Economy

How to Prepare Your Money for the Coming Economic Slowdown

Denise Hill — Tue, 23 Oct 2018 08:00:11 +0000

Predicting an economic downturn can seem as mystical and convoluted as reading tea leaves. However, the economic tea-leaf readers — financial experts — are warning that the economic winds are changing.

Even though unemployment is still low, there are other economic indicators causing financial analysts to predict lean financial seasons. First, economic growth has all but stalled. The rate of wage increase has stagnated. The Constant Maturity Treasury (CMT) rates, which are used to measure and predict future interest rates, economic growth, and output, are near flatlining — and threatening inversion. This means that as the economy continues to slow down, consumer interest rates will rise and investment earnings will lose momentum, possibly even losing money.

Preparing for a recession is similar to preparing for a tropical storm: There's no way to predict just how bad things will get, but burying your head in the sand and hoping for the best is a horrible idea. Here are a few things you can do to stormproof your finances against the coming economic slow down.

Beef up your emergency fund

The first thing you do when prepping for a storm is prepare your home for the onslaught. People in coastal areas board up windows and surround their homes with sandbags. An emergency fund does the same thing financially. It's the added installation and protection that can assist you when the economy dips. It can't stop the winds, or prevent the rain, and it may not stave off all damage, but it does provide an added layer of protection. And it provides you a fighting chance to preserve what you've worked so hard to build.

The traditional emergency fund is anywhere from three to six months' worth of daily living expenses — and even larger for people with high expenses, large salaries, or a job that would be difficult to replace. During lean economic times, you want to save more than the standard recommended amount.

Under normal circumstances, the average bout of unemployment lasts roughly three to six months. However, experts believe that number is slowly creeping up and could double in a sluggish economy. It has been suggested that you plan to be unemployed at least one month per every $10,000 you earn. So if you earn $70,000 a year, you should plan for an unemployment that lasts at least seven months. This formula is a great gauge in helping you determine how much you need in your emergency fund. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Adjust your budget and pay down debt

Another thing people do during an impending natural disaster is purchase supplies and nonperishable food items. This ensures that they will have something to eat during a major power outage and food shortage. Adjusting your budget by reducing expenses in preparation for a financial disaster follows the same principal. Even though during a disaster you can't eat steak and lobster, you do still eat. The same is true when money is tight.

Your vacation and home improvement plans may have to wait. You may have to forgo expensive advanced educational programs and even take your kids out of private school. The key is to prioritize your expenses, see what extras you can cut, and be prepared to lower the ax when the time comes. It's also imperative that you stop living on overtime, bonuses, and side-gig money. You should divert that money into your emergency fund or other liquid savings. (See also: 5 Budget Overhaul Tricks for the Recently Unemployed)

You should also focus on aggressively paying down debt. If you can get rid of some of your smaller debts quickly, do it. The less people you owe, the better. And paying off debt acts as a type of de facto savings account, too. Sure, the money isn't in an account and available for you to access — but if you eliminate debt, you owe less and have more money at your disposal. You'll also save on the amount of interest you'll pay over time. Paying down debt is always a fantastic idea; however, it can be your saving grace during a recession. (See also: 5-Day Debt Reduction Plan: Pay It Off)

Strengthen career skills

One nonfinancial thing you want to do when you feel the economic winds of change blowing is evaluate your career skill set. You have a primary job that you do. But you also have a bunch of little ancillary functions you perform. These things translate into job opportunities, or — at the very least — bullets on your resume.

Take time now while you are calm and things are going well to refresh your resume and sharpen or add to your skill set (just ensure you do it without adding debt). Most companies offer training of some sort, and many will also pay all or a portion of training you receive elsewhere. Some companies even have tuition assistance or reimbursement programs. Take advantage of those opportunities now, but be sure you read the fine print and understand the guidelines before you sign on the dotted line. (See also: These 17 Companies Will Help You Repay Your Student Loan)

Re-evaluate your investment portfolio

The stock market usually tanks — or at the very least, becomes extremely volatile — during an economic downturn. Financial experts always advise you not to pull your money out of an investment in a moment of panic. Fear should never drive your decisions.

Go ahead and look at your investment portfolio now and see if there are any changes you'd like to make. Risky funds will probably lose money during a slowdown, but they also rebound quickly during economic recovery. And safer investments may not lose much, but you won't make much, either. They cancel each other out.

One system or investment style isn't preferable over another. They all have pros and cons and respond to the highs and lows differently. The key is to assess yourself. Will one heavy loss give you a heart attack? If so, go with something less risky. But if you're confident you can ride the wave and stand the turbulence of a risky investment, stay put. Be sure you consult a financial fiduciary and get solid financial advice before you decide. Knee-jerk reactions are the quickest way to lose big when it comes to investing. (See also: 8 Ways to Prepare for a Stock Market Dive)

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Tariffs: What They Are and How They Impact Your Finances

Tim Lemke — Fri, 16 Mar 2018 09:30:20 +0000

President Trump recently announced new tariffs on imports of steel and aluminum, in a move that got mixed reviews from business and political leaders. The new tariffs would increase levies on aluminum by 10 percent and steel by 25 percent.

There is much debate about the sensibility of these tariffs, but rather than wade into that morass, let's examine what tariffs are and how they impact the economy and your investments.

What is a tariff?

A tariff is essentially a tax that the government places on imported items. For example, the government may choose to place a tax on foreign cars or imported cotton. There are tariffs placed on an eye-popping number of products, from building materials and vegetables, to chemicals and even live animals. Tariffs can be imposed on a per-item basis, by weight or size, or by percentage of value.

Tariffs can even vary depending on the country. For example, the U.S. may impose a tariff on shirts made in China, but not in Vietnam. The United States imposes tariffs on imports from many countries, but also has free trade agreements with many nations that allow both parties to import goods without tariffs.

Why do tariffs exist?

The first tariffs in the United States came shortly after the nation ratified the Constitution, and were motivated largely by the government's need for revenue. Tariffs played a big role in funding the government in the days before income taxes.

Tariffs today still produce billions in revenue for the government, but they are also designed to help protect U.S.-based industries and companies. In essence, tariffs imposed on imported goods make those goods more expensive, thus giving a competitive advantage to American firms. But opponents of tariffs say they can hurt international trade and ultimately lead to lower economic growth worldwide.

How does a tariff impact prices?

Tariffs impact the cost of many of the products we buy. Just look at the label on the shirt you're wearing or your child's toy. Even if a product is manufactured or assembled in the United States, it may be made with materials that were produced overseas. Given that there are levies placed on thousands of imported goods, it's almost impossible to hold a product that isn't made more expensive by tariffs.

The specific impact on price varies, however. Some tariffs are relatively small and are barely noticed by consumers. Even significant tariffs may not impact the cost of an individual item by very much. (One analysis said the cost of a can of Campbell's soup may go up less than one cent as a result of Trump's higher tariff on steel.) At various times in history, however, tariffs have led to problematic increases in prices. For example, tariffs on agricultural imports during the Great Depression, which were designed to support American farmers, led to higher food prices at a time when people were struggling financially.

What industries are impacted by tariffs?

Nearly every business is impacted by tariffs to some extent, either directly or indirectly. A tariff on steel, for example, will impact the steel industry overseas but in turn could make costs higher for American construction companies that use steel. Similarly, a tariff on aluminum could mean higher costs for the beer industry because its beverages are sold in aluminum cans.

The U.S. has placed relatively high tariffs on clothing manufactured overseas, while electronics have tariffs that are much lower.

How does this impact my investments?

While tariffs are designed to protect and bolster U.S. industries, the actual impact on a company's bottom line — and investors — is not easy to predict. Consider the auto industry. There have long been tariffs on imported cars and automotive parts, but foreign car companies including Toyota and Honda have still recorded high sales while the U.S. auto industry has gone through struggles.

After President Trump's announcement regarding steel and aluminum tariffs, the S&P 500 dropped more than 1.3 percent. But analysts have downplayed any fear of a broader economic downturn, suggesting that companies and the national economy are too large for it to be impacted by any one tariff. Moreover, since many investors have diverse portfolios, the impacts may even out, as some companies may benefit from tariffs while others might see negative impacts.

"It usually takes more than cost pressures in one or two sectors to cause a recession," Fisher Investments wrote regarding the recent tariff order. "We don't mean to dismiss the personal impact any of this can have on workers and small business owners, but markets are callous, and at times like this, we think investors are best off thinking like markets."

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Worst Reasons NOT to Buy a House

Kentin Waits — Wed, 28 Feb 2018 10:00:06 +0000

For most of us, our home is the biggest ticket item we'll ever buy. The amount of time, labor, and money this single transaction represents demands a clear head and clear motivations. Since we already know there are a lot of terrible reasons to buy a house, let's take a look at things from the other side. Here are the worst reasons not to buy a house.

1. The market may go bust

After the Great Recession of 2008, everyone's worried about buying at the top of a bubble. But if you dream of owning a home, you've amassed a healthy down payment, can easily afford the mortgage payment and property taxes, and plan to stay in your new home for a while, stop obsessing about what the market may or may not do. Get on with the business of living in a new home.

2. You don't like the cosmetics

The triple threat of bad landscaping, garish paint, and shag carpet has made many a real estate agent go prematurely gray. But cosmetics are just that — cosmetic. They can often quite inexpensively be changed. Instead of writing off a house because it's got a case of the uglies, channel your creativity. Make small modifications as your time and budget allow. (See also: Don't Let These 6 Home Décor Flaws Ruin Your House Hunt)

3. Your furniture won't fit

I admit it; I used to watch lot of house hunting shows on cable TV. And the one conclusion I drew from this voyeuristic exercise? Too many homebuyers are terrified that the things they already own simply won't fit, no matter how generous the proportions of the rooms.

I'm not sure it makes sense to reject a home — or homeownership in general — simply because you've amassed a collection of barge-like beds, sofas, and dining room tables. Here's a good rule of thumb: Don't let things that depreciate in value dictate your purchase of something that appreciates in value.

4. You're afraid it will be a bad investment

First and foremost, houses are meant to be lived in (and hey, we all gotta live somewhere). Those who approach homeownership purely as an investment often fail to realize one important fact: Houses are often a worse investment than letting your money grow in the stock market. (See also: Stop Thinking of Your House as an Investment)

If you want to own your home rather than rent, buy a home. Live in it. Sell or rent it when you're ready to move on. You may come out ahead financially, or you may not. But in the meantime, you'll have lived in the home you wanted and that has value in and of itself.

5. Renters are happier than owners

Renters may be more carefree than homeowners, but that doesn't always translate into happiness. Renting puts you at the mercy of shifting economies, forces you to deal with a rotating parade of new neighbors (with whom you may share a wall or two), and provides little opportunity to customize or improve your space. Depending on your priorities, renting may be more of a drag than a delight.

6. You're scared of commitment

So, you say you're scared of commitment. Who isn't? But by avoiding homeownership, you're actually committing to something — spending more money on rent, not building equity, sacrificing a certain level of privacy, and potentially retiring with less security. There's proactive commitment and passive commitment. Which do you prefer?

7. You're worried about hidden issues

Remediating hidden issues can be expensive, but don't let unfounded fears get the best of you. Few homes are able to keep their secrets completely. Do your homework and don't skimp on the home inspection. Hire an experienced and certified professional, attend the inspection in person, and read the final report carefully. If a home has fatal flaws, move on. (See also: Thinking of Skipping the Home Inspection? Here's What It Will Cost You)

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This article is from Kentin Waits of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Worries You'll Always Have No Matter How Rich You Become

Tim Lemke — Mon, 26 Feb 2018 10:00:06 +0000

Benjamin Franklin once said, "Do not worry about trouble, or what may never happen. Keep in the sunlight." In other words, don't fret.

But it's not always easy to follow Ben's advice. Worrying is a normal, natural thing, and it happens to the poorest and wealthiest among us. Money can help ease some fears, but there are ultimately things that will cause us to worry no matter how financially secure we are.

Here are things that we all worry about, regardless of our income. What else keeps you up at night?

1. Your health

One of the sad ironies about building wealth is that once you actually have accumulated enough to achieve financial freedom, you may not be young enough to enjoy it for very long. As much as older Americans worry about having enough saved, they also worry about whether they'll remain healthy enough to have the active and happy retirement they dreamed of.

Financial wealth can help you get access to good medical care, but aging can win over even the richest among us. And even young people with money worry about falling ill or getting injured. The good news is that this worry can motivate us to do those things necessary to maintain good health, like eat well and exercise. (See also: 9 Problems You Can't Solve With Money)

2. Your loved ones

Having money may ease your worries a bit, as you can help protect your loved ones from financial hardship.

But you can't protect them from the consequences of their own bad choices. You can't cure their illnesses. You can't prevent them from having their hearts broken. Their health and happiness will be a perpetual source of worry. Even when we're old and gray, we'll still worry about our kids and other relatives. We'll always worry about our spouses. But that's OK. What kind of monsters would we be if we felt differently?

3. The health of our institutions

We can do a lot on our own to ensure financial security, but much of it also depends on outside entities to function properly. We need the federal government to operate smoothly and play a role in keeping our economy stable. We need a banking system that works. We need stock markets that operate effectively and in the best interests of investors. We need education systems that are working to make America stronger and smarter.

At various times in recent years, these institutions have had shaky moments. No matter how wealthy you are, you'll always be keeping an eye on our governmental and financial systems to see if they are working the way they should.

4. Global conflict

There's a reason the stock market took a major dive after the events of September 11, 2001. That's because as a nation, there was genuine fear that we'd be roped into a major conflict or war that might have hurt our nation's economy. We worry about war and global instability due to the potential impact on our finances.

But we also worry about global conflict because we are human. Having money in the bank means nothing when you're worried about terrorism, or concerned about a friend or loved one serving overseas. We worry when we hear about global tensions that might turn into something worse. We actually live in one of the most peaceful times in human history, but until there's peace on earth we will worry, regardless of how wealthy we are.

5. Change

Fear of change is so prevalent that it actually has a name: metathesiophobia. It is natural for people to worry about changes in their lives, particularly those they can't control. Having wealth can help mitigate some negative impacts of change, but there is some change that is inevitable no matter how financially prepared you are.

In fact, some of our biggest life changes — retirement, kids moving out, new living situations due to health declines — come later in life when we have achieved financial security. Consider that many older workers choose to remain in their jobs for no other reason than they fear the lifestyle changes that retirement might bring.

Change is inevitable, no matter how rich you are. Do you have the ability to embrace it when it comes?

6. Money

Yes, you'll worry about money even when you have a lot of money. That's because there's a good chance you've spent all your life worrying about having enough. So even when you reach a point when you're financially comfortable, your brain defaults to worrying. Even when you're rich, there may be things that happen to throw you financially off track.

The stock market can take a dive. Your family may be faced with a string of bad events. You never know what's around the corner. We all want to reach a point when we don't have to worry about money, but perhaps worrying about having enough money may be the very thing that ensures we have enough. (See also: Why Even Millionaires Aren't Happy About Their Finances)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

The U.S. Savings Rate Has Tanked — Here's Why That Matters

Dan Rafter — Tue, 21 Nov 2017 09:30:10 +0000

Are you stashing away fewer dollars in your retirement or savings accounts? You're not alone.

The U.S. Bureau of Economic Analysis reported that Americans are saving less money today than they have at anytime since 2007. The bureau reported that the U.S. savings rate fell to 3.1 percent in September 2017. That's the lowest it's been since this rate fell to 3 percent in December of 2007.

If you recall, 2007 wasn't a great economic time for the United States. It was the beginning stages of the housing crash and the Great Recession. This prompts the question: Is the low savings rate a warning sign that the national economy might be in line for a slowdown? And why are people saving less?

A lower savings rate could mean a few things

The lower savings rate might mean that consumers are more confident in the economy. Instead of putting their dollars in traditional savings vehicles, people are investing more in the stock market and other assets. That happens when the economy is strong and investors think they can realize stronger returns.

At the same time, consumers were spending more. The same report from the Bureau of Economic Analysis found that consumer spending rose 1 percent in September. That jump is the biggest since 2009.

Again, this could be an indicator that consumers are more confident in the national economy. But, it could also be a worrisome trend. The drop in the savings rate at the same time that spending is up might be a sign that Americans aren't necessarily earning more, but are spending more at the expense of their savings. This trend is a dangerous one, as it can put more people in financial trouble down the line.

Keeping your savings up to speed

Of course, you can't worry about what people across the country are doing. You can, though, take a look at your own finances to determine if you are saving enough money. Exactly how much should you be saving? That's a complicated question, but a few rules of thumb can guide you in the right direction.

Emergency fund

You should have an emergency fund in a low-risk savings account that you can use to pay for unexpected repairs or financial emergencies. Financial experts recommend that you have at least six to 12 months' worth of daily living expenses saved in an emergency fund. That figure might sound intimidating, but if you start saving just a bit now, your emergency fund can grow quickly. If you save $100 a month, for instance, you'll have $1,200 saved after a year. Boost that figure to $300 a month, and you'll have a financial cushion with $3,600 in it by the end of a year. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Retirement savings

How much you need for retirement varies depending on a host of factors; everything from what kind of retirement you want — one that involves a lot of traveling will cost more than one in which you spend most of your time golfing or fishing — and how much income you'll be earning each month.

As a general rule, financial experts recommend that you save 10 to 15 percent of your income each year for retirement starting in your 20s. If you hit this goal every year, you should be able to build a solid nest egg for your post-work years.

The challenge, though, is that this is such a general approach to retirement savings. It doesn't take into account the vagaries of your own financial situation. You might not have to save as much if you have royalty income, you plan to work part-time after leaving your full-time job, or you have inheritance money to rely on.

The best advice is to max out contributions to an IRA and/or 401(k) account. Then meet with a certified financial planner who can study your current financial situation to determine if you are on pace to meet your retirement goals. (See also: 10 Signs You Aren't Saving Enough for Retirement)

And about that national savings rate? Just because some Americans are spending more and saving less doesn't mean you have to follow the trend. Stick to your savings goals if you want to enjoy a lower-stress financial life.

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Why Does the Stock Market Keep Going Up?

Dr Penny Pincher — Wed, 07 Jun 2017 09:01:06 +0000

Many people were taken by surprise when the stock market reached new highs after the 2016 election, with the Dow Jones industrial average (DJIA) breaking 20,000. But the recent record highs are only the latest in a long trend of stock market growth extending back well over 100 years.

The average rate of return for the DJIA since 1896 is about 7 percent when adjusted for inflation. Looking at a broader representation of the overall stock market, the average rate of return for the Standard & Poor's (S&P) 500 index since it's inception in 1928 is about 10 percent per year.

Of course, if you pay attention to the stock market, you know that stocks do not move steadily up all the time. Sometimes there are sudden market declines, such as the crash of 1929 that led to the Great Depression, or the 2008 collapse that led to the Great Recession. Sometimes there are long periods of market stagnation when stock prices do not go up much at all, such as during the 1970s. But over time, the long-term trend has been that stock values keep on pushing up, even after setbacks, and routinely go on to break record highs.

What makes stock values keep going higher and higher?

Investors think stocks will go up

Investors who decide to put money into the stock market select individual stocks and stock funds based on the financial performance of the businesses in the portfolio. Ultimately, investors weigh the potential for a stock to go up versus the risk that it will go down during their investment window.

Sometimes "irrational exuberance" seems to play a big role in driving stock prices. In a hot housing market, investors will pay essentially any price to buy a property if they are confident the price will go up, even if the price is not rational. Investors sometimes buy stock for the same reason — simply because they think someone else will pay more for it when they want to sell and they don't want to miss an opportunity to make a big gain. In some extreme cases, such as hot initial public offerings (IPOs), stock valuation seems to be driven by speculation without much solid financial basis.

Businesses have figured out how to make products for less

One way that businesses have become more valuable, and therefore garnered higher stock valuation, is by increasing productivity and efficiency. If a business can produce its goods and services at a lower cost, higher profits can be achieved.

Businesses boost their efficiency by using automation, optimizing product designs and reuse, and merging or partnering with other companies with complementary resources and capabilities. The continuous effort by businesses to reduce their costs and run their business more efficiently keeps driving stock prices up over time.

Fancy new products (with higher profit margins)

Innovation and technological advances result in new products with higher profit margins than established products. Consumers will pay a premium to get the latest technology and newest capabilities. When a new type of product is launched, there is a window of time when little or no competition is available in the market. This is why the introduction of new products keeps driving stock values up.

Growing consumerism

In the old days, it was common for people to grow their own food, make their own clothes, and craft other household items such as soap and even furniture. When people were more self-sufficient and made most things for themselves, opportunities for businesses to sell products to customers at a profit was limited.

Fast forward to today. The population has increased significantly, and most people buy products instead of making things themselves. As the number of consumers grows, and the demand by consumers for more and more products increases, so does profit for businesses that make and sell products.

Why did stocks unexpectedly go up after Trump was elected?

After an initial tumble in stock futures following the 2016 election, the stock market rallied during the following months and hit a record high, with the DJIA reaching 20,000 for the first time ever on January 25, 2017. Why did the stock market go up after the election of an unpredictable new leader?

Markets typically react negatively to uncertainty, and that is what happened when the S&P 500 and DJIA market futures fell around 4 percent on the night of the election. But soon, stock prices started rising again. Investors apparently feel that the new president will follow traditional Republican strategies of lowering taxes on businesses and reducing environmental, safety, and consumer protection regulations, resulting in higher potential profits. Also, the possibility of increased military spending and spending on huge infrastructure projects raises expectations for short-term economic growth among investors.

Will the stock market keep going up?

Stepping back and looking at the potential for stock market growth over the coming decades, the elements for continued stock market growth seem to be forthcoming.

New levels of automation promise to drive productivity and reduce the cost to produce and deliver products to consumers. Technical innovations such as renewable energy, virtual reality, augmented reality, and medical breakthroughs appear poised to result in highly profitable new products. New consumers are likely to enter the marketplace as developing economies grow, increasing overall demand for manufactured products and driving business profits higher.

This article is from Dr Penny Pincher of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Are We Headed Toward a Bull or Bear Market?

Tim Lemke — Mon, 15 May 2017 08:00:09 +0000

The stock market has been on a roll over the last year. Since the winter of 2016, investors have enjoyed a delightful bull market that has seen the S&P 500 index rise by more than 25 percent.

Whenever there is a lengthy run-up like this, investors always want to know how long it can last. Are we due for a big correction or even a record-breaking crash? Or will we see the markets continue to rise?

Trying to time the market's movement is a fool's game, but it's always smart to look at the various indicators that may foreshadow future performance. With the current market, there is evidence to back up both bullish and bearish predictions.

Indicators of a bull market

The good times won't end anytime soon.

Most economic indicators are strong

For the most part, the American economy is stable. Unemployment is at its lowest point in a decade. Inflation is not out of hand. Manufacturing output is up, along with consumer confidence. There are some concerns about overall growth and productivity, but nothing that spells immediate doom for American investors at this point. Generally speaking, if the underlying foundations of the economy are sound, a sudden drop in stock prices is unlikely.

Interest rates are still historically low

We've seen interest rates creep up a bit, but they are still very low by historical standards. If you're placing money in a bank account, don't expect to receive much in the way of income. Bond yields are also very low. Thus, there's a good chance we'll see people continue to invest in stocks, as they have recently offered much better returns than most other options. As long as interest rates remain low, demand for stocks will be high.

Technical analysis supports it

Many analysts and financial planners prefer to examine a technical analysis of the stock market's performance, which looks at long-term trends that have historically repeated themselves. Most observers of these trends believe we are halfway through a growth cycle that began around 2010 and will continue another five to 10 years.

Corporate earnings are good

The stock market has been known to take a dive when stock prices are high, based on the underlying earnings of companies. In other words, when stocks are overvalued, the market will eventually find out, and you'll see a big correction. Recent earnings reports suggest that the stock market growth is justified. Earnings reports for the first quarter of 2017 look to be among the best in more than five years, so there's no indication that stocks are generally overvalued as a whole.

Lawmakers are pushing pro-business policies

President Trump was elected in part because of promises to lower corporate taxes and reduce business regulations, and he has the majority support of Congress. These are policies that are generally favored by the business community, and investors have responded positively. As long as businesses remain optimistic about policy changes, the stock market will be propped up.

Indicators of a bear market

On the other hand, maybe the good times are about to end.

Companies are heavily leveraged

U.S. companies have more debt than ever, and a lot of it comes due in the next few years. Moody's Investors Services estimated that a record $2 trillion corporate debt will come due between now and 2021, and warned that the market's ability to absorb all of these maturities is "below average." Few analysts are predicting a massive wave of corporate bankruptcies, but an inability to refinance debt could curb corporate profits and cause stock prices to fall.

There's a possible epidemic of auto loan defaults

When the stock market last suffered a big crash in 2008, it was largely due to a flurry of defaults on mortgage loans. Many Americans obtained home loans that they ultimately could not afford, and ended up in foreclosure when home values dropped.

These days, it appears that there may be a similar concern facing the quantity and quality of auto loans. It may not be as big a crisis as the housing bubble, but Americans ended 2016 with a record $1.2 trillion in auto loan debt, an increase of 9 percent from the previous year. Nearly one-fourth of these outstanding auto loans are considered subprime, and the delinquency rate from these loans is at its highest in seven years. This doesn't pose the same systemic risk as the mortgage crisis, but the auto industry is a key part of the American economy.

Europe is facing uncertainty

The United Kingdom is in the process of leaving the EU. There are rumors that other countries (France?) may follow suit. There are lingering concerns over terror attacks in the region. On one hand, economic trouble in the EU may benefit U.S. companies, but many American firms operate in Europe and are impacted by geopolitical uncertainty anywhere.

Political concerns

President Trump and members of Congress have been pushing pro-business policies, but eventually, they will have to deliver the goods. Their struggles in passing a repeal of the Affordable Care Act has been viewed as a sign that they may not have the wherewithal to accomplish big things, such as tax reform. A failure to follow through on any of these major promises could eventually cause a pullback in the markets.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

8 World Currencies That Took a Hit in 2016

Tim Lemke — Tue, 17 Jan 2017 11:00:10 +0000

It's been a tough stretch recently for global currencies. Economic uncertainty, political shake-ups, and other world events have sent the value of currencies down sharply over the past year in many countries. Moreover, the decision of some nations to float their currency on the foreign exchange market has had troublesome results. Currencies in South America have been hit especially hard, but others in Europe and Africa haven't been immune to weakening.

Here are eight currencies that dove in 2016.

1. British Pound

Thanks, Brexit! The UK's vote to leave the European Union stunned the world and sent the pound plunging over fear of the move's impact on the British and global economy. Right now, the British pound equals about $1.23 U.S., or nearly 20% less since June, 2016. The pound was worth $1.50 right before the Brexit vote. It dropped nearly 15% immediately and kept declining before rebounding slightly at the end of 2016.

2. Mexican Peso

In the spring of 2016, one U.S. dollar was worth about 17 pesos, but the value of the Mexican currency has been tumbling ever since. The anti-immigration and anti-trade message coming from Donald Trump during the presidential campaign led to a weakening of the peso, and Trump's election in November made matters worse. The dollar/peso trade is now above 21, marking a 23% decline in value for the peso.

3. Venezuelan Bolivar

The Venezuelan economy is a mess, with massive inflation, shortages of food and medicine, and general mismanagement. This has led to a collapse of the nation's currency, with the value dropping by more than 36% in late March of last year. But accurate data from Venezuela is so hard to come by that the actual value of currency is anyone's guess.

4. Argentine Peso

Argentina's currency began falling right at the start of 2016, then rebounded in the summer before enduring a long decline since. The U.S. dollar is now worth about 16 pesos. That means the value of the peso is down about 17% since this time in 2016. This drop is largely blamed on the decision to begin floating the currency on the foreign exchange market. The move was supposed to encourage foreign investment, but that has yet to bear out, and the currency has taken a hit as a result.

5. Turkish Lira

National security fears and inflation have hammered Turkey's currency, which hit a new all-time low in early January. The currency began tumbling last spring, and is now off more than 23% since a peak in April. Interest rate hikes in the U.S. have created additional pressure; it now takes about four lira to equal a U.S. dollar.

6. Egyptian Pound

Egypt's currency tumbled in October, after the nation's government announced it would free float its currency. The Egyptian pound's 45% loss in a single day is believed to be a record. The pound had been trading at an 8:1 ratio to the U.S. dollar, but now it takes 18 pounds to make a dollar. Observers say that in the long run, a weaker currency could boost exports and tourism, but there is concern about inflation in the short term.

7. Nigerian Naira

Nigeria also free-floated its currency in 2016 in an effort to lure investment, and results were not quite as bad as in Egypt. After being pegged to the dollar for more than a year, the naira dropped 30% in a day in June. One U.S. dollar is now worth about 315 naira, compared to 199 naira before the slide. To make matters worse, a decline in the value of oil has not helped the currency for this OPEC nation.

8. Euro

General concern about the European economy has depressed the value of the currency used by more than 330 million people on the continent each day. One euro is now worth about $1.05 U.S. It had been trading above $1.15 before enduring a long, slow decline over the second half of 2016.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Going Off the Grid Is a Lot Harder Than You Think

Philip Brewer — Thu, 15 Dec 2016 11:30:12 +0000

The term "off the grid" has taken on an expanded meaning of late. It used to be used in a literal fashion, to refer to disconnection from the grids supplying power, gas, water, and telephone services. Lately it's come to mean something broader: disconnecting from what whatever parts of "the system" seem objectionable to you.

Some people want to disconnect from the financial system. Some people want to disconnect from the surveillance state. Some people want to disconnect from the globalized economy or industrial agriculture or consumerism. Any of these choices have both costs and benefits.

Take a look at some of your options.

Off the Grid on the Low-Tech Path

To go fully off the grid is to become self-sufficient — to produce all the things you need for daily living. This is only sort-of possible. That is, the technology to produce everything you need to live is very low-tech indeed — pretty much everybody lived that way for the past 100,000 years — but there are two problems, one of which is insurmountable.

The Surmountable Problem: It's a Hard Way to Live

There are two historical routes along the low-tech path. The more recent is subsistence farmer.

You can't just decide "I'm going to be a subsistence farmer" and expect to succeed at it. It takes capital (in the form of land and tools). It takes skills (that your grandfather may have had, but that you probably don't). And if you can acquire both of those things, it then takes long hours of year-round backbreaking work to eke out a meager existence.

You can live at a much higher standard of living if you work for money (whether at a job or at your own small business) and then use that money to buy the things you need. Even if you don't make much money at all — part-time work at minimum wage, or whatever you can make as a freelancer at this or that — you're still going to be able to live as well as a subsistence farmer.

Oh, the subsistence farmer will get better food. It doesn't get any fresher, more local, free-range, or organic than the stuff you grow yourself. The subsistence farmer also gets the huge satisfaction that comes from supplying your own needs with your own two hands. But if you really want to produce everything yourself, you're going to have to do without a lot.

You have to make a lot of choices about how pure you want to be. Each thing you want to learn how to make yourself — nails, let's say — means another big investment in tools (forge, anvil) and skills, and another huge amount of work that you have to do to produce enough nails for a project. And each thing you decide not to make for yourself — cellphones, let's say — draws you into the money economy, meaning that you need to produce a surplus, so you have something to sell beyond what you need to live on.

Although it would have been a lot easier in your grandfather's time (his parents had and could teach many of the skills that you're going to have to learn from YouTube videos), it's probably easier now than it was in the 1960s, when a lot of hippie types gave subsistence farming a serious try. At least you've got the YouTube videos.

There is a lot of stuff out there to help, if you're serious about giving something like this a try. You might start with my review of The Self-Sufficient Life and How to Live It here on Wise Bread from a few years ago.

Just for completeness, I should mention the even older low-tech path: The lifestyle of the hunter-gatherer.

As a practical option, this one probably doesn't even exist. Virtually all the land that is suitable to support hunter-gatherers is more valuable for some other use, and so it has been taken for that use. (Hunter-gatherers couldn't win fights with farmers even before firearms were invented.)

I suppose a wealthy person could buy a hunting preserve on a tract of land big enough to provide enough fish, game, and plants to support himself. If he did his hunting with primitive weapons and processed the carcasses with primitive tools (and kept to himself), he could probably get away with violating the rules on hunting seasons, fishing licenses, and the like. But it would just be a fantasy of living as a hunter-gatherer. As a landowner, he'd still be on the grid. (As a rich person, he'd no doubt be on the grid in all sorts of ways.)

Having said all that, hunting and gathering are both useful as ways to improve whatever lifestyle choice you end up with. Anything you can take from the wild is something that you neither need to grow nor buy. I talk about that in my post Foraging: Not Insane, Useless, or Impossible and Andrea Karim has posts looking at hunting and fishing for food and at gathering edible weeds. (Of course those barely scratch the surface of what hunting and gathering can do to supplement your diet in modern times.)

The Insurmountable Problem: You're Still on the Grid

A farmer needs to own land, and all kinds of grid attachments come along with that. You have to pay your property taxes, so you have to earn some money, so you're probably going to have to file an income tax return as well. If you need to earn money you're probably going to have to be able to market your products, so you need a truck, which means even more money, and even more grid attachments (license, plates, safety inspections, dependence on foreign oil).

There are other ways you can't get off the grid. The state is going to check and make sure your kids are getting a proper education. You can teach them yourself, but you need to be on-the-grid enough to do the paperwork. You need to have health insurance even if you don't want to avail yourself of modern medical care. Zoning regulations will affect how you can use your land. Federal marketing orders and agreements affect what crops you can grow, and the EPA regulates what you can do with wetlands on your property.

Because of these issues (and a hundred more like them), I've become enamored of late by the possibility of a different sort of path to off-the-grid living.

Off the Grid on the High-Tech Path

If you accept the fact that there simply is no way to live completely off the grid — if you abandon the purity aspect of the notion — another option opens up: You can go off the grid a la carte, picking and choosing where connecting to the grid is worth the cost, and where disconnecting is the bigger win.

The question you need to ask is "Why do you want to live off the grid?" If you understand the answer to that question, you can decide where to put your effort.

The Satisfaction of Providing for Your Own Needs

If this is what moves you, you can start right away. Think about what you need and start producing it.

Food? An intensively worked suburban plot can provide a large fraction of all the food a family needs, but you can start with just a garden. If you can have chickens where you live, you can easily be self-sufficient in eggs. You can certainly raise a few rabbits and substantially augment your household meat supply.

Clothing? Learn to sew. Learn to knit. Learn to weave. Learn to spin.

Shelter? Look into the "tiny house" movement. (There are several tiny house articles on Wise Bread.)

Producing your own stuff is only sometimes cheaper than buying it, but stuff you produce yourself can also be better than what you can buy (once you get good at producing it).

The Safety and Security of Providing for Your Own Needs

One downside of "the grid" is that you're so terribly dependent on it. If the power goes out, you're sitting in the dark. If a backhoe takes out the wrong cable, you've got no landline (or no Internet, or no cable). If the water company starts piping in water that's contaminated with lead, you're drinking from bottles until they clean the system.

You can replace most of these things in a grid-free fashion, although it often takes capital.

You can put solar panels on your roof and produce your own electricity. If you live out in the country, you can drill your own well and pump up your own water. You can even set up a biodigester and produce your own methane gas (although it might be simpler to harvest the occasional tree and burn wood rather than gas).

There's really no way to go grid-free for telephone and Internet, because the connection is the essence of the thing. But if you wanted to do it, the technical chops required to set up your own local network — one that covered your home or your neighborhood (or your walled compound) — is not beyond the capability of an ordinary person. Throw in some access points capable of establishing a meshing network and a server with ample disk space and you could offer folks very local networking that was completely independent of the larger grid, providing voice access to everyone within your local network and offering whatever you wanted to spin up on your server. (A local copy of Wikipedia wouldn't take up much room at all.)

The Morality of Providing for Your Own Needs

Things that you produce yourself can be produced in accordance with your own values.

You can be confident that no produce from your own garden was harvested by poorly treated migrant labor. You can be confident that no garment that you sew yourself was made by slaves or prisoners. Eggs from your chickens can be cruelty-free, cage-free, free-range, and organic to exactly the extent that you choose — and will certainly be extremely local.

Using power produced by your solar panels funds no overseas terrorist organization, drains no cash to money-center corporations, nor does it enrich the shareholders of the firms endangering our air and water with fracking, offshore drilling, or poorly maintained pipelines.

Where morality is not implicated, you can choose to stay on the grid. I don't live in a tiny house: I live in a town house — but it's a town house owned by a cooperative that I'm a member of. In essence, I rent it from myself. It's on the grid, but it's very much in accordance with my values.

Living large on a small budget makes it easy to live light on the planet, and that often goes hand-in-hand with high-tech, off-grid living.

The Flexibility of Providing for Your Own Needs

The technology of the digital nomad makes it possible to go off the grid in a very different way.

On the one hand, the digital nomad needs regular (although not necessarily constant) access to the Internet. That's as grid-connected as can be.

On the other hand, once you've arranged your life to allow you to be location-independent, you can be pretty indifferent to exactly which bits of the grid you choose to depend on, and you can shift around based on the circumstances of the moment.

You can live out of a suitcase and laptop bag, using the power and Internet available wherever you happen to be.

You can outfit an RV (or a van) with some solar panels and some batteries, add a few gigabytes of data to your cellular plan, and live and work anywhere you choose.

You can connect to the grid, work for as long as seems appropriate, and then disconnect whenever you want.

Being able to make these choices — and then make different choices when the circumstance (or your thinking) changes — is what I mean by the high-tech path to off-grid living.

High-tech or Low-tech, Capital Makes a Difference

There's a big trade off between self-sufficiency and self-reliance, and the more of what you need you can produce for yourself, the more options you have.

The grid is part of this. Replacing it requires a lot of capital. Doing without means taking a hit to your standard of living. This means a lot of hard choices, but each additional chunk of capital can turn one more hard choice into an easy choice.

I mentioned at the beginning that a subsistence farmer needs capital for land or tools. Many of the other strategies I've mentioned — such as getting your power from a solar array — involve substituting capital up front for monthly bills (and a reliance on the grid).

There is the option of going big on capital. If you've got enough money, you can be as local and off-grid as you want in sourcing your food, power, water, and so on.

If you lack capital, you're going to have to pick and choose which aspects of grid you chose to unhook from. Or else, you're going to have to accept a very low standard of living indeed.

In the end, it comes down to your values. Why do you want to live off the grid? What lifestyle choices support those reasons?

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This article is from Philip Brewer of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Ways Millennials Are Changing Marriage

Amanda Meadows — Wed, 30 Nov 2016 12:30:10 +0000

According to the Gallup, 59% of Millennials have never been married. Raise your hand if you're a 20- or 30-something and your parents are hounding you to settle down and give them grandchildren. Oy, that's a lot of hands. Make sure they understand the four ways Millennials are changing marriage.

Marrying Later

It should be no surprise that the youngest generation is marrying later, as this has been a steady trend over the past few generations. However, the number of people born between 1980 and 2000 who are married is even lower than expected.

Why wait? Wages are stagnant. More young people are saddled with college debt. More young people are taking longer to earn enough money just to leave their parents' home. More young people are dating longer, and waiting for the right one. Couples are living together longer while putting off a wedding. When you don't have a lot of money, support, or time, the idea of spending a ton of time and money planning a wedding doesn't sound so romantic and fun.

Marrying Interracially and LGBT

It's crucial that we see where Millennials are pushing the ball forward, and one of those areas is in continuing the fight against assortative mating, which likely deepens economic inequality. One of the best ways to track this is with interracial dating and marriage.

Pew Research Center in 2013 learned that 6.3% of all newlyweds married a person who was outside of their race. While America has a long history of structural racism that Millennials also take part in, it is worth pointing out the big gains this generation has made in making marriage about love and not rules based on prejudice.

It's also worth pointing out that 71% of American Millennials now support same sex marriage, in contrast to only 55% of the general population overall. Marriage is getting more open and inclusive of all types of Americans, and you can thank Millennials for helping that happen faster.

Marrying With Prenuptial Agreements

This may not be relevant to your average couple living within the median income bracket, but it's an interesting one. According to some lawyers, more Millennials are cool with locking in a contract before the big day. Apparently, just over half of lawyers in a poll cited that they saw an uptick in prenuptial agreements in young couples, and only 2% of lawyers cited a decrease in prenups.

Why could that be? One theory is that Millennials are entering marriages older and are more willing to have the tough pre-nup conversations. Another is that they are more protective of whatever wealth they have managed to hold onto, and are worried to repeat the mistakes of their parents. Whatever the reason and however you feel about prenups, it's sign that Millennials are more responsible than the media makes them out to be.

Not Marrying at All

Gasp! Clutch your pearls, but marriage is just not going to happen for a lot of people. According to the Olin College of Engineering, the number of both men and women projected to stay unmarried continues to increase. Professor Downey found that if men were born in the '90s, 30% of them will be unmarried by age 43. For women born in the 1990s, 36% of them are expect to be unmarried by age 43. That's in comparison to 17% of both men and women who were born in the 1970s going unmarried by the same age.

Why? Marriage is very personal, and everyone's reasons could very well be different. That said, it's likely that the reasons many Millennials cite for delaying marriage would be the very same reasons some never do it at all. We've learned through myriad surveys, polls, and studies that most Millennials claim to have inherited a less economically stable world than their parents. Since marriage itself is in many ways an economic arrangement, how can we blame them?

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This article is from Amanda Meadows of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Financial Reasons 2016 Needs to Be Over ASAP

Tim Lemke — Tue, 08 Nov 2016 09:00:09 +0000

The year is winding down, and for many of us, it can't end soon enough. From a financial standpoint, 2016 was a mixed bag, at best. Of course, there's no guarantee that next year will be markedly better. But here are a bunch of financial reasons why we're ready to put up a new calendar.

1. Poor Economic Growth

For most of the time after World War II, Americans could count on a growing economy, usually to the tune of at least 3%, and often significantly higher. These days, the gross domestic product (GDP) of the United States is stuck on a slower growth path. While the economy did have a good third quarter, it's likely that growth for the year will be under 3% because of a dismal first half of the year. It's better than being in a recession, but this slower growth could have big implications on incomes, investment returns, and Americans' overall quality of life over time.

2. Mediocre Investment Returns

So far in 2016, the S&P 500 has increased in value by a little over 7%. That's not bad, but many investors were hoping for a bigger jump after an increase of less than 2% in 2015. In the post World War II period, there have been only about a dozen instances when investment returns didn't average at least 5% annually over a two-year period. This will be the eighth consecutive year of positive market returns, and that's a good thing. But the last couple of years have fallen into the "good, not great" category, and that may force a lot of people to adjust their overall retirement projections downward.

3. Fewer People Working

America's unemployment rate is 4.9%, and that's historically quite low. So good news, right? Well, any excitement over that number is tempered by the fact that overall participation in the labor force is at one of its lowest points in the last 50 years. About 63 million people are considered part of the civilian workforce, but that's down from 67 million 15 years ago. The unemployment rate does not consider people who have voluntarily left the workforce or have been out of work for a very long time.

There are a variety of reasons why fewer Americans are working, and not all of them are bad. An aging population means more people are retiring. More people are pursuing advanced education. The Affordable Care Act has made it easier for some people to get health insurance without the need to get it through an employer. People who choose to be out of the workforce for too long may lose skills that will make them more employable later. And a declining workforce also has a negative impact on household incomes, consumer spending, and, ultimately, economic growth.

4. Paltry Interest Returns

We've been in an ultralow interest environment for years now. Many of us have benefitted from the low cost of borrowing, but this also means that our savings accounts aren't generating much return. This is bad for anyone starting out saving and for older retirees who rely on interest income. It's also generally a sign from the Federal Reserve that the economy still needs some propping up. Low interest rates can be helpful to us in some respects, but most economists yearn for a time when rates weren't hovering near zero.

5. Flat Wages

Did you get a raise in 2016? If not, you're probably not alone. Real wage growth has been basically flat for years, and this year has been no exception. The U.S. Department of Labor reports that real average weekly earnings rose just 1% in September compared to the same month a year ago. The average worker earns just 11 cents per hour more than this same time last year, when you factor in inflation. This stubborn wage stagnation has a negative impact on the middle class, especially when you consider things like the rising cost of education. Will 2017 be better?

6. Brexit Reax

The world pretty much freaked out over the summer when people in the United Kingdom voted to have their country leave the European Union. It was a result that many believed could not happen, and sent stock markets around the globe tumbling. The British Pound lost a good chunk of its value, and overall uncertainty of what happens next has led to a drag on the economy and England and Europe as a whole.

7. Fumbling Phone Makers

In recent years, companies that make smartphones and other digital devices have been huge drivers of the stock market and the economy. Apple and Samsung certainly come to mind. But in 2016, it was a lot of bad news and disappointment.

Samsung was forced to recall and stop production on its Galaxy Note 7, after reports that the phones were catching fire. This news virtually wiped out all of the company's profits for the third quarter of 2016.

Meanwhile, Samsung's top competitor, Apple, hasn't exactly taken advantage. The company sold 45 million of its popular iPhone in the most recent quarter, compared to 48 million in the same period last year. And reviews of the newest iPhone 7 have been tepid. Shares of the company are up about 8% this year, which is solid growth but less than what we've come to expect from the tech behemoth. There is hope for 2017, however, as Apple says it will spend a whopping $16 billion on capital expenditures next year.

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Threats to a Secure Retirement

Tim Lemke — Fri, 07 Oct 2016 09:00:06 +0000

Saving and investing for retirement isn't easy. There's a lot that can happen to take you off track, potentially leaving you less money than you hoped for.

From poor financial planning to unexpected events and even nationwide economic woes, here are some of the things that could pose a threat to your secure retirement.

1. Not Investing Enough

It's never easy to figure out how much to invest. After all, you want to make sure you have enough money to deal with your current needs. It's common for people to invest too little, and this can hurt them in the long run.

When saving for retirement, it's smart to contribute as close to the maximum each year into 401K and IRA plans. (That's $18,000 for the 401K and $5,500 for the IRA.) If you can't contribute quite that much, at least put enough in to get the company match on your 401K plan.

Even a few extra dollars per month into retirement accounts can make a big difference. For example, let's say you have $50,000 in an account and contribute $500 per month for 25 years. Assuming a 7% return, your portfolio would amount to about $677,000. But what if you contributed $1,000 monthly? Then it would hit nearly $1.1 million.

2. Starting Too Late

When investing, time is your biggest friend. The more time you have to invest, the bigger your nest egg can grow. Thus, one of the biggest threats to a secure retirement is failing to contribute to your fund early in life. If you're past 40 years old, you may have only a couple of decades to invest before you wish to stop working, and that may not be long enough to amass the kind of wealth you'll need for a long and comfortable retirement.

Let's say you invest $25,000 today and add $1,000 per month until you are 65. If you're currently 45 and get a 7% annual return, you'll have about $625,000 upon retirement. Not bad, but if you had started when you were 25, you'd have nearly $3 million.

3. Raiding Retirement Funds

Retirement accounts such as a 401K or IRA are designed to have money grow more or less untouched until you reach retirement age. You can withdraw money from them, but there's a cost.

When you raid these retirement funds, you'll lose the money in penalties, but you'll also lose the potential earnings of the money you take out. Over time, this can cost an investor thousands of dollars.

4. Economic Growth

For decades following World War II, the annual growth rate of the American economy averaged more than 3%, with some years seeing double that. But in recent years, that annual rate has shrunk to barely 2%. In short, the American economy is not growing as fast as it once was, and that has implications for household income, corporate growth, and employment.

5. Possible Entitlement Cuts

Many lawmakers on Capitol Hill have been warning Americans of a looming crisis in entitlement funding. Observers of the federal budget note that unless there is serious reform, Social Security Trust Funds could be depleted within 20 years. This means that for the younger generation, there may not be as much left from the government upon retirement.

It's important to note, however, that workers who want to live comfortably after they are done working should not be counting on Social Security to carry them through the end of their life. Someone who saves aggressively and invests wisely should be able to amass enough in a retirement fund to get by even if Social Security benefits are adjusted downward or even eliminated.

6. Declining Pensions

If you currently work for a company that offers a defined benefit plan, you are a rare breed. In recent years, companies have shifted from offering pensions to instead offering 401K plans, in which workers invest on their own. In most cases, they will also get a contribution from their employer, but that's not guaranteed. This doesn't necessarily mean you'll be destitute at retirement, but it does require employees to be much more engaged in their retirement planning.

7. Placing All Your Eggs in One Basket

Even if you are saving aggressively and investing every penny you can, it's possible to end up with less money than you need in retirement. It can happen when your portfolio is too heavily balanced toward a single investment. It's unwise to invest a high percentage of your savings in one company or even one industry or asset class, because one bad day could wipe out a large chunk of your savings. (Consider the plight of Enron employees who lost nearly everything had most of their savings in company stock.)

To protect your retirement money, invest in a diverse mixture of stocks in various sizes and asset classes. Buy mutual funds instead of individual stocks, if at all possible.

8. Funding College Instead of Retirement

It's never a bad idea to save money to contribute to your children's education. There are several vehicles including 529 plans that allow you to invest money tax-free toward college. But many investors become so focused on saving for college that they fail to contribute enough to their own retirement fund.

Remember that it's possible to borrow money for college, but you can't borrow money to fund your retirement if you find you're lacking in funds when you're done working. Ideally, you'll be able to amass enough money to fund college and your retirement comfortably. But if you have to make a choice, pay your future self first, then contribute to the college fund.

9. Being Poorly Insured

You may feel like nothing bad will ever happen to you. You are young and healthy. You're a safe driver and you live in a nice neighborhood. So you skimp on things like health, auto, and homeowner's insurance. You may think you're saving money, but you're at serious risk for big financial loss if you get seriously ill or have a serious accident.

Being uninsured or underinsured can leave you struggling to make ends meet, placing retirement savings on the back burner. You may even have to raid your retirement accounts to pay the bills. It's wise to perform an insurance assessment to determine if you have the proper level of insurance to protect yourself financially.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

4 Foolproof Ways to Protect Your Money From Inflation

Damian Davila — Fri, 02 Sep 2016 09:00:14 +0000

Back in January 1980, when Jimmy Carter was President and Michael Jackson led the music charts with "Rock with You," Americans were experiencing one of the periods of highest inflation in modern history. In January 1980, inflation was over 13.9% per year and peaked in April 1980 at 14.76%.

With the consumer price index (CPI) at 0.8% in July 2016, many Americans have never experienced the dramatic increase in prices that other generations have. But even though inflation is low these days, it still eats away at your savings and investments. Let's review four (nearly) foolproof strategies and investments that will reduce the hit.

1. Invest in an S&P 500 Index Fund

The average annual inflation rate since the U.S. government began tracking it in 1913 is about 3%. To combat inflation's effect on your money, you need investments that provide greater average returns than the inflation rate.

Since its inception in 1928, the S&P 500 has provided an average annual return of 11.25% until 2015, making this stock market index a leading choice to protect yourself from inflation. For the greatest ease and cost-efficiency, invest in a mutual fund or exchange-traded fund that mirrors the S&P 500's performance.

Not only are the average returns of passively-managed S&P 500 index funds higher than those of actively managed funds, but also the expense ratios of S&P 500 index funds are lower than those of actively managed funds. For example, the Vanguard 500 Index Investor Shares fund [Nasdaq: VFINX] has an annual expense ratio of 0.16%, which is 84% lower than the average expense ratio of funds with similar holdings.

Of course, this approach isn't actually foolproof, since both the rate of inflation and market returns vary from year to year. But when considering long-term averages, it's a fairly safe bet.

2. Increase Annual Contributions to Saving Accounts

Even when you leverage high-yield online savings accounts, you'll only make between 0.75% and 1.05% per year, according to data from August 2016. With a July 2016 CPI of 0.8%, you're actually losing 0.05% and gaining only 0.25% per year. (See also: Capital One 360: A Competitive Banking Option)

Setting up automatic transfers from your paycheck or main checking account to your investment and saving accounts is a smart idea, but adjusting those contributions for inflation is an even better one. A good practice is to make an adjustment for inflation once a year. Check with your financial institution to find out if it offers the option of automatic adjustments for inflation to your contributions.

3. Seek Real Estate Income

While gold has a great reputation as an investment hedge against inflation, real estate income has proved to be a better hedge tool. A study from financial company Fidelity back-tested the performance of several assets against inflation on an annual basis during a 40-year period and found that gold and real estate income beat inflation 54% and 71% of the time, respectively. "Real estate is regarded consistently as a good inflation hedge, and it is", asserts Susan Wachter, professor at the University of Pennsylvania Wharton School of Business. (See also: 4 Reasons Millennials Should Invest in a Home)

While most individual investors can only afford to buy their own home, all individual investors can gain exposure to real estate income from a wide variety of properties through real estate investment trusts (REITS). Some advantages of REITs are their requirement to maintain a dividend payout ratio of at least 90% and their liquidity because they trade on major stock exchanges.

For example, the 10-year annual average return of the Vanguard REIT Index Fund Investor Shares [Nasdaq: VGSIX] is 7.46%, as of June 30, 2016. In comparison, the 10-year annual average return of the S&P 500 was 7.42% for the same period.

Adding REITs provides you access to assets with inflation resistance and helps you protect against the negative of higher inflation. Still, REITs should only be a part of a well-diversified portfolio. Depending on your tolerance to risk, financial advisers suggest allocating from 5% up to 20% of your investment in portfolio in REITs. And of course, past performance is no guarantee of future success.

4. Negotiate Your Salary

If your salary were to consistently go up every year, you would not to worry about inflation to begin with! However, less than half of working Americans ever even ask for a raise, and about 30% of them are uncomfortable negotiating salary.

Start your career on the right foot by successfully negotiating the salary offer of your very first job. Three out of four U.S. employers typically have room to increase their first salary offers by 5% to 10% during negotiations, but only 38% of applicants negotiate those first salary offers. Let's imagine that your first salary offer was $38,000, that would mean that you have the potential of increasing that offer from $39,900 to $41,800. Given the historical inflation average of 3% per year, you have the potential of covering inflation for 40 months just by negotiating your first salary offer.

And things only get better after that.

By bumping up your salary from the start, you're increasing your chances of future raises. As your salary grows over time, so does your probability of getting a raise. For example, people making $40,000 to $50,000 have about a 40% chance of receiving that raise they requested and people making $60,000 to $70,000 have about a 50% chance.

While there are other factors that may influence pay raises, the main one is the decision to request better compensation. From U.S. workers asking for a raise, 75% of them get something: 44% of them get what they asked for and 31% of them receive a smaller amount. Getting at least a small raise is a very smart strategy to protect yourself from inflation because inflation erodes the value of your dollars year after year.

What are other ways to protect yourself from inflation?

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This article is from Damian Davila of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Ways to Tell If a Stock is Worth Buying

Tim Lemke — Fri, 12 Aug 2016 09:00:15 +0000

One of the most effective ways a person can build wealth over the long term is by investing in stocks.

When you own a share of stock, you own a portion of a public company. And when those companies do well, investors make money. In fact, stocks are considered essential for those looking to save for retirement or achieve other long-term financial goals.

It's possible to invest in groups of stocks through vehicles such as mutual funds or exchange traded funds. But you may also want to consider investing in shares of individual companies. There are more than 4,000 companies that are publicly traded on America's two largest stock exchanges.

But how do you know if a stock is worth investing in? What makes a stock good or bad? Here are nine things to consider.

1. Price

The first and most obvious thing to look at with a stock is the price. How much will it cost to buy a share of this company?

Now, it's important to note that prices should only be viewed in context. Many companies will "split" shares once they reach a certain level, thus reducing the price but increasing the number of shares available. Other companies never split, so a single share could go for several hundred dollars or more. But the price — especially when matched against historical prices — will determine how many shares you can purchase with the money you have. When you evaluate stocks, knowing the price of shares and their history will help you determine if you're getting a good value when buying.

2. Revenue Growth

Share prices generally only go up if a company is growing. And one of the few ways a company can grow is by increasing its revenue. Revenue is often referred to as the "top line," and it's a major indicator of whether a company has been successful. It's important to not look at revenue in a vacuum. Instead, look at the increase or decrease in revenue from one quarter to the next and one year to the next. A positive trendline bodes well for the stock price, but if revenue is flat or declining, it's important to find out why before investing.

3. Earnings Per Share

How much money does the company have leftover at the end of each quarter? Take that figure, divide it by the number of shares it has sold, and you get the earnings per share number, or EPS. For example, if a company made $40 million in profits last year and has 24 million shares, the EPS is $1.66.

EPS can be a driver of stock prices, as investors generally don't want to overpay for a stock. Generally, the higher the EPS, the better shape the company is in. But there is often debate about the best range for EPS, and companies can manipulate it by buying back shares, thus boosting EPS without actually increasing profits.

4. Dividend and Dividend Yield

Many companies will return a portion of their earnings to shareholders. Investors can get a small payment for every share they own, known as a dividend. Many healthy companies will issue good dividends each quarter and the revenue from this may outpace the interest you would get from a normal bank account. Thus, dividend stocks are popular among investors looking for additional income, as well as share growth.

It's easy to search for companies with the highest dividends, and you can also search for dividend yield, which is the dividend divided by the share price. If a company has maintained or raised its dividend, that's a sign that it's on strong footing. A cut to dividends is often a bad sign.

Some of the most well-regarded public companies have been designated as "Dividend Aristocrats" for distributing and increasing their dividend for at least 25 consecutive years.

It's worth noting that many good companies do not distribute dividends because they prefer to invest the cash back into the business. (Amazon is one high-profile example.) And many companies, such as utilities, offer dividends because they can't offer great growth in share value.

5. Market Capitalization

Bigger is not always best, but if you are looking to invest in a stock that will give you steady growth without a lot of volatility, the largest companies are often your best bet. A company's market cap is essentially the value of all its shares. Companies with large market caps are often large and diversified enough to avoid being affected by a single piece of bad news. Think of behemoths like Procter & Gamble, Coca-Cola, or ExxonMobil — good, solid companies that have offered decades of solid returns.

6. Historical Prices

All companies go through rough patches. But if you are investing for the long term, you need to do more than look at a single company earnings report or current price performance. Looking at five-year, 10-year, and even 15-year returns will give you a sense of whether a company can withstand tough stretches. Historical returns are not a guarantee of future performance, but can at minimum be illustrative.

7. Analyst Reports

Many brokerages and investment banks have a staff of research analysts that issue reports and recommendations about individual stocks. Often, these reports come with "buy" or "sell" ratings, based on the analysts' judgment of a company's share price and finances. It's important to note that analysts often disagree, so it's best not to rely on a single report before choosing whether to invest.

8. The Industry

It's usually important to examine not just a stock, but the industry that the company operates in. By doing this, you may get an understanding of whether a certain type of business or sector is struggling or doing well. For instance, when evaluating a company such as McDonald's, you'll want to look at the entire fast food and restaurant sector to gain an understanding of how Americans are eating out. Looking at a stock in this context will help you understand if there are positive or negative influences that may not be immediately reflected on a company's share price or balance sheet.

9. Major Economic Indicators

No matter how hard it tries, a company can't control every single thing that might impact business. The broader economy of the nation and the world can play an outsized role in the health of a company and its share performance. Things like consumer prices, the unemployment rate, or changes to interest rates can impact how a company is doing independent of its own business. While the stock market and economy are two separate things, they are very much linked. For the most part, when the economy is doing well, companies are doing well and share growth comes with that. Likewise, share prices can lag during slow economic times or times of economic uncertainty.

Anything we've overlooked? What do you look at when you evaluate a stock?

This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Here's How the Election Could Impact Your Wallet

Brittany Lyte — Mon, 27 Jun 2016 09:30:25 +0000

It's Clinton versus Trump, and the topic is money — because, more than anything else, that's what's on the minds of American voters. All told, 44% of Americans say the economy is their top campaign issue. Read on for our roundup of how either candidate's presidency would impact your dollars and cents.

Donald Trump

First up, the presumptive Republican nominee and his ideas about taxes, wages, and more.

Taxes

Trump proposes a systemwide overhaul of the U.S. tax code aimed at simplifying it to the point where it would "put H&R Block right out of business." In addition to his pledge to make the tax filing process more intuitive for Americans, Trump has also said that he believes the wealthiest Americans should pay higher taxes.

"If you make $200 million a year and you pay 10%, you're paying very little relatively to somebody that's making $50,000 a year and has to hire H&R Block because it's so complicated," Trump said during a Republican presidential debate last year. "I know people that are making a tremendous amount of money and paying virtually no taxes, and I think it's unfair."

Under Trump's plan, federal income taxes would be eliminated for Americans who earn less than $25,000 and married couples that earn less than $50,000.

Corporations and the wealthy would pay a decreased corporate tax rate (15% rather than the current 35% rate). The highest income tax rate would drop down to 25% from 39.6%.

Despite these cuts, Trump has said that his plan would ultimately raise taxes on the wealthy. That would be achieved, he said, through proposed measures such as the elimination of a hedge fund tax loophole and a one-time 10% tax on money brought back into the U.S. by corporations currently holding funds overseas.

Jobs

Trump has vowed to grow the economy, namely by bringing back jobs he says the U.S. has lost to countries including Japan, China, and Mexico. Tariffs on foreign goods and negotiating better trade deals are the two main ways Trump has said he would accomplish this goal.

When it comes to bringing home foreign jobs, Trump has specifically criticized Apple's China-based manufacturing. If elected, he has said he would force the tech company to "start building their damn computers and things in this country instead of in other countries."

As a billionaire real estate developer, Trump has already directly created about 34,000 jobs, according to an analysis by CNNMoney.

Minimum Wage

Reversing a previous position, Trump has said he would raise the federal minimum wage from its current rate of $7.25 an hour. He has not, however, revealed by how much.

Social Security

Trump pledges to leave Social Security "the way it is," a position that has been called impractical by analysts. The reserve fund will be depleted soon after 2030, upon which, if the law is not changed, monthly benefits will have to be slashed by 21%, experts say. There is one change that he would make, however. Trump has said he would raise the age at which Americans are eligible to begin receiving Social Security benefits to 70. Trump has said that he would not support cutting benefits to those who already receive them.

Health Insurance

Trump has said that he would ax the Affordable Care Act, also known as Obamacare, and replace it with his own medical care reform system, the details of which are fuzzy. Trump's plan would, however, allow the sale of health insurance across state borders and make health insurance premium payments for individuals fully tax deductible.

Hillary Clinton

Secretary Clinton's plans differ from Mr. Trump's, of course, especially in the areas of taxes and health care.

Taxes

Clinton's economic plan aims to close the wealth gap, in part by raising taxes for the rich while encouraging the private sector to raise middle-class wages. Specifically, she has said she would close corporate loopholes, including those used by hedge funders to avoid paying millions in income taxes, in an attempt to reign in Wall Street.

"We must raise incomes for hardworking Americans so they can afford a middle-class life," she said at a campaign event last year where she debuted her economic recovery strategy. "That will be my mission from the first day I'm president to the last."

Under Clinton's plan, low and middle-class Americans would pay lower taxes — just how much lower, she hasn't yet revealed. Meanwhile, wealthy Americans would pay more.

Analysts estimate that Clinton's plan would, on average, raise taxes for the top 1% of Americans by more than $78,000, reducing their after-tax income by 5%. Individuals with adjusted gross incomes topping $1 million would pay a minimum of 30% of their income in taxes.

Experts say that while lower and middle-income Americans would pay less, most won't pay very much less.

Overall, Clinton's plan is closer to the status quo than the plans proposed by Trump or any other major candidate.

Jobs

Clinton's plan for job growth includes measures that would incentivize corporations to invest in employees. It would also eliminate tax benefits to companies that outsource jobs to foreign countries. Companies that move their headquarters overseas would be hit with an exit tax.

"I'm not interested in condemning whole categories of businesses or the entire private sector," she has said. "But I do want to send a clear message to every boardroom and every executive suite: If you desert America, you'll pay a price."

Clinton has also pledged to expand overtime benefits and promote equal pay for women while also advancing fair scheduling, paid leave, and earned sick days.

Minimum Wage

Clinton has said she supports a federal minimum wage increase to $15 from the current rate of $7.25 an hour. She has also said that she supports a $12 federal minimum wage, with the caveat that states should feel encouraged to go higher, especially in cities and suburbs with high living costs. It's unclear which proposal she prefers.

Social Security

To preserve the quickly depleting Social Security reserve fund, Clinton's plan calls on the rich to contribute more via income tax. She opposes any benefits cuts and has said she would not raise the retirement age. Clinton has also said that she would expand Social Security to groups she says are treated unfairly by the system, including widows and caretakers who have taken time off from work for the benefit of children, aging parents, or ailing family members.

Health Insurance

Clinton has embraced the Affordable Care Act, also known as Obamacare, while acknowledging that there are improvements she would like to make to the current system. Namely, she has said that she would like to add a public option, make health coverage accessible to even more people — including undocumented immigrants — and cut its cost.

Will the candidates' positions on bread and butter issues affect your choice this fall?

This article is from Brittany Lyte of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: