do.  When you buy insurance, you are paying the insurance company a fee to assume a risk, to turn an unknown into a known.  

I don't know if my husband or I will need nursing home care.  I do know that if we do need it, it will be expensive.  The insurance company knows the odds, ad they are going to look at me and my health history and determine how much time people like me spend, on average, in a nursing home.  They price the policy to make sure that we pay more than that.

The question is whether I need them to turn that unknown risk into a known premium.  Using the figures above, the policy will pay a maximum of $164,000.  If that 55 year old lives to 105, she will pay $100,000 for that insurance.  If she lives to 85, she'll pay $70,000.  Is it worth it?  

A rule of thumb is to buy insurance for things you can't afford to have happen.  I can afford to replace my cell phone so I don't insure it.  I can afford to pay $1,000 toward home repairs so I don't insure the first $1,000 worth of damage from storms.  I can't afford a trip to the hospital so I buy insurance to cover it. 

If all indications are that you will be able to pay $85,000 per year out of your assets, then long-term care may not be worth insuring. The thing to realize, especially with single people (whether never-married or widowed) is that by the time you need a nursing home, your other expenses will be minimal.  Your nursing home bill covers room and board, entertainment, transportation and more.  You won't need your car, you won't shop regularly for clothes or toys, and you won't be going out to restaurants.  Your house can be sold or rented out, and you will still get your Social Security and any pensions.  

The average nursing home stay is 835 days though the stay can be considerably longer for people with dementia and few physical problems.  Interestingly though, the average nursing home resident has a life expectancy of about six months when entering care.   Baby Boomers are estimated to have a one in four chance of spending the end of their life in a nursing home.  Those are the risks.  Can you afford them?

What If You Need a Nursing Home But Can't Afford It?

If you have reached the point that you need custodial care and you cannot afford it--there is no money there, then Medicaid will pick up the bill.  In order for Medicaid to pay your nursing home bill, your assets must be gone, or nearly so.  While some can be set aside for a spouse, your kids' inheritance must be spent before Medicaid pays.  Also, Medicaid looks at transfers from your estate in the last five years when determining eligibility, so if you are planning to give the money to the kids and then to let the government take care of you, make sure you get an early start.  

Maybe Your Kid(s) Should Pay for Long Term Care Insurance for You

If you have adult children and are comfortable discussing your finances with them, give them the figures and let them decide it long term care insurance is worth it, particularly if you are single.  If you do not have a spouse to worry about, then your long term care insurance is insuring an inheritance for your kids (assuming you don't outlive the policy). It isn't going to provide any benefit to you, because Medicaid will pay your nursing home bills if necessary.  Since they are benefiting, they can pay. 

On the other hand, if your kids include one with special needs who will be depending on an inheritance, purchasing long term care insurance could be part of your plan of long-term support.  

What do you think?  Is long term care insurance worth it?  Who should pay for it?  

Disease Called Debt

Friday, June 15, 2018

7 Cost Effective Ways to Help an Elderly Relative with Their Spring Clean

Today I'd like to welcome Sam from Moving Babies to Racing Towards Retirement.  Even though her expertise is babies and getting babies from place to place, she knows that babies are part of a family and that families look out for each other.  Today she is sharing with us some ways to help the older members of the family with spring cleaning.

Spring is a season most people enjoy. Additionally, it is the time of year most people thoroughly clean their homes, all because it is not too hot and thus you risk a heat stroke or too cold to throw all your windows open. As you busy yourself tidying your home though, it is essential that you do not forget that your mother or grandparent may also need some help cleaning. It goes a long way into making them feel cared for and helps you get a better understanding of their situation.

A clean environment is a key to good health especially since as people age their immunity weakens. You need to ask yourself, are they living in a clean and safe environment? Is there excess clutter that could be hazardous to their mobility?  Therefore, here are some cost effective tips that you can use when helping that elderly relative of yours tidy their home:

#01. Make A List and Prioritize

This one’s for free! When you get a busy spring cleaning, most people scrub down every corner of their house. However, the rooms and items that you use need to always clean. Instead of starting at a random point sit down and prioritize. Prioritizing is also essential because it allows you to allocate different activities enough time depending on their complexity or sensitivity. Additionally, you find when you have everything written down it is harder to forget one section of the house.

#02. Get Rid Of Clutter

Most houses have an accumulation of things that are not used by anyone but are also never thrown out. Unless something has sentimental value, if it is not being used it should be given away, sold, or thrown out. Decluttering creates more space in the house. Additionally, you will find that most of these knick-knacks were only collecting dust. You also need to keep in mind that the house is not yours and therefore do not get rid of anything without the owner’s permission.
Saving tip: If you can get your relative’s buy-in, you could even make some money by selling items that are in good condition but are no longer used.

#03. Come Up With A Work Plan

To adequately cover every inch of the house you need to have a plan. It will also partially involve allocating time to each activity. For example, if your loved one spends much time in their room, then it will need to be cleaned thoroughly than the places they rarely visit, like the attic. Also, when allocating time, you have to avoid having a rigid work plan. This way, you can comfortably accommodate any changes along the way.

#04. Figure Out Their Likes and Dislikes

People like to clean with certain detergents or in a particular order, and when you ignore this order, they may not be entirely satisfied with the results. Therefore, before you go shopping find out if the homeowner has any preferences. Additionally, do not forget to ask whether they are allergic to anything.
Saving tip: Make a list and buy everything at once, there are often coupons for cleaning products and this can bring the price down significantly.

#05. Consider Getting Help 

Unless you are a superhero, you will not manage to clean surfaces, do laundry, dust the carpets and shine the windows in one day.  On the other hand, you cannot spring clean for two weeks. Therefore, you might need to consider hiring some help or calling in some of your relatives. When choosing the people to help you, make sure you select people who can work around an older person to avoid petty conflicts.

#06. Do Not Exclude Your Grandparents in Your Cleaning Project

Older adults might be a bit slow as they work or they may not have the strength needed for heavy lifting. However, this does not mean you should exclude them.  Keeping in mind that this is their house, you need to involve them in every step of your plan, right from the organizing. You can give them a light task like making tea for the team, or sort the cutlery.

#07. Improve Their Air Quality

Spring cleaning not only leave the surfaces clean it also improves the quality of air in the home. However since you cannot do this every month, you can buy your relation a lightweight, inexpensive canister vacuum cleaner, which will make it easier for them to keep on top of the cleaning going forward. Additionally, if they spend much time indoors, get them an air purifier for mold as aging adults tend to be more susceptible to bronchial infections. With the addition of these two gadgets, you will not need to worry about the accumulation of indoor pollutants and allergens.
Saving tip: Do your homework, there are often specials and discounts offered for items such as purifiers and vacuum cleaners so don’t rush out and buy the first one you see.

Spring is a period of renewal, and a restored commitment to making a sheltered space for your older relative so that they can age at home with pride, independence, and happiness.

*Part of Financially Savvy Saturdays on brokeGIRLrich.*

Friday, June 8, 2018

Saving Money on a Beach Vacation

It is summer, and for many families, that means it is time to go to the beach.  My husband and I just spent a few days in Ft. Walton Beach Florida so I thought I'd pass along some money-saving tips.

Find Economical Lodging

If the purpose of this vacation is to go to the beach--to play in the sand, read on the beach, sleep in the sun or play in the water, don't waste your money on a fancy hotel room you are only in while sleeping.  Start planning early and explore different types of lodging:
  • Condominium or rental house:  The more people who are joining you, the better deal a condo or rental house will be compared to a hotel.  Most come with full kitchens so you can prepare your own meals--meals that are better for the kids than chicken nuggets and fries and which cost a lot less than full service restaurants.
  • Hotel rooms:  For couples by themselves an inexpensive hotel may be the best deal, especially if it comes with breakfast.
  • Airbnd:  Single travelers can rent rooms in people's homes for a fraction of the cost of a hotel room
With all of these, realize that the closer you are to the beach, the more you will pay.  A good strategy is to locate public beach access, and then find an off-beach hotel within a reasonable drive.  

In Ft. Walton Beach, the beach is on an off-shore island.  We stayed on the mainland less than five minutes from the bridge to the island and less than ten minutes from the public beach park (included showers and restrooms).  Our Comfort Inn was about what you'd expect from a Comfort Inn and it cost us about $170 per night.  Any hotels on the island were over $200 per night and those on the beach were over $300 per night.  Interestingly, on the weekdays we were there, the public beach was less crowded than the private beaches in front of the condos and hotels.  

Keep Food Costs Under Control

If you are staying someplace with a kitchen, use it.  You don't have to spend your vacation cooking elaborate multi-course meals but buy sandwich fixings, snacks, or something you can throw in the oven or crockpot.  

If you are in a hotel, if you have a refrigerator and/or microwave, don't be afraid to use them.  If dining out is an important part of your vacation, include it in the budget, and don't waste your money on fast food--stop at the grocery store and buy a loaf of bread, some deli meat and some fruit.  

Plan Ahead to See Low Cost Attractions

Much as you love the beach, unless you are willing to be burned to a crisp, time there must be limited.  Especially if you have kids, research free/inexpensive attractions in the area so you don't have time to pay $XXXX for the roadside park that has all sorts of fun stuff, at a high price.  You could even check to see if the local library has programs the kids could attend.  If the hotel has an indoor pool they can play there after you get done at the beach.  

While a beach vacation can quickly become very expensive if you let it, with a little planning you can have a good time and not break the bank.  
*Part of Financially Savvy Saturdays on brokeGIRLrich.*

Friday, May 18, 2018

What To Do When Your Investments Lose Money

In February, almost a year's pay vanished from my accounts.  It went up in smoke, disappeared, and gave me nothing in return.  What should I do about it?  What should I not do?

Move My Investments to Something Safer!

When the market goes down, many people, particularly inexperienced investors or those who do not really understand the stock market, just want out.  They are afraid that even more of their wealth will disappear and they decide to head for the safety of a bank account, but often all this does is locks in a loss.

If your investment is losing money or not making as much money as you would like, you need to consider several questions:
  • Why is my investment losing money?  What would need to change in order for it to make money?
  • What is the purpose of this investment?
  • What are the other options?

Let's look at those questions with respect to some investments I've discussed on this blog.

Peer-to-Peer Lending

When I started investing via Lending Club and Prosper, average returns near 8%, at least when the economy was good, appeared do-able, though I was aware that if there was an economic downturn, defaults would likely rise. I thought it was worth the risk, and at first it seemed like those would be good investments.  Then I noticed the returns dropping, and reading various blogs and other information available online I realized I was not alone--many investors were having all their interest for a month eaten up by defaults.  So, on to the analysis:

  • Why is my investment losing money?  My investment is losing money because Lending Club and Prosper's rates are too low for the risk the borrowers pose.  When it became apparent that more people wanted to invest in their notes than wanted to borrow money, Lending Club and Prosper lowered their interest rates/loosened their standards to attract more borrowers.  Since Lending Club and Prosper make their money servicing the loans rather than investing in them, it is to their advantage to write more loans.  As an investor, I have no control over the underwriting of the loan and no expertise that would allow me to design a meaningful filter to check Lending Club or Prosper's underwriting. 

  • What is the purpose of this investment? I invested in these notes because I wanted income and wanted some liquidity.  They are still providing limited liquidity--each day I have the choice to re-invest money paid to me, or to withdraw it.  As an example, this week I will be withdrawing $155 from Lending Club and $131 from Prosper, and those are sums that have accrued this week.  However, last year my interest only exceeded the amount lost to defaults by a small amount, so this investment is not providing the income expected.

  • What are the other options?  The traditional income investment is bonds and/or bond funds.  They provide income and liquidity.  Yes they can go up and down in price (and lately bond funds have been decreasing in value) but they have a longer history than peer-to-peer lending and there are professionals on both sides of the bond transactions, whereas with peer-to-peer lending the party with the knowledge to properly price those notes has more interest in the loans being made than in them being paid. 

  • Conclusion:  I'm withdrawing money from Prosper and Lending Club.  I'm not saying I'll never invest with them again, but the odds are against it. I think buying a diversified bond fund is safer and the income more predictable.  While my overall return now is better than what most bond funds pay, the economy is good.  If a downturn occurs, I expect defaults to rise and right now, my account can't take more bad news and remain profitable.

The Stock Market

All of my investment accounts are worth less than they were two months ago.  I made lots of money in the stock market last year; am I going to lose it all this year?  Who knows?

  • Why is my investment losing money?  The talk of tarrifs is what the professionals blame last week's problems on.  Whatever the problem is, I have a lot of company.  Most stocks and mutual funds were down about the same percent as I was.

  • What is the purpose of this investment?  The purpose of investing in the stock market is long term growth.  Statistically speaking no other investment has outpaced inflation over the long term.  However, historically speaking the stock market has had its ups and downs.  The market may be down this month for whatever reason, but there is no reason to think that it won't eventually go up again.  Since this is money meant for long-term growth, I can afford to wait.

  • What are the alternatives?  Bonds, bank accounts, real estate.  Long-term all pay less than stocks. 
  • Conclusion:  Selling stocks because of a market decline just locks in losses.  Market declines are going to happen, but long term, the market, as a whole, is a winner.  Market declines are good times to buy stock if you have extra cash sitting around.

My Shares in XYZ

If you own shares in XYZ (fictitious company) and they fall, then it is time to look at XYZ.

  • Why is my investment losing money? me, but the market has a whole as dropped about the same as XYZ.  Well, it is likely that when the rest of the market recovers, so will XYZ.  If you want more XYZ this could be a good time to buy.

    XYZ just got sued in a big case.  XYZ just changed CEOs--the last one went to jail. No one is buying XYZs products and they've laid off half their workforce.  The price of XYZ has decreased because the value of the company has decreased.  If you believe the company's prospects are good despite this news, hang on for a bumpy ride.  If you have no reason to believe the market is wrong, then get out while you still have some value.
  • What are the alternatives?  There is a whole stock market full of alternatives
  • Conclusion:  If an individual stock falls, find out why.  Use the answer to that question to help you decide whether your money would best be deployed elsewhere.
The trick, of course, is to realize whether your losses are the result of an ordinary market downturn or whether your losses were caused by a problem with the investments.  Most advisors suggest NOT watching your investments too closely because it makes you want to take actions that, all things considered, are not in your best interest.  Nevertheless you should be aware of how your investments are peforming compared to the market as a whole as well as similar invesments, and if yours are consistently underperforming, you should be willing to change. 
*Part of Financially Savvy Saturdays on brokeGIRLrich.*

Friday, May 4, 2018

Why I Will No Longer Invest Via Lending Club

I've written several posts about my foray into Peer-to-Peer Lending via Lending Club and Prosper, and in the past few weeks I've read several (probably sponsored) articles encouraging people to invest via these platforms.   After reading a bunch of blog posts several years ago, investing some money on these platforms seemed like a good idea.  Now, after about three years, I am in the process of withdrawing my money and I do not advise anyone to put their money into these platforms.  Why?

The Reward Does Not Compensate for the Risk

Bank accounts don't pay much, but you know you aren't going to lose money.  You can lose everything investing in the stock market, but you can also double or triple your money, or more.  The upside of bonds is limited, but the risk of your investment being worthless can be limited by investing in high-quality bonds.  After investing via Lending Club and Prosper for three years, I have no trouble saying that the rewards do not compensate the average investor for the risk being taken.

Default Risk

Both Lending Club and Prosper warn investors to expect defaults--that's the nature of unsecured loans.  Some people will pay them; some people will not.  The unfortunate fact is that lenders have to make enough money off those who do pay to compensate for those who do not.  

At different times, the overall default rate increases or decreases due to the overall economic health of the country.  When times are bad, more people lose their jobs and when people lose their jobs, unsecured loans are the first payments skipped.  The rates charged for loans have to consider not only what the rate is likely to be today, but what will likely happen if the economy tanks.  I'm not earning enough today to convince me that I wouldn't lose money if the economy tanks.  Too many people are defaulting now--in April my average balance with Lending Club was about $9,200 and, after defaults, I earned $6.89.  Since unemployment is low and the economy is basically doing well, I have to believe I'd lose money if we move toward a recession.  

Lending Club publishes statistics about its overall portfolio and about what returns can be expected.  You can see them here. When I started investing via Lending Club, the norm from which it was hard to stray if you had a reasonable sized portfolio was about 8%; now it is about 5%.

Underwriting Risk

Before investing via Lending Club and Prosper, I did my homework.  I read articles.  I read the statistics on their websites.  Everything was showing average returns in the 8% range.  With returns in good times in that range, I figured there was room for some defaults in bad times.  Then something changed.  Interest rates went down and underwriting standards were made less stringent, which resulted, of course, in more defaults.  

The big difference between Lending Club and your local bank or payday lender is that the bank and payday lender are loaning out their own money. If you don't pay back your loan, they lose money.  If a Lending Club borrower defaults, Lending Club doesn't suffer the loss, the investors do.  Lending Club makes their money via origination fees and via service fees (they take a small percentage of each loan payment).  It is in Lending Club and Prosper's best interest to facilitate as many loans as possible.

There are two ways the conflict between investors and the platforms comes into play.  First, as noted above, is when the platform lowers interest rates or credit qualifications in order to increase loan volume.  The second is when the platform solicits current borrowers to refinance loans at a lower rate.  The platform gains an origination fee.  The borrower (hopefully) saves money.  The investor loses because the high-interest loan is paid off early and therefore with less interest.  Also the 1% service fee on the lump sum repayment can consume several months interest.  

Lack of Knowledge

I am not an expert on underwriting loans.  As a matter of fact, I know very little about it.  When loans are offered on Lending Club and Prosper, certain data points are made available to investors, but I lack the ability to analyze that data to determine in the offered interest rates are sufficient.  Banks and their computers do not have that problem, and more and more of the loan volume on Lending Club and Prosper are being purchased via computer by institutional investors.  I have a hard time believing those computers will not skim the cream of the loans, and I can't even identify the cream.

You used to be able to find blog articles about "filtering" Lending Club or Prosper loans--searching the offered loans for those meeting certain criteria that historically (short as "history" was) had done better than average--and then purchasing those loans.  NSR Invest offers a tool that allows you to back-test your strategy--to see if filtering out certain loans or looking for others would have increased your return on investment IN THE PAST.  The problem is that Lending Club and Prosper can (and do do change the rules at any time.  Unless you have a very good understanding of how the criteria for rating loans now compares to the criteria used in the past,  you can't use a back test tool to do anything except to see what might have happened in the past.  

My experience with Peer-to-Peer Lending has convinced me that loaning money to other people is a business best left to those with expertise.  Do you agree?  

*Part of Financially Savvy Saturdays on brokeGIRLrich.*