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Do you currently have credit card debt? Use our calculator to figure out how much you should be paying each month, how long it will take to pay off and how much you'll end up losing to interest.
Your actual payment to the IRS can depend on thousands of factors, but this simple tool should give most people a pretty accurate estimate of how much of their money is straight to going to Uncle Sam.
Curious how much your savings can grow? Just tell us how much you have to invest and your time horizon and we'll show you what you can end up with.
The 3 most important factors that determine real estate prices: location, location and location. See how much housing costs where you live now, or where you'd like to live in the future.
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Main Types of Investment Assets
One of the biggest reasons people don’t invest the money they have is the sheer number of different investment vehicles available and the complexities of each. It can be quite overwhelming, but the truth is most investors only need to know about a few of them. Let’s go over some of the most popular and easy to trade investments out there.
Stocks are the first thing that come to mind for most people when talking about investing. A stock is nothing more than a share of ownership of a company, hence the term ‘share‘ being synonymous with ‘stock’. A person that holds 1% of the shares of a company effectively owns 1% of that company and is entitled to 1% of that company’s profits, which is paid to shareholders in the form of dividends, usually on some regular schedule for consistently profitable companies. The real underlying value of ownership is that a shareholder has a claim to all future profits. It sounds obvious, but that’s a point many amateur investors overlook, so I’ll say it again, slightly differently. The underlying value of a stock is the present value of all future dividend payments. It’s easy to get caught up in a rising stock and to value it based only on the hunch that down the line someone will want to pay even more than you did to buy that stock from you, but don’t fall into that trap. Eventually markets will become rational and the market price of a stock will tend toward what analysts believe is the value of the company’s profit stream.
Bonds are nothing more than loans. When you buy a bond, you are making a loan to the writer of that bond. You are offered some predetermined interest rate for a specific amount of time on that loan, after which the loan must be repaid. While bonds are generally considered safer investments than stocks, they do carry a risk: there’s nothing stopping the company writing the bond from declaring bankruptcy and going out of business before it can pay the bondholders.
In fact, if you’ve ever heard the term ‘junk bond’, that’s exactly the case. Junk bonds are bonds issued by companies in very poor financial positions. They generally have to offer very high interest rates to get anyone to buy the bonds. If the company does end up succeeding, the bondholder gets a nice return on his or her investment from the high interest rate, but if the company fails it will likely never be able to repay the original value of the bond.
One last common type of corporate bond is a convertible bond. A convertible bond can be converted into common stock, generally at the bondholder’s discretion. This allows the issuing company to sell bonds with a lower interest rate by offering bondholders upside potential if the stock takes off and surpasses the face value of the bond.
It is worth noting that bondholders have a higher claim to the assets of a company than do regular shareholders. In the event a company is liquidated, all bondholders will be paid before any shareholders.
Municipal bonds can be issued by private or public sector organizations to raise funds for public projects. The primary advantage of municipal bonds is that many are federal and state income tax exempt. This is of particular value to high earning investors (i.e. investors in high tax brackets) and investors in states with high income tax rates. Investors in more tax-friendly states or in lower brackets may prefer to seek out higher interest rates from bonds that don’t get preferential tax treatment.
Treasury bonds are a lot like corporate bonds, except they’re issued by the United States Department of Treasury. Many consider this the closest thing to a risk-free asset. Even if the United States government finds itself in a dire financial situation, the treasury department has the ability to print money as a last resort to make good on its obligations. Because of this, don’t expect this financial instrument to do much more than help you keep pace with inflation.
Mutual Funds and Exchange Traded Funds (which are essentially the same things, except rather than giving your money directly to the fund, you buy shares of the fund on an exchange) are incredibly popular investment vehicles. They allow ordinary investors that don’t have millions of dollars to still have a well diversified portfolio by indirectly owning tiny fractions of hundreds or thousands of underlying securities. A simplistic view of how they work is a fund manager picks a bunch of securities, buys them, pools them together, and then sells claims to fractions of that entire basket of securities. If a few individual securities in that basket do poorly, they’re still only a fraction of the entire basket. Likewise, if a few securities really take off, they can only pull on the entire basket by so much. Overall, the basket, or fund, should be much more stable and predictable than individual securities within the basket. That’s known in mathematics as the law of large numbers. This allows investors to get the higher expected return of risky assets, while mitigating risk through diversification.
There are two important classes of these funds: actively managed and passively managed. Actively managed funds have (usually highly paid) managers that closely study the securities within the fund and make changes as they deem appropriate and generally charge a higher fee. Passively managed funds (index funds), on the other hand, just blindly buy across a large group of stocks, for example the entire S&P 500, a bunch of stocks with high earnings relative to the price of the stock (value stocks), etc. While the former may sound smarter, consider the theory behind passively managed funds. The stock market is an efficient market and the price of a stock reflects its true value as determined by all participants in the market. If a fund manager says a particular stock is undervalued and should be bought, he’s basically making the claim that he’s smarter or knows more than everyone else on Wall Street. After all, if others agreed with that manager, they would also buy that stock, thereby driving the price up, until it was no longer undervalued. The argument for passively managed funds is that the market has done the research for you, for free. Why pay analysts big bucks to do unnecessary research?
There are certainly complexities to modern financial markets, but you don’t have to have a degree in Finance to understand enough to start investing. Most people don’t need anything more complicated than mutual funds or bond funds in their portfolio. One of the most overlooked risks to investing is letting your risk aversion allow you to forego growth opportunities. Taken to an extreme, i.e. holding all your savings in cash, will just allow inflation to eat away most of what you have if given enough time.
Main Types of Investment Assets
A Brief History of Credit Cards
Even though many of us cannot live without them, credit cards were not always part of our lives. There was a time, just two generations ago, when consumers had to carry cash everywhere, or rely upon store credit. It took several decades for credit cards to become the integral part of our lives that they are for so many of us today. The story of how Americans fell in love with plastic is an interesting one.
During the 19th century, some department stores and hotels issued what were known as “credit coins.” These were nothing more than metal tokens issued to persons with credit accounts.1 The credit coin enabled a clerk to identify people who had credit.
The coins were replaced by metal cards called charga-plates in the 1920s. Charga-plates were the first credit cards in the United States, but they could only be used at a specific business such as a gas station or a department store.
A charga-plate was a metal card with the customer’s name, address and account number stamped on it. A clerk took an impression of the card when a purchase was made to keep a record. The purchase was put on a bill sent to the customer each month. Customers had to pay the bill in order to keep card.
The first bank credit card was created by John Biggins of the Flatbush National Bank in Brooklyn, New York, in 1946. Biggins created a system in which customers used a card he called Charge-It to make purchases at businesses. The bank paid the business and billed the customer monthly.
Charge-It was only available to local businesses in Brooklyn, but it was the first card that worked at more than establishment. It was also the first card issued by a bank rather than a business. Merchants were willing to take Charge-It because it meant the bank would handle all the paperwork involved in issuing credit.
The next step was the creation of credit-card companies, businesses that specialized in issuing cards. Two men; Frank X. McNamara and Alfred S. Bloomingdale, came up with the idea of a card that would pay for restaurant meals. McNamara started the Diner’s Club in New York City in 1950, and Bloomingdale organized Dine and Sign in Los Angeles the same year. The two soon met and merged their businesses into the first national credit card: the Diner’s Club Card.
The Diner’s Club proved popular. It had 20,000 members by 1951, just a year after launching. Diner’s Club was the first national card to charge interest, 7% plus an annual fee of $3, to make a profit.
The Diner’s Club Cards were made of cardboard, but they were so successful that companies like Hilton Hotels and American Express took notice. Hilton issued its own card that became the Carte Blanche in 1958. In 1959 American Express brought out the first plastic card and created a national icon, the Amex card. American Express also created the first worldwide credit card network. Although they were made of plastic, these instruments were not credit cards in the modern sense. They were charge cards that operated on a closed loop. That meant consumers could only use them at a few businesses, often just restaurants. Since they were charge cards, users had to pay the balance off in full at the end of the month. That meant the cards were mostly used by the rich and people who travelled a lot.
The first true American credit card was the BankAmericard, issued by Bank of America in Fresno, California. Unlike the American Express or Diners Club, BankAmericard came with a revolving balance. That meant a cardholder only had to pay part of the balance each month. This made the cards useful to working and middle class families who might not be able to pay the whole balance.
Merchants were willing to take the card because they would get paid right away by Bank of America rather than having to bill customers and wait. BankAmericard was so successful that it was licensed to banks throughout the United States. The success of BankAmericard prompted Citibank to launch the Everything Card in 1967, and a competing group of California banks to start Master Charge in 1966. Master Charge and the Everything Card merged in 1969 and eventually became Master Card. BankAmericard is now known as Visa.
The basis of a nationwide credit network was laid in 1978 when the U.S. Supreme ruled that nationally-chartered banks could charge the same interest rate in every state. Before that, banks had to follow a complicated set of limits on interest rates created by state legislatures. This made it profitable for organizations like Visa and Citibank to issue credit cards nationwide. It also enabled banks to charge higher interest rates, which in turn enabled them to issue cards to middle and working class people. Advances in computer technology enabled companies to process transactions instantly with a swipe of a magnetic strip. This made it convenient to use credit cards at restaurants, supermarkets and other businesses.
Today there are almost 200 million credit card holders in the United States. To put that in perspective, there are just over 100 million families in the country. In other words, the vast majority of American adults are credit card holders and credit and debit cards have completely eclipsed cash in terms of ubiquity. While we may be on the cusp of a new trend toward phone-based payments, such as those currently offered by Apple and Google, one thing is clear - payment by credit is here to stay.
A Brief History of Credit Cards
8 Things That Can Affect Your Mortgage Rate
Most people buying a new home will need to borrow money from a lending institution to pay for the full cost of the house. These loans are referred to as mortgages, and like every other type of loan, they have a cost associated with them known as an interest rate. In mortgage lending, the interest rate is simply called the mortgage rate. The mortgage rate is a small percentage of the loan that you must pay every month to continue living in your home.
Interest rates of every kind, including the mortgage rate, measure the underlying risk that the loan may not be paid back. Lending institutions charge a higher rate when they perceive a higher risk of the loan not being paid back. Alternatively, they charge a lower interest rate when they perceive a lower risk of the loan not being paid back. There are various reasons that lending institutions perceive higher or lower risk when determining what your mortgage rate should be.
One of the most basic pieces of information that almost all lenders use is your credit score and credit report. Before you go in to get a mortgage, get a copy of your credit report to make sure that it’s accurate. If there are any errors that will negatively affect your credit score, get them removed from your credit report as soon as possible. Your credit report provides the lender with detailed information on the level of risk they are taking by lending you money. Your payment history, length of credit history, number of credit accounts, derogatory marks, and other information will help them determine what mortgage rate to charge you. If you plan on buying a house in the near future, monitor your credit report closely and do everything in your power to raise your credit score. The Fair Credit Reporting Act (FCRA) requires each of the three nationwide credit reporting companies (Equifax, Experian, and TransUnion) to provide you with a copy of your credit report, at no charge, once every 12 months. You can request your free copy at annualcreditreport.com.
The loan term is how long it will take you to pay your mortgage back. Shorter terms usually have lower mortgage rates. However, shorter loan terms also have higher monthly payments. The lending institution is taking on less risk because you will be paying your mortgage back much quicker. Longer loan terms have higher mortgage rates because it increases the chances that the loan may not be paid back. More unfortunate circumstances may occur over a longer period of time that may prevent you from paying your mortgage back.
A larger down payment means a lower mortgage rate because lenders perceive you as less risky when you have a higher stake in the property. The standard down payment is typically around 20% of the home value. If you can afford more than 20%, you should consider paying more. It can save you money in the long-run because less interest will accrue over time. You will also build equity in your home much faster because it will take you less time to pay off the total amount of the loan. Your home price will also be a significant factor in determining your mortgage rate. A more expensive home will come with a higher mortgage rate because it will require more money to fully pay off the loan. Get a good sense of your price range to determine what mortgage rate could be associated with the price level of your new home.
Traditional single family homes get the lowest mortgage rates because they have lower historical default rates. On the other hand, multi-family homes, condos, co-ops, and mixed-use developments have higher historical default rates, and therefore higher mortgage rates associated with them. Housing used for a vacation home or a rental also has a higher mortgage rate due to higher default rates.
Mortgage lenders have different pricing depending on what location you live in. If you are planning on moving to a different location, especially another state, check the lenders rates in that specific area. Also, larger lenders often times don't service rural areas. If you are moving to a more remote rural area, make sure and find a lender that will do business with you.
Sometimes your ability to get a lower rate depends on the time you spend shopping around. There are most likely multiple mortgage lenders in your area and you should take the time to get a quote from each one. These are competing institutions that will often have different prices for mortgages. Taking the time to get a quote from each one could save you thousands of dollars in the long-run.
Fixed Rate Mortgages have a mortgage rate that stays constant throughout the life of the mortgage and is based on the factors described above. Adjustable Rate Mortgages are based on the factors described above but the mortgage rate will also fluctuate after a given amount of time. Usually ARMs start out with a lower mortgage rate than a Fixed Rate Mortgage because you are potentially taking on more risk in the future. When the ARMs start to adjust, they adjust based on a specific market, often times the US Treasury market. Once the adjustment period starts, your new mortgage rate will be the market rate plus some margin, maybe 1% or 2%. ARMs can be risky for the borrower, as interest rates can rise significantly over the life of a mortgage. Fixed Rates can be risky for the bank, since it allows the consumer to lock in an amount that may become well below the market rate.
Interest rates fluctuate significantly over time, driven primarily by macroeconomic factors such as inflation and the overall strength of the economy. Current interest rates are near historic lows, but nobody can say for certain how long that will last. As with any investment, there is always an element of luck and timing.
8 Things That Can Affect Your Mortgage Rate
