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The Right Time to Invest

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As the world is in the middle of a pandemic, the stock market has seen high levels of volatility. Existing investors keep on asking themselves if now is the right time to sell, while new investors are wondering if now is the perfect time to invest.

Unless you have no emergency savings or have high-interest debt, then it is always a good time to invest in the stock market whether it’s your first time investing or you are looking to reallocate your portfolio.

The reason behind this is that the stock market has historically increased. This means that even if you have a bad year, you are more likely to earn back your losses over the next year or two. Secondly, the longer you keep your money in the stock market, compounding interest benefits you more.

Even though the stock market is complicated and presents the risk that you will lose money, the longer you keep your money in the stock market increase your likelihood of a solid return on your investment.

In my opinion, it is always the right time to invest. No one knows how the stock market will perform. Trust me, if I did, I wouldn’t be working full time. I would be off on an island somewhere.

The best thing you can do is understand the basics of the stock market and what drives it. You will never be able to time the top and the bottom of the market. If you do, this will drive you insane and will result in you missing out on buying opportunities.

While I do invest when the market increases, most of my investing are done when the market declines. This is the strategy that lets me take advantage of dollar-cost averaging.

Dollar Cost Averaging

What is dollar-cost averaging? This is when the total about you invest is purchased over a set period to reduce the price volatility In your portfolio. A good example is you invest $100 every month, no matter the price. The table below breaks down the dollar cost averaging over a year.

This is the easiest way of investing for any investors. I use this strategy a lot when the market is declining because I never know when the market will bottom. This strategy allows you to make sure you can take advantage of any market dips that present valuable opportunities.

While now is always the best time to invest, always remember to think long-term, have well-defined goals, understand your risk tolerance, and always diversify your portfolio.

Investing for Beginners

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Investing money into the stock market is the best way to create wealth and achieve your long-term goals. Before you start investing, you should always make sure you have an emergency fund set up so you don’t have to sell your investments. When you invest, you can earn potential profitable returns through the following:

1.) Interest and dividends from a savings account, stocks, or bonds.

2.) Cash flow from business or real estate.

3.) Appreciation in the value of a stock, real estate, or any other asset.

To get started, it’s a simple process.

1.) Decide if you want to manage your money or have someone manage it for you.

2.) Set goals you want to achieve.

3.) Determine which type of investment account best suits your needs, 401K, Roth IRA, personal taxable account, 529 education plan.

4.) Create your account.

5.) Identify your risk tolerance (Stock, bonds, mutual funds, ETFs, real estate)

How to manage your money

When you are investing, you have two options to pick from: Have someone manage your money for you or manage it yourself.

Robo-advisors are the cheapest option if you want someone to manage your money. The fees typically range between 0.25% – 0.50% per year. In exchange for the low fee, there will be less human touch with your account.

If you want a human touch, then a personal financial advisor can manage your money for you. Typically financial advisors charge an annual fee on the percentage of your assets they manage. Fees vary with the higher the fee for the smaller amount of assets and a lower fee for the higher the amount of assets. The average fee charged is around 1% of assets.

Goals

The type of account depends on the goal you are trying to achieve. Is this money mainly going to be used for retirement, personal use or goals, fund education, etc. Depending on your goal, certain accounts may be better suited for you.

Types of Accounts

401K:

A 401K is a tax-advantaged retirement fund that is offered through most employers. Employees can contribute to this on a pre-tex basis that is automatically deducted from your paycheck. Most employers will match a certain percentage of your contributions, which is free money. The investment in your 401K grows tax-deferred and is not taxed until you withdraw money.

IRA:

An IRA is similar to a 401K expect it is not set up through your employer. With an IRA, you make contributions that you will be able to deduct on your tax return. The investments in this account will grow tax-deferred until you withdraw funds. With a traditional IRA, if you withdraw before the age of 59, you will pay a penalty fee. A traditional IRA is perfect if you think your taxes will go down in retirement.

Roth IRA:

A Roth IRA, similar to a traditional IRA, except a Roth IRA is funded with after-tax money. As a result of this, the contributions are not tax-deductible. As a result, your investments grow tax-free with withdrawals being tax-free too. If you withdraw before the age of 59, you will pay a penalty fee. A Roth IRA is perfect if you think your taxes will be higher in retirement.

With a Roth IRA, there is a contribution limit, and the amount you can contribute changes every year. The current contribution limit for 2020 is $6,000 and if you are over 50, then $7,000. Additionally, you cannot contribute to a Roth IRA if you make over a certain income. The current income limits for 2020 is $139,000 for a single filer and $206,000 for married couples.

Taxable Account:

Unlike 401Ks and IRAs, a taxable account does not grow tax-deferred. With a taxable account, you have greater flexibility and control over your money. A taxable account is suitable if you plan on using the money before you retire, have various goals you are trying to achieve, or have extra money to invest. However, as your taxable account grows based on the market’s performance, you will pay taxes on your investment income and realized gains.

529 Education Plan:

A 529 plan is a tax-advantaged K-12 and college savings plan. This plan can be used to pay for college costs at any qualified college around the nation. Every state offers there own 529 plan and can differ from other states. 529 plans offer tax advantages such as a 5-year gift tax averaging and tax-free distributions.

Risk Tolerance

Last but not least, you need to identify your risk tolerance. Your risk tolerance is how much uncertainty are you willing to take to achieve your goals. Ultimately, you need to determine what would make you comfortable daily, ie how much are you willing to lose, what kind of market declines or investment loss would keep you up at night. Your time horizon also plays a factor in this.

The shorter the time horizon for the goal, the less risk you want to take so you can minimize volatility. On the other hand, the longer the investment horizon, the more comfortable you can feel taking a riskier, more volatile investment. An investment with a low-risk tolerance tends to favor less risky and volatile investments. These investments tend to preserve the value of the original investment.

EFTs and mutual funds are a great starting point and allow you to get your feet wet and learn about investing. These funds are managed by a fund manager and are diversified funds already. These types of funds can make sure you don’t have too much exposure to one company or sector. These funds have certain industries or investment styles such as only investing in technology funds, healthcare, value companies, growth companies, etc. If you want to buy stocks, take a steady approach and no individual company should be more than 10% of your portfolio until you get comfortable with the risk and what you are doing.

Once you make your investment, it best to take the buy-and-hold mentality. With this strategy, you will select your investments but have no concern for short-term price movements. This strategy is best for individuals investors seeking healthy long-term returns.

Unemployment Benefits Unknown Facts

Personal Finance

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The global pandemic that has hit the United States extremely hard has produced some of the highest unemployment rates in history. As a result of this, a record number of individuals have been receiving unemployment benefits. While these benefits are extremely helpful in a time like this, many recipients do not know that unemployment benefits are subject to federal and state taxes in most parts of the country.

As more and more new applicants claim these benefits, many are unaware of this. If you are unaware of this or opt-out of having taxes withheld from your payments, you may receive a lower refund or owe money when 2020 taxes come due to the IRS.

Taxes

When you apply for unemployment benefits, you have to the options to have 10% withheld for federal taxes from each payment. A lot of recipients of unemployment benefits do not know how to sign up for the withholding or think these benefits are not taxable. Additionally, a recipient of this benefit may opt-out of having a portion withheld as they need as much money as possible.

While you do have to pay federal taxes on the benefits since they are considered wage income, you will not have to pay payroll taxes. Also, if you live in Alabama, California, Montana, New Jersey, Pennsylvania, and Virginia, or if your state doesn’t tax wage income, then your state does not tax your unemployment benefits.

The taxes on unemployment benefits is completely different than the stimulus checks the government sent out. The stimulus checks are not taxable since they are considered advanced payments of tax credits.

If you are a recipient of unemployment benefits, right now would be a great time for a mid-year check up on your income and taxes. This check-up allows you to get an understanding of where you are and see if you need to start withholding or increase your withholdings. With this check-in, this puts you back in control of your finances.

Making Money

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Most successful individuals have multiple streams of income. By having an additional income, this can help you achieve a certain financial goal or reduce your financial stress. Earning additional money is easier than you think. While some of these ideas may generate an additional $100 or more per month, that could go a long way to help to pay down debt, saving up for a new house or any other goal you may have.

Mystery Shopper

Some companies high third party companies to evaluate the quality of service at their store, restaurant, etc. As a mystery shopper, you are instructed to purchase things at the store, restaurant, or movie theater, and report on the experience. Usually, as a mystery shopper, you are reimbursed and get to keep the product or service. In some instances, you also receive payments to do the job.

Being a mystery shopper is a great part-time activity to create a small supplemental income and save money. If you become a mystery shopper, always remember that you never pay to get into the business or wire money to anyone. Real companies will pay you to work for them.

Selling Stuff Online

You may be a very talented individual and make things other people may need. You can market these things online with platforms like eBay and Etsy.

These can vary from anything and everything including, picture frames, clothing, jewelry, etc. It is very easy to sell things online. eBay and Etsy make it very easy to connect with people and could help make an additional $100 or more per month.

Complete Survey’s

My roommate does this a lot and makes a good chunk of change by doing so. He takes surgery’s in-person and online to make additional cash in his spare time. Survey Junkie is a good website to get started. The website will tell you how much it will pay for the survey and how long it will take. This will let you decide if it is worth your time and effort.

Deliver Food / Become an Uber Driver

Since dinning out is at a very low level right now, a lot of consumers are ordering delivery more. This is an opportunity that you can take advantage of. You could use your lunch or dinner time to make spare change. Additionally, more consumers are using Instacart for their groceries.

Once things go back to normal, you can switch courses and become an Uber driver. Ridesharing is a big trend and great for the environment too. This allows you to make a serious amount of money.

These are three different options, so they’re plenty of opportunities available. You can easily make $1,000 a month if you put your mind to it. This is a serious amount of money that can put you on the fast track to reach your goal.

Rent Out Your House, Room, or Pool

You could have a second place to live or a spare room available in your place. As long as you have the right place, you can create a nice stream of income.

Your house could have a pool and it may not be in use. There is a new website called Swimply that allows you to rent your pool by the hour. I read an article that one individual made $10,000 in one month by renting out their pool.

Garage Sale

You may old toys, electronics, or cloth sitting around. This will help you clean up your house while making additional money. While this could only be a one-time thing, I’ve seen people make a lot of money at garage sales. What’s one man’s trash is another gold.

Negotiate a Higher Salary

You may not think of this, but you could always try and negotiate a higher salary. As long as you present it in the right manner and do your research, you could be on your way to a higher salary.

The above ideas are ways for you to starting thinking of ideas to make additional money. There are also multiple websites out there with hundreds of ideas. These could be from a few hundred dollars to a few thousand each month.

Generating multiple streams of income is the foundation of setting yourself up to financial freedom. While creating the extra income will take time, the payoff can be huge and will set the foundation blocks for excellent money management.

Investing Your First $1,000

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When you have $1,000 or less, it may seem like your investment options are limited. Additionally, when you have market volatility like it recently was, your choice may seem even slimmer. While you may think your options are small, there are numerous funds available for you out there. All investors have started small somewhere. These three funds are perfect to invest $1,000 all while diversifying your portfolio.

Vanguard S&P 500 ETF – VOO

VOO invests in stocks that are in the S&P 500 Index, which represents 500 of the largest U.S. companies. This fund’s goals are to track the S&P 500 Index’s return. Historically, the S&P 500 Index has been a proxy for the U.S. economy. This fund is great for any investment as it is appropriate for any long-term investor that wants to watch their money grow.

You will get you exposure to some of the largest and most well-known names in the U.S. VOO is weighted by market capitalization, the bigger the company, the bigger its allocation to the fund. Its top 10 holdings including the following, Apple, Microsoft, Amazon, Alphabet (Google), Facebook, Johnson & Johnson, Berkshire Hathaway, Procter & Gamble, Visa, and JPMorgan Chase. This fund gives you a lot of diversity so your portfolio can own different industries.

Since this fund is a passively managed ETF, its expense ratio (charges 0.03% per year if you own it) is very low which is perfect for long-term investors. As a result of all these characteristics, this fund makes a great long-term investment choice.

Vanguard Value ETF – VTV

VTV’s focus is to match the return of the US Large Capitalization Value Index. Value stocks are stocks that trade at cheap valuations relative to their growth potential. Additionally, value stocks tend to be a mature business, with steady growth and earnings. Value stocks are excellent beginner stocks due to the mature nature of the companies.

VTV will get you exposure to some of the largest and well-known names in the U.S. that have been around for years. Like VOO, this is weighted by market capitalization, with its top 10 holdings including the following, Johnson & Johnson, Berkshire Hathaway, Procter & Gamble, UnitedHealth Group, JPMorgan Chase, Verizon, Pfizer, Disney, AT&T, and Merck. This fund gives you exposure to a variety of sectors that will help diversify your portfolio.

Since this fund is also a passively managed ETF, its expense ratio (charges 0.04% per year if you own it) is very low which is perfect for long-term investors. As a result of all these characteristics, this fund makes a great long-term investment choice for the first investment.

Vanguard Total Stock Market ETF – VTI

VTI’s focus is to match the return of the US Total Market Index. This index includes company’s that are large, mid and small-capitalization stocks. This fund offers a balanced approached with a nice mix of value and growth companies.

You will get you exposure to some of the largest and most well-known names in the U.S. This fund is also weighted by market capitalization, with its top 10 holdings including the following, Apple, Microsoft, Amazon, Alphabet (Google), Facebook, Johnson & Johnson, Berkshire Hathaway, Procter & Gamble, Visa, and UnitedHealth Group. Diversity is important in your portfolio and VTI gives you a lot of diversity.

Since this fund is also a passively managed ETF, its expense ratio (charges 0.03% per year if you own it) is very low which is perfect for long-term investors. As a result of all these characteristics, this fund makes a great long-term investment choice to gain exposure to different sizes and types of companies.

These three funds are excellent for new investors. You will get diversity in your portfolio while owning companies you’ve always wanted.

Disclosure: I only own the Vanguard S&P 500 (VOO) ETF mentioned.

Creating a Second Income

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Having a passive stream of income can have a major impact on your finances. This can be as little as $100 – $500 a month since this could go toward creating an emergency fund, paying off debt, or increasing your investments. Additionally, having multiple income streams can be important in stressful economic times when one income may dry up.

Creating a passive income stream can be easier than you think. You should pick something that you are interested in or something you have expertise in. This includes hobbies like photography, health, and nutrition information, selling things on eBay, freelancing your skills, creating your own business, etc.

You may not think of your hobby as a potential income stream, but it could be. My sister bought a camera a few years ago and has been practicing her photography ever since.

Through practice, she has been able to hone in on her photography skills. While this took years to practice, she has now built up a portfolio of professional photographs. This is a great example because she could create a website and market her portfolio. She could offer to photograph events such as weddings, proposals, events, etc.

Since she would still be building her business, she would want to start her prices off low. As she slowly builds her portfolio, she could look to raise her prices. This could be starting off at $500 per event and then slowly increasing it to thousands per event.

If you think about it, she could only do this once a month and would have a solid passive income stream set up. A simple passive income, like photography, can speed up your progress towards financial freedom.

While creating your own business, brand or website is hard, there are plenty of freelance websites available that you can advertise your skills on. One website is Fiverr, which outsources jobs that you have experience in. These jobs include every from graphic design, website creations, digital marketing, daily lifestyle advice, etc.

These are ideas to get you creating ideas. Generating multiple streams of income is the foundation of setting yourself up to financial freedom. While creating the extra income will take time, the payoff can be huge and will set the foundation blocks for excellent money management.

Negotiating Rent With Your Landlord

Personal Finance

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Perhaps your financial situation changed after an unexpected event happens like COVID-19. Things change with your job, and you were furloughed, laid off, or received a pay cut. Now you can no longer afford your current lifestyle or are looking for ways to free up additional cash. Most people do not realize, but you can negotiate your rent after you signed your lease as long as you frame the negotiation right. You should never feel worried or nervous to negotiate the rent with your landlord. It’s in everyone’s interest to reach an agreement since the landlord does not want to lose you as a tenant.

Prior to COVID-19 happening, my roommates and I had to make a decision on renewing our lease. Since we loved our apartment and living with each other, we opted to renew it for another year with an increase in rent. We were not expecting the New York rental market to take a massive decline.

Months passed after renewing our lease and we noticed rental values going down in our building and the neighborhood. To make matters worse, we received pay cuts. We quickly realized that our current rent was putting a strain on our budgets.

Collectively we decided that it would best to reach out to our landlord to see if he would be willing to work with us. Before we sent the email, we did our research. We used current rental values coupled with our salary cuts to frame our negotiation. Our landlord was more than willing to work with us since it is in his best interest to keep us as tenants.

Initially, we asked if he would be willing to decrease our monthly rent. He rejected this option but proposed a counter offer. Our landlord proposed that if we keep on paying our current rent, he would give us $300 a month in credit that would reduce our finals month rent. While we may not be saving much currently, this deal gave us more than 50% off our final month’s rent.

Always remember to come prepared to the negotiation table. A solid foundation for the negotiation will get the negotiation going in the right step. Always research current values in your apartment and neighborhood. The more data, the better. Once you have a solid foundation of comparables, you should have luck negotiating.

Always have an offer and be prepared for counteroffers. Think about what your landlord would want in return. Some ideas that your landlord could like are,

Reducing the monthly rent in exchange for a longer lease;
Can you prepay the next few months so they don’t have to chase you for payments;
Finishing out your current lease, but a certain amount acts as a credit towards your final month’s rent.

These are just basic ideas to get you on the right track; there are hundreds of possibilities. As long as you approach the table with something your landlord will want in return, then you will be in good shape to reduce your rent.

While results will vary from person to person, you have to decide if it’s worth pursuing. Negotiating can be tricky, but I believe it’s worth pursuing. Just remember, always be confident and have a realistic expectation. A deal where everyone wins will give you higher chances to get what you want.

Saving During Quarantine

Personal Finance

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If you are working from home due to COVID-19, then saving 20% of your monthly income is easier than you think. This is because you are no longer using the same services or eating out as much as you normally would.

I’ve had the luxury of being able to work from home for the past few months and I have been able to save over $1,000 a month since I cut out expenses like daily lunches, gym memberships, eating out on weekends, daily coffees, my monthly metro card, and dry cleaning.

As a result of this, I’ve been increasing my savings and personal taxable trading account to save for my long term goals. For example, if this were to last a full year and you are able to save $1,000 a month, you would save $12,000. This month could be used for a variety of things including saving for a down payment on a house, your emergency fund, or retirement. If you were to put this towards retirement and assuming an 8% return per year, this would grow to over $120,000 over a 30 year period.

Budgeting

Saving during quarantine is as simple as making a budget and see where all your money is going, it opens your eyes to your spending habits. A lot of your spending is due to mindless spending that you are not aware of.

Your budget does not need to complex. It can be very simple as making a grocery list so you don’t impulse buy or having all your travel expenses budgeted out.

With your budget, make sure you have a plan for your money. This plan is a good way to monitor your progress. My personal favorite way to hold yourself accountable is to start a personal diary. In this diary, you can write down the goals you would like to achieve and your daily progress. This is a good way to hold yourself accountable to your plan.

Cutting out expenses you don’t need during quarantine can accelerate your progress towards financial independence or that goal you’ve been saving up for.

The quarantine a great way to get ahead on goals and make substantial progress. The more you are able to save, the faster you could reach your goals.

Portfolio Allocations

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Portfolio allocation is the process of divvying up your investments into different assets like stocks, bonds, real estate, and cash. Your portfolio allocation largely depends on your investment time horizon and the ability to tolerate risk.

Investment Types:

-Large-Cap Stocks: Companies with over $10 billion in market capitalization. Typically a low-risk company, with high liquidity. Returns on these companies tend to be low.

-Mid-Cap Stocks: Companies with a market capitalization between $2 billion and $10 billion. Typically medium level risk with sufficient liquidity. Returns on these companies tend to be above average.

-Small-Cap Stocks: Companies with a market capitalization of less than $2 billion. Typically high risk, with low liquidity. Returns on these companies tend to be high.

-REITs (Real Estate Investment Trusts): Shares of a pool of real estate/properties or mortgages. Payout most of their income as a dividend.

-Investment Grade Bonds: Highly rated corporate or government bonds that will pay an interest rate over a set of period of time. These are typically less risky than stocks and have less volatility.

-High Yield Bonds: Speculative grade companies that will pay a higher interest rate than investment-grade companies. Higher risk and more volatility than investment grade since there’s a higher chance at default.

-Cash: No volatility, will make very little returns depending on the interest rate applied to your cash account.

Time Horizon

Your time horizon also plays a factor in this. The shorter the time horizon for the goal, the less risk you may feel more comfortable taking since you want to minimize volatility. On the other hand, someone with a longer investment time horizon, they may feel more comfortable taking a riskier, more volatile investment.

Risk Tolerance

Your risk tolerance is how much uncertainty are you willing to take to achieve your goals. This is your ability and willingness to lose some or all of your investment in return to higher potential returns. Ultimately, you need to determine what would make you comfortable on a daily basis, ie how much are you willing to lose, what kind of market declines or investment losses would keep you up at night. Conservative investors tend to favor less risky and less volatile investments. These investments tend to preserve the value of the original investment. A riskier or more aggressive investor tends to favor the risk of losing money so they can generate higher returns.

The old rule of thumb is to subtract your age from 100 and that’s the percentage of your portfolio you should keep in stocks. Every investor is different, so it is up to you to decide how much risk you are comfortable taking.

Ultimately the decisions come down to the individual investors’ characteristics and how they favor risk versus reward. Every individual investor is different, so it is up to you to find out what suits your needs. The best approach to take things slowly until you get comfortable with allocating your investments into certain areas.

Growing Money and Creating Wealth

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Investing money into the stock market is the best way to create wealth and achieve your long-term goals. When you invest, you can earn potential profitable returns through the following:

1.) Interest and dividends from a savings account, stocks, or bonds.

2.) Cash flow from business or real estate.

3.) Appreciation in the value of a stock, real estate, or any other asset.

The earlier you start investing, the more powerful compounding interest will be over the long-term. If you start investing at 20 years old by investing $100 a month at a 5% interest rate each year. After 40 years, this would grow to roughly $152,208. Assuming you now only invest for 30 years and 20 years, the long-term growth of your investment is substantially reduced to $83,713 and $41,663, respectively.

The power of compounding interest will benefit you the earlier your start. Let’s go through three different scenarios to show the power of compounding growth.

1.) John saved $800 a month for retirement beginning at age 25 and stopped once he turned 40.

2.) John saved $800 a month for retirement beginning at age 35 and stopped once he turned 50.

3.) John saved $800 a month for retirement beginning at age 45 and stopped once he turned 60.

In all three scenarios, after John stopped contributing, he kept his money in the account until he retired at 67.

All three of these investors invested $144,000 over a 15 year period.

Beginning Age	Balance at Retirement
Starts at 25	$1,363,136
Starts at 35	$663,651
Starts at 45	$370,579

I know saving this much per month may seem like a lot and hard to reach, but it could be easier than you know it. Most companies offer a match on your 401K contributions and it is always good to take advantage of this free money. If your employer matches up to 3% of your contributions, then you should be maxing this out and investing at least 3% in your 401K. This would result in a total contribution of 6%.

While there is potential for losses, there’s a bigger potential for long-term gains. Compounding interest is the best tool that a young investor has and you should take advantage of it.