Could a holiday let beat buy to let?

Changes to tax rules for buy-to- let (BTL) investors have dented hopes of making a decent income on a second property for many, with a series of nasty surprises over recent years.

These include a 3% stamp duty surcharge on second homes, and curbing mortgage interest relief, set to reach 0% in 2020.

Meanwhile, lenders have tightened their criteria when it comes to buy-to-let mortgages, making it tougher to secure a deal.

These changes have had a major impact on the appeal of this market, with the appetite to be a landlord seeming to wane. Latest figures from the Council of Mortgage Lenders show the number of properties bought by landlords has almost halved in a year, averaging around 6,000 purchases a month over the past 12 months.

Many people hoping to secure extra income from a second property may be wondering if bricks and mortar is still a worthwhile investment. Yet while the sector may have become less appealing for big investors, there are other ways to make a second property work for you, such as holiday lettings.

• Which property improvements add value? Find out using our Home Renovation tool

Sean McCann, chartered financial planner at NFU Mutual, says: “Holiday lets have a number of tax advantages over buy to let, which makes them a popular investment, particularly given the raft of changes for the BTL market over recent years. Even so – it’s important to factor in the time you’ll need to spend and on-going costs, as with any investment decision.”

And while tax changes may increase interest in holiday lets, there is also the potential for greater profits. Karen Spencer, from advice website The Business of Holiday Rental, says: “On a week-per-week basis holiday lets can provide a higher income than buy to lets – although a successful holiday let takes time, and you have to work hard to market a property to ensure bookings.”

However, be careful what type of second property you intend to use as a holiday let. If you own a leasehold flat, your lease may prohibit any form of letting other than assured shorthold tenancies, which would prevent you from setting up a holiday let.

A retirement earner

There are plenty of reasons why you might need some extra income from a second property. Deborah and Trevor Harris (pictured left), 56 and 60 years old respectively, are using the holiday lettings market to boost their retirement income, by renovating their farmhouse in Winsham, Somerset, to create a separate holiday cottage.

“When we found Church Farmhouse in August 2014, we fell for its rustic charm and decided to buy it and the next-door barn,” says Deborah. They paid £440,000 and spent £40,000 doing up the farmhouse to let, which has four double bedrooms and sleeps up to eight people, with two bathrooms.

“The previous owners had used it as a weekend cottage, but it was tired and needed a fair amount of structural work, such as roof and floorboard replacement,” she says. “But finding ‘vintage farmhouse’ décor was so much fun and we went for quality to make sure it felt luxurious and clean, so people would want to return.”

• Crackdown on developers ‘exploiting’ leaseholds on new houses in England

The property and barn have been jointly valued at £650,000. “When we were house hunting, we wanted a property we could make an income from because we were teachers and took early retirement at age 55,” she says.

“Property seemed a way to generate an income and boost our pensions, and we approached it by considering where we’d like to go on holiday – we wanted somewhere in the countryside, with an outdoor area.”

They aim to make around £10,000 at least from letting the farmhouse each year. “But, generally, we’ve made a lot more than that letting it all year round, and we really enjoy it – it’s great to see people enjoying themselves on holiday,” she says.

They offset some costs, such as laundry, cleaning fees, and items they buy for the farmhouse, against tax. “We considered marketing the property ourselves, but as it’s not a well-known location we felt it best to go with a holiday lettings company, so we chose Sykes Cottages.”

How the tax advantages work

If you let a property as a furnished holiday let, there are a number of tax advantages. Holiday lets are treated as a trade by HMRC, rather than an investment, so mortgage interest costs can be offset against any income for tax purposes. Council tax, utility bills, and repair costs can also be set against income, before tax.

“Income will be treated as trading income, so capital allowances may be available for items such as furniture, equipment and fixtures,” says Jackie Hall of accountancy firm RSM UK. There’s also the opportunity to roll over capital gains, so if you sell and buy another holiday let, any gain from the first can be deferred until you sell the second. However, if you already own another property, the 3% stamp duty surcharge will apply on buying a property, whether a holiday let or a buy to let.

But there are strict criteria to have your property treated as a holiday let, and if it doesn’t meet these you’ll face paying tax as if it was a standard rental property. Tina Riches, head of national tax at Smith & Williamson, says it’s important to understand what constitutes a holiday let for tax purposes.

• Buy a Scottish island for £4.25 million

“There are several criteria to be a furnished holiday let,” she says. “It has to be available as a holiday let for at least 210 days of the year and you have to actually let it out for 105 days a year. Usually this refers to a tax year, except in the first year of your holiday let, when it’s the first 12 months from whenever it’s first let out. Also, for the last year, it’s the 12 months up to the last day you let it out.

“Also, you can’t include in those days any longer-term lets – so anything over 31 days. You couldn’t just let it for holidays over the summer months, and rent it out the rest of the year. It has to be predominantly a holiday let.

However, she adds that if you’re intending a property to be a holiday let, it’s relatively easy to keep within the rules. “Unless you’re struggling to let it out, which could prevent you from getting the tax advantages. Essentially, you need to weigh up the extra revenue you get from letting it out for a longer period with having it let as a holiday let.”

How to market a holiday let

You could set up your own website for a holiday let, use an agency that specialises in this market, or a platform such as Airbnb or HomeAway.

Airbnb charges between 3% and 5% commission, while HomeAway charges 8%. Both also charge fees to guests, which may be an important consideration when you’re deciding how much to charge. With both, you fill out a description, take the pictures and set a price.

Agencies charge commission ranging from 20% to 30%, but can offer various expertise to make sure you let the property successfully and manage bookings. It may be worth doing some research on the local area, to see which agencies people who are letting holiday homes are using.

The extra money you pay to list with an agency typically gives you access to a team of holiday lettings specialists, and a consultant who knows the area and can provide advice on generating income throughout the year. Advertising and marketing is also usually included for all property owners, with professional photography.

• Buy to let landlord with four or more properties? How to beat tough new lending criteria

To increase your chances of getting year-round bookings, Karen Spencer, from The Business of Holiday Rental, says: “You need to be found online. You need your own website, to be active on social media, to blog, to send regular newsletters to your email list, and to build relationships with other local businesses. These are all things owners can do, but it takes time and is often a steep learning curve, learning new skills.”

However, this may sound like a lot of work, so you could do a combination of, say, having your own website, and using another platform such as TripAdviser, to generate enquiries. This will help diversify your property’s exposure, and ensure as many different potential guests are coming across it as possible.

Whether you’re buying a holiday let or changing an existing property into one, do your homework. Check out the area, demand, and competition, and perhaps even take a short break nearby yourself, to get a feel for whether it could make a good investment.

‘It pays for mum’s care’

 

Retiree Miles Barton (pictured left), 55, from Enfield, north London, is funding his mother’s dementia care thanks to successfully letting his childhood home to UK holidaymakers. “In 2013, mum had been suffering from vascular dementia and became a shadow of her former self, so we moved her into a care home close to us in London,” says the former police officer.

“But I realised this would cost a fortune, so we decided to let her home to fund the cost.” The five-bedroom house, in Eskdale, Cumbria, next to the La’al Ratty railway line sleeps 10 people, and has been let to holidaymakers since July 2014.

He charges around £550 a week, and up to £1,600 over the summer months.

• One in 10 adults owns a second home

Miles’ mother lived in the property for almost 60 years, and it needed work before it could be advertised. “It needed to be painted and re-carpeted throughout, and I replaced some tired furniture. I had the electrics redone, and put wi-fi in, a new telly and dining suite – and a hot tub.”

He markets the property through Sykes Cottages, which typically charges 20% commission. “The aim is to make around £18,000 a year, which together with mum’s pensions just about sorts out her care costs.”

He adds: “This means mum is in the right place and she’s well cared for – which gives me peace of mind. I had a wonderful childhood at Peel Place Noddle and have spent a lot of quality time here with my own son too – it’s very special to me and great to share this with holidaymakers.”

Make your property stand out

Securing bookings can be made easier if you make sure your property will appeal to holidaymakers. Here are some tips:

• Furnishing and equipping your home may be an expensive task, but it can pay by adding to your property’s appeal and boosting how much you can charge. Avoid buying cheap items – instead, invest in quality furnishings, which should last longer too – and remember that these costs can be offset against tax.
   
• Redecorating the property and cleaning it makes a big difference, and will also ensure that the pictures you use to market it are showing its best side.
   
• You could offer a few simple touches for your guests, such as homemade bread, a hamper with wine and cheese on arrival, or miniature toiletries. This could help secure returnees, and recommendations to their friends and family.
   
• Leave a welcome pack, with information about the area, walks, local attractions, pubs and restaurants. Perhaps leave a box where they can leave their own favourites if they come across somewhere new.
   
• Photos are the first thing a holidaymaker looks at to decide if they’re interested in staying at your property. “Make sure you have at least one photo of every room in your property, carefully picking which photo will be your ‘thumbnail’ and remember to include photos of special features, such as a pool table or swimming pool,” says a spokesperson for HomeAway.
   
• When it comes to the description, share the property’s selling points in the first sentence. Mention any extra amenities, and highlight its particular benefits, such as nearby landmarks and attractions. Make a list of everything that might appeal to people, before you start writing – if you are doing this yourself – and place its best attributes at the top.

Harriet Meyer is a consumer finance journalist who writes for the Sun on Sunday, the Daily Telegraph and the Guardian.

Section

• Home & mortgage
• Letting

Free Tag

• letting
• holiday
• buy-to-let

Related stories

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• Buy a Scottish island for £4.25 million
• Buy to let landlord with four or more properties? How to beat tough new lending criteria

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How to Minimize Cart Abandonment in Your Checkout Process

Recently, I stumbled upon a scary statistic.

A whopping 69.23% of ecommerce shopping carts are abandoned.

To put this into perspective, for every 100 customers who start the checkout process, 69 don’t finish.

Is it a massive problem? Absolutely.

These numbers shouldn’t sit right with any business owner. That’s too many lost sales and potential lifelong customers.

But it’s also a bit surprising.

If someone starts the checkout process, it stands to reason they have a strong purchase intent.

So, why do so many shoppers fail to complete their purchases?

A few reasons.

Some of these are out of your control, and others, you can nip in the bud:

• your site isn’t designed well, affecting the user experience;
• the site has technical bugs;
• site visitors are just window shopping;
• your checkout process has too many pitfalls.

These are just a few ideas.

Can you guess which one is the most pervasive?

That’s right.

Your checkout process is turning potential customers away.

Take a look at this chart:

Out of all the reasons why shoppers abandon their carts, a majority are related to the checkout phase.

Does this apply to all businesses? Not necessarily.

Don’t get me wrong.

All businesses—no matter how upscale—suffer from shopping cart abandonment.

You can’t do anything about a user who is just browsing. They may just want to save their favorite items in the cart for future reference.

With that said, there are varying reasons why shoppers do not complete a purchase.

In this article, you’ll find out if your checkout process is the main culprit and what you can do about it.

First, I’ll give you the common checkout pitfalls that turn potential customers away.

Then, we’ll get into a data-driven litmus test so you can know for sure.

This way, you won’t make changes to your site based on a hunch. That’s never good for business.

Sound good? Let’s start.

Five common pitfalls in the checkout process

If any of the following applies to your checkout process, it will certainly cause a percentage of shoppers to abandon their carts.

The great news?

It’s within your control.

Most times, a simple tweak is enough to make all the difference.

1. You haven’t earned the trust of potential customers

This is a big one.

If people don’t trust your site, there’s no way they’ll buy anything from you.

Your product could change their lives. It doesn’t matter.

The bottom line is, customers have to put in their personal information to complete the transaction.

If you don’t do everything in your power to make them feel secure doing so, you’ve lost them for good.

The solution

Step #1: Place testimonials and other proof elements on your checkout page.

Social proof is one of the most crucial elements to include on every page of your ecommerce site.

It’s especially powerful on the checkout page as it gives customers who may be hesitant an extra push.

Here’s a creative form of social proof from The Freedom Journal:

Step #2: Add credit card icons and other trust badges to reassure customers their payment information is secure.

The placement of these badges is also important.

I recommend placing them right where customers have to put in their payment details and next to the “buy now” call to action.

Like this:

Step #3: Make sure you have contact information in clear sight. This way, customers know you’re not going to take their money and make a run for it.

Letting them know you can easily be reached is a small but impactful trust indicator.

Here’s an example from Amy Porterfield:

2. Additional costs blindside customers

Here’s the thing.

When the average person shops, they have a price point they’re willing to reach. As such, they choose items within these parameters.

After that has been surpassed, it’s a no-go.

When you surprise customers with high shipping costs, the immediate reaction is to make a dive for the exit.

And it’s with good reason.

I’ve seen instances where shipping, handling, and taxes amount to the price of the items in the cart.

That’s crazy.

It’s no wonder this is the number one reason people don’t complete their purchases.

The solution

Step #1: Let shoppers know their shipping costs early in the checkout process.

You can do this by introducing a shipping calculator to provide an estimate of the additional costs to be covered.

Here’s an example:

Step #2: Offer free shipping.

While this may not be feasible for everyone, it’s wise to find ways you can reduce costs for customers.

Many businesses offer free shipping once shoppers reach a certain price threshold.

Like this example from Fashion Nova:

As customers add new items to their carts, they’re reminded of how much more they need to spend to meet the threshold.

Very clever.

Step #3: Have coupon codes on your site.

It’s important to have these discount offers on your site.

Why does that matter?

When customers go browsing elsewhere for coupons and don’t find them, they rarely come back.

You want to avoid that.

This beauty brand has a deal where they provide a daily coupon:

This way, customers can easily save on shipping costs.

3. The checkout process is too time-consuming

When they’re checking out, the only thing your customers value more than your product is their time.

That means that anything in your checkout process that takes too long is a problem.

Here are some examples:

• technical glitches
• slow site
• poor design
• lack of mobile friendliness
• complicated navigation
• long-winded checkout process

Website speed is a big deal for users: 40% of shoppers will abandon your site if it takes longer than 3 seconds to load.

You can imagine that any issue which zaps customers of their time will have the same effect.

The solution

Step #1: Test the speed and mobile-friendliness of your website. Make immediate adjustment if it’s not up to par.

You can use Google’s mobile friendly test.

Step #2: Have a simple checkout process with as few form fields as possible.

Ideally, customers want to sprint through this process. The easier you make it, the more likely they will go through with their purchases.

4. There’s not enough urgency to compel customers to act

Urgency as a sales strategy is about inspiring customers to take earnest and swift action.

It’s super simple to implement, and it has a massive impact.

Many businesses don’t flip this proven psychological switch when it matters most.

As we’ve seen before, a few of the reasons for shopping cart abandonment may be out of your control.

However, you can still have a measure of influence.

For instance, if you added a few urgency elements during checkout, it may entice window shoppers to make a purchase.

Think about the last time you bought something you didn’t intend to because the deal was too sweet to pass up.

It happens to the most disciplined of us.

The bottom line?

Without urgency elements, you’re missing out on a massive opportunity.

The solution

Step #1: Let customers know when an item is almost sold out. That increases the incentive to get it immediately.

Here’s an example:

Step #2: Use the language of immediacy.

Words like “instantly,” “today,” and “now” are all useful in that regard. I also recommend using active verbs and power words to encourage people to act right away.

Step #3: Satisfy your customers’ need for instant gratification.

Here’s what that means:

You want to give customers a sense that they’ll get what they want immediately.

This is an innate human need.

If you appeal to it, your customers will respond.

If you’re selling an information product, instant gratification is easy to provide. Your customers can have electronic access without delay.

But it’s trickier when you’re selling a product that has to be shipped.

My advice?

Take a page out of Amazon’s playbook.

They do this brilliantly.

Here’s what I mean:

If you know your items will be delivered to you in a couple of days, chances are you’ll be more likely to check out ASAP.

5. There’s not enough information on the checkout page

Nothing kills action like uncertainty.

If you don’t provide enough information on the checkout page, customers are likely to be unsure of the process.

They’ll start second-guessing their decisions and won’t complete their purchases.

The solution

Step #1: Include product details on the checkout page.

It’s a good practice to remind customers what they’re paying for and how much.

Here is an example from WebinarJam.

When you select a plan, they let you know what you’ve chosen. They also give you the next steps in the checkout process.

Step #2: Ensure there’s continuity between what’s on a product page and what’s displayed on the checkout page.

Has this ever happened to you?

You read the product page thoroughly and place the item in your cart only to find different information on the checkout page.

Even if it’s something slight, I assure you, it deters many people from completing the transaction.

Step #3: Include support options on the checkout page.

Consider having a live chat, email support, phone support, and a link to a FAQ page.

You don’t need to have all of these, but one or two will go a long way in securing the trust of customers.

It will also help move the purchase along if customers have a legitimate problem that needs to be taken care of before they go through with a transaction.

I’ve highlighted the common reasons why your checkout page may cause shoppers to abandon their carts.

The truth is, you need to consider your circumstances.

Sure, the “best practices” are useful.

But without concrete analytics, you’ll be making changes blindly.

A data-driven approach to dealing with shopping cart abandonment

Want to find out the exact cause of your shopping cart abandonment?

Google Analytics is the tool to use.

It’s simple. I’ll give you a step-by-step play.

Step #1: Find the “Admin” tab so you can create a conversion goal:

This is so you can track the actions your web visitors take.

Click on “Goals”:

Step #2: Create a new goal and set it up to track a completed transaction.

In the first step of the goal setup, select an appropriate template.

While you’re tracking cart abandonment, your ultimate goal is to get customers to make a completed online payment.

Select that option:

It’s time to describe your goal.

Name your goal, and select “Destination” as the goal type.

The destination can be a thank-you page, which will help you track the number of completed purchases.

Next, you want to set the URL of your Destination.

As I mentioned, this could be any page that customers are directed to after their purchases.

The only reason someone would be on this page is if they completed a transaction, right?

Step #3: Map the path customers take leading up to complete a transaction.

This is what will help you determine where the pitfalls in your sales funnel are.

In the same “Goal details” section, switch the Funnel option to “ON.”

List all the steps that customers take leading up to the purchase. Name each step, and add the corresponding URL.

Like this:

If you have a one-page checkout, only include that page, of course.

Whatever steps customers take, include them all.

You may want to go through the process yourself to make sure.

Save your goal, and that’s it for the setup. Tracking will begin, and you’ll now have detailed data for each step of your funnel.

Step #4: Check your reports to analyze the data.

Here’s where to find them.

Under “Conversions,” click on “Goals.”

Pay special attention to “Funnel Visualization.”

You’ll see an illustration that looks something like this:

I just created this, so there’s no data. It will take some time for yours to show up as well.

This data will tell you where in your funnel customers are jumping ship. It will also tell you in how many sessions your goal was completed.

Useful, right?

You’ll have a complete view of the way customers move through your funnel. You can now make informed adjustments to decrease your shopping cart abandonment rate.

You should know this though: there’ll always be customers who drop out before completing a purchase.

That’s just the nature of the game.

You can optimize your process to reduce that percentage significantly.

But will the lost sales be lost forever?

Can they be salvaged?

They can, and I’ll tell you how.

The ultimate solution to recovering abandoned carts

I hate to bring up this depressing statistic again, but only 3 out of 10 shoppers complete their purchases.

There is, however, a simple follow-up step that can increase that number significantly.

Crazily enough, most businesses don’t take advantage of it.

I’m referring to cart abandonment emails.

This could be one email or a whole sequence. You decide.

The point of these emails is to recover lost sales. If a customer adds items to their cart and leaves without checking out, be sure to follow up via email.

Here’s a brilliant example from Vanity Planet:

Many things are going right in this email. It:

• offers a massive discount
• includes a free shipping offer
• uses personal and persuasive language
• provides a simple solution for returning to cart
• has a direct link to checkout

They made an irresistible offer.

Many people would go back to complete their purchases in a heartbeat.

When cart abandonment emails are done right, they’re hands down the most powerful solution to recapture lost sales.

I highly recommend you test this strategy and watch it make a difference.

Conclusion

Dealing with shopping cart abandonment can be daunting.

It’s also frustrating when more than half of your prospects aren’t converting into sales—and you don’t know why.

There is any number of reasons why it might happen.

And to be frank, some of them are inevitable.

But others? You can do something about.

For many businesses, the checkout process is the biggest culprit when it comes to lost sales. I’ve pinpointed some of the most common issues and their fixes in this article.

Use them as a litmus test.

But don’t stop there.

I can tell you that applying best practices only to your checkout pages won’t transform your sales funnel.

It’s crucial you take a more data-backed strategy to deal with abandoned carts.

Include Google Analytics in your arsenal, and set up conversion goals.

This way, you’ll have detailed analytics to make the sort of changes that will maximize your profits.

What do you think is the best strategy to ensure customers complete their purchases?

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Questions About Evil Index Funds, Stretched Belts, Debt Regrets, Grills, and More!

What’s inside? Here are the questions answered in today’s reader mailbag, boiled down to summaries of five or fewer words. Click on the number to jump straight down to the question.
1. Are “robo advisors” worth it?
2. How to help with tragedies?
3. Lower salary for lower stress
4. Are index funds evil? No.
5. Sad existence?
6. Expensive to start Meetup group
7. Stretched belt solution?
8. Combine 401(k)s or not?
9. Making money in real estate
10. Can’t let go of regret
11. Paying more for good manufacturer?
12. Does propane grill save money?

I just wanted to offer up a brief announcement that, by the time you read this (or very shortly afterwards), I will have signed an agreement that will keep me as a primary writer on The Simple Dollar for a very long time to come.

It is my hope that I will be able to continue to write here until my journey to financial independence is complete, and I hope you’ll be here the whole way.

Q1: Are “robo advisors” worth it?

Hi, I’ve been reading a lot about so-called “robo advisors” when a company uses software to make investing decisions for you. What are your thoughts on them?
– Kelly

A “robo advisor” is simply a piece of software that makes investment decisions on your behalf. They’ve become popular in the last few years with the rise of new investment firms that focus on the use of software for investment advice (Wealthfront and Betterment) and larger firms dabbling in the idea.

First of all, it is a mistake to think that software can somehow predict the future better than humans can. I have seen too much hype around robo advisors, often to the point of people acting as if software can somehow predict future market shifts. They can’t. No one can predict the future.

In general, I think “robo advisors” right now make sense if you’re investing in a non-retirement investment account that’s going to be hit with normal taxes, as software is very good at something called tax loss harvesting. That means that such software can look at the recent history of your investments and then automatically buy and sell them in a way that minimizes your taxes for the year. They do this conveniently and automatically.

This isn’t a benefit within a retirement account because all of your taxes are either deferred or eliminated. The taxable events with a retirement account occur when you pull money out of an account, not when you switch around investments within an account, so the big advantage of robo advisors go away.

For now, if you’re just saving for retirement by opening a Roth IRA, they’re just not worth the hype. They typically come with somewhat higher fees that simply aren’t justified if you’re not recouping that through tax loss harvesting. They’re also not worth it if you have a “buy and hold” investment strategy and aren’t going to be reallocating your funds every year. If you have your own strategy you’ve cooked up but you want to automate reallocating to match that strategy and you want tax loss harvesting every year because this is a taxable account, then it makes sense.

Q2: How to help with tragedies?

What is the most cost effective way to help with the tragedies of Hurricane Irma and Harvey? I want to help with a donation but I don’t want to just send it to anyone.
– Nina

I’m going to point directly to this clear and effective article from the New York Times: How to Help Hurricane Irma Victims (and How to Avoid Scams). It covers almost all of your questions.

The key take home message: send money and not stuff and give to charities that have a very strong reputation. They specifically point to GlobalGiving’s Irma Relief Fund as well as UNICEF and Oxfam America.

If you’ve got stuff you want to send, be aware that the logistics of using it are going to be difficult and you’re honestly going to be more helpful selling that item locally and sending the proceeds from that sale. The item you send may or may not be needed and it still needs to be transported from your location to the disaster area, whereas money can be transferred instantly and used for whatever is needed at the moment.

Q3: Lower salary for lower stress

The general career advice I read is that the higher your salary is, the more stressful the actual work is, and the lower it is, the lower stress the work is.

So I have two questions. One, doesn’t that mean that the best jobs are ones that have relatively low stress for their salary level? Two, how do I find those jobs?
– Claire

I think you’re on the right track in thinking that the best jobs are ones with low stress compared to their salary level.

The trick with finding those jobs is that jobs that are high stress for some people are low stress for others and there’s no real consistency there.

I worked at a job in the past that I think some people would have found to be low stress but I actually found to be very stressful because of how I organize my time and work. Nowadays, I work from home with a super flexible schedule, which I find to be very low stress but some of my family members have told me that it seems incredibly stressful to them.

I guess the trick is finding the right kind of job for you, which is one that seems low stress to you but high stress for others. That way, you can get paid well for something that doesn’t leave you a stressed-out mess. For me, it’s self-directed creative work that runs purely on project deadlines. That kind of work doesn’t stress me very much, but for others it’s quite intense.

Q4: Are index funds evil? No.

Any thoughts on this article? I think it makes an interesting point.

http://ift.tt/2wD9TbL
– David

The argument behind this article is that, essentially, index funds amount to collective ownership of all of the companies in an industry, so it’s beneficial for those companies to collude with each other rather than compete in order to maximize overall profits. That, of course, means that there’s little reason for those companies to innovate.

Even if that argument is true, it’s ignoring the fact that index funds provide a huge benefit for many Americans. It allows them to diversify their investments greatly, reducing their own personal risk from investing in stocks, without a huge cost. That’s a great benefit for the person who just wants to have a healthy retirement savings.

My feeling, after reading that article, is that it merely points to a future in which the stock market, on the whole, is less volatile. If the market becomes more and more controlled by index funds, then people aren’t going to rapidly buy and sell nearly as much, which means that market spikes and crashes will be curbed.

Interesting article, regardless.

Q5: Sad existence?

I’ve been reading the blog for a while now and the other day someone said to me that being a ‘homebody’, reading library books, and exercising is a sad existence. The benefits of this lifestyle is that you save a lot of money. What are your thoughts?
– Stephen

I think that every person has different activities that bring joy into their life. For me, reading books is one thing that brings me joy. Going hiking is another thing that brings me joy – my trip to Yellowstone this summer was one of the best things I’ve ever done in my life. Cooking brings me joy. Going to community meet ups brings me joy. Playing board games brings me joy.

I’ve tried a lot of things over the years that didn’t bring me joy. Going to clubs and bars didn’t bring me joy – it made me look at my watch and count the minutes until I could politely get out of there. Golf brought me flashes of joy, but I think that was mostly due to being outside and doing something outside. I could go on and on like this.

Yet, I know that there are people who get great joy out of going to clubs and bars. I know there are people who get great joy out of golfing. I’m truly glad those people have found something that clicks with them. It’s just not what I get joy out of.

I think everyone is best served by trying lots of things and figuring out what clicks with them. Go to a club. Read a book. Go on a hike. Try lots of stuff and find things that bring you internal joy, then figure out how to do that inexpensively. To me, the key to having a joyful and frugal life is just that – trying lots of things and figuring out what things bring you joy that you can do inexpensively. Those things are going to be different for everyone.

It is truly a waste of one’s time and energy to think negative thoughts about the non-harmful things that bring joy into the lives of others. Nothing whatsoever of worth comes out of that. Focus instead on what brings joy into your life and ways to make the most of that without spending excess money.

Q6: Expensive to start Meetup group

I wanted to start a Meetup group in our city for gardeners and I was shocked to find out you had to pay to start one! Am I misunderstanding or is this just a scam?
– Janine

That’s how Meetup makes money. Meetup supports small groups for free, but once your group gets above a certain size, they want you to start paying for it.

In theory, this fee is paid for through dues within that group or by passing the hat on occasion. If you have a group with 50 members or so, raising enough funds to keep the Meetup going should be easy.

Having said that, if this is your first time paying for a Meetup page for that group, you can simply leave the item in your shopping cart. Within a few days, Meetup will contact you and offer you a discount which will make at least the first year cheaper, and then after that you can pay for the renewal by passing the hat within the group.

Q7: Stretched belt solution?

How do you keep using belts when they stretch out? I have a very nice belt that over time has stretched to the point that even when I use the innermost hole it’s still too loose to be effective. This has happened before.
– Jerry

If I understand what you’re asking, you’re saying that you buy belts – presumably leather ones – and find that over time they stretch to the point that they’re unusable because even when using the smallest hole, the belt is still loose.

I have a couple of suggestions. First, when you initially buy a belt, buy one that really only works with the outermost hole. That way, when the belt inevitably stretches, you can switch holes gradually over time.

Another option is to get a ratchet belt, one that comes with a ratcheting track on the inside that doesn’t have any holes at all. Rather than fastening the belt through a hole, it simply catches on a notch on the inside of the belt each time you put it on. I particularly like the ones from Anson Belt and Buckle (I received one as a gift in the past and am wearing it right now).

Those two solutions should solve most of your belt problems. If you want to extend the life of your current belt, you can get a leather punch and add an additional hole, but it might not look the smoothest unless you’re pretty skilled with a leather punch.

Q8: Combine 401(k)s or not?

I recently started a new job after 7 months of unemployment. At my previous job, which I held for 11 years, I had a 401(k) plan that I put money into and had matching funds from my employer. However my new 401(k) has a lot more investment options. I asked my plan manager if I could roll forward my old 401(k) and he said he thought so and would look into it. I am having second thoughts though. Isn’t it a good idea to diversify and thus keep the two accounts separate in case one company goes bankrupt?
– Keith

Yes, to an extent.

Most likely (you’d have to verify this yourself to be 100% sure), both of the companies that manage your retirement plans include SIPC insurance as part of the account. SIPC insurance is a type of insurance that protects against the very thing you’re concerned about – the failure of your investment firm.

SIPC insurance offers $500,000 in insurance against the collapse of your investment firm (with the small caveat that at most $250,000 of that is held in the form of cash). If your firm goes under, then that insurance kicks in and what will most likely happen is that an account will be opened for you at another financial institution with a matching balance and (possibly) similar investments already in place.

So, if your total balance won’t be anywhere near $500,000, combining them is a fine idea. If your total balance is going to be near or over $500,000, you may want to keep them separate, depending on how you feel about that kind of risk.

Q9: Making money in real estate

I don’t understand how anyone could ever argue for throwing your money away on renting. That’s just [bad] advice. If you buy a $300K house and it goes up in value 5% a year you’re never going to catch that with renting. Get a clue.
– Jonas

For starters, the example you gave is of a house in a real estate boom. If your house is going up 5% in value a year, you are living in a bubble that will have a very hard time sustaining itself if interest rates ever go up. Prices will flatline fast and likely start dropping because no one will be able to afford mortgages, and interest rates literally have nowhere to go but up from here.

Furthermore, your example doesn’t include things like the cost of insurance, the cost of property maintenance, the cost of homeowners association fees, and so on. It also doesn’t include the investment returns one could get for investing the difference between the total cost of renting and the total cost of ownership. It also doesn’t say anything about time investment, either.

It is very easy to paint a glowing picture of homeownership and a bad picture of renting, side by side, but it only works if you take a quick glance and don’t look at the details. The devil is in the details with such comparisons.

Q10: Can’t let go of regret

Over the last year I have followed your advice and Dave Ramsey’s advice and turned things around. I just paid off all of my credit cards after having $11K in debt last February. Feels great! All I have left now is a student loan!

The problem I’m having is regret. As I paid off the credit cards I kept thinking about how all of it was really for nothing. I don’t remember almost anything I bought with those cards. It was all stupid stuff. My life would be so much better if I hadn’t done that.

Do you ever get past the “what ifs”?
– Edgar

No. At least, I never have, not fully.

Having said that, though, they do get quieter and quieter. The further away you get from that debt, the less that debt really matters. It begins to feel almost like it was another life, kind of like how it feels when you try to remember childhood or high school when you’re an adult. You can remember it, but it doesn’t feel like you any more.

Being in debt feels like that to me now. It feels almost like it was a different life because I’ve been debt free for a while.

I still think back to what I could have done differently and I do feel some regret, but enough good things have happened since then that I recognize I would lose a lot of good if I were to undo those mistakes. It’s the road I chose to travel and it’s one that’s filled with a lot of good things.

Make your road a good one going forward from here. Make strong financial and life moves so that you build a life that you love, and the regret will fade. You’ll soon see that you have a really good life, one that you wouldn’t have had without some missteps along the way, and the regret will turn into little more than a tool to help guide yourself to continued good choices.

Q11: Paying more for good manufacturer?

I am shopping around for a late model used car and want to stick to a reliable manufacturer like Honda or Toyota. What I am finding though is that used cars 2-3 years old from them aren’t that much less than buying new while cars from other manufacturers often sell for 40% or 50% of new. If you’re buying from the “good” manufacturers should you just buy new?
– Tamara

That’s the trick of buying anything, really. The market usually prices itself correctly, and Hondas and Toyotas retain value because they tend to have very long lifespans. Right now, I drive a Honda and Sarah drives a Toyota – both are approaching 200,000 miles and neither one has had significant problems. A friend of mine has a Volkswagen that is on death’s door at the 120,000 mile mark.

Here’s the thing to remember: having a car from a more reliable manufacturer means that on average that car will last longer. It does not mean any sort of guarantee about how long a car lasts, and proper maintenance makes a huge difference. In my experience, following the maintenance schedule makes a far bigger difference than the manufacturer in terms of the lifespan of a car.

It seems to me you’re looking at three options. You’re either going to buy a new car from a reliable manufacturer, a late model used car with 10K-20K on it from one of those manufacturers for 10%-20% less, or a late model from another manufacturer for 30%-60% less. The number one thing you can do to smooth out the differences between the cars is to stick with maintenance. The manufacturer will have an impact, but not as big of an impact.

If I were in your shoes, I’d get the best car I could pay cash for, with a little left over to ensure you can stick to the maintenance schedule for a while. I wouldn’t sweat getting the late model used from a non-Honda-or-Toyota manufacturer as long as you stick to the schedule.

Q12: Does propane grill save money?

Is it cheaper to prepare food on a propane grill versus in a kitchen? Trying to do the math and struggling!
– Alex

It costs about $15 to get a propane cylinder refill that lasts for about 25 grilling sessions, give or take. So, you’re spending about $0.60 per grilling session on the propane. There’s also the additional cost of a gas grill which, if maintained a little, can last for ten years with 50 grilling sessions a year, so 500 sessions. Let’s say you spend $200 on the grill, over 500 sessions, gives you a cost of $0.40 per grilling session.

So, back of the envelope, your total cost for a backyard grilling session on a propane grill is roughly $1.

What are you comparing that to? You’re comparing that to cooking a similar meal inside, which means that you’re using your household oven that operates on some type of fuel. During the summer, you’re also adding heat to your house, which is probably going to be cooled down by running the air conditioning, which is another expense. There are a lot of variables there, but it’s reasonable to estimate that the total cost of cooking a meal on a stovetop or in an oven adds up to $1 during the summer.

So, here’s the scoop – during hot summer months, the cost of propane grilling versus the cost of cooking is reasonably comparable, but depends a lot on your situation. If you have great air flow, for example, and aren’t running the AC, cooking in the oven is probably cheaper. On the other hand, if you maintain your grill well and get a lot of use from it and your home is in an area with a lot of heat and little air flow, the grill is probably cheaper.

Got any questions? The best way to ask is to follow me on Facebook and ask questions directly there. I’ll attempt to answer them in a future mailbag (which, by way of full disclosure, may also get re-posted on other websites that pick up my blog). However, I do receive many, many questions per week, so I may not necessarily be able to answer yours.

The post Questions About Evil Index Funds, Stretched Belts, Debt Regrets, Grills, and More! appeared first on The Simple Dollar.

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My third step to early retirement: How I shopped around for a pension income provider

After more than 30 years advising readers about their finances, journalist Heather Connon finds herself having to take her own advice. In part three of her retirement diary, she explains how she chose a self-invested personal pension (Sipp) provider to draw an income directly from her pension.

This is part of a series of articles written by Heather Connon about her retirement journey. 

Regular readers will know that I have decided cut back on work and start drawing down my pension. I have kept a diary of my progress in amalgamating my three pension pots – two from previous employers and one contracted-out personal pension – into one and accessing the benefits.

• How will you fund your retirement? A guide to planning your income

In my first article, I covered my decision to opt for drawdown (which involves taking regular payments from the investments in my pension) rather than buy an annuity to provide a guaranteed regular income. I then reported on my meetings with four financial advisers.

However, the high cost of advisory services convinced me that I should look at setting up a drawdown vehicle myself. A 3% fee is typical (although there is some flexibility), even before the costs of actually setting up an investment portfolio are factored in.

Setting up a Sipp

In essence, I need to set up a self-invested personal pension (Sipp), transfer the funds from my three schemes into it and decide how to take my benefits. Plenty of companies offer Sipps. However, while their services seem similar, the way these are charged for varies from firm to fi rm.

Moreover, working these out requires the reading of a lot of small print and terms and conditions, as well as assessing how actively I am likely to trade, what I will invest in and how much I will have invested.

Comparisons are not straightforward: charges are levied in different ways, and Sipp company websites are not as clear as they could be.

I had to confirm my understanding of Fidelity’s fees with its help desk, while Alliance Trust had different information on different parts of its website; unforgivably, even its official charges brochure did not have accurate, up-to-date information.

I could have asked their press offices to get all this information for me, but other self-directed investors would not have that option, so I did not take that route.

• The pension annual allowance: a beginner's guide

I decided to include three companies in my comparison that I already use for investment services. Standard Life has one of my three pension pots, Alliance Trust has my Isa savings and Fidelity has my children’s savings.

I also decided to include Hargreaves Lansdown, as I consulted one of its financial advisers, and he came closest to offering what I wanted. A trawl of the best-buy tables suggested that AJ Bell and Interactive Investor (Moneywise’s parent company) were also worth looking at.

I abandoned Standard Life as an option after spending some time clicking around its website and failing to find anything appropriate for my needs. Its Sipp information only covered paying in rather than drawing down and its DIY retirement pension appeared only to have open-ended funds, while I want to be able to choose across the range of investment trusts, exchange traded funds (ETFs) and possibly even direct shares.

Work out the charges

Transferring money into a Sipp is free with all these providers. Other costs fall into three main types: an annual administration charge, fees for buying and selling investments, and fees for taking money out of a pension.

There are three key variables to consider that have a bearing on administration fees: whether they are fixed or based on a percentage of the fund’s value, the size of the fund and what is held in the fund.

Alliance Trust and Interactive Investor charge fixed fees, while AJ Bell, Fidelity and Hargreaves Lansdown charge a percentage fee.

• What will you do with your pension?

These three have a sliding scale, with lower fees for larger funds but even so, the size of my fund – roughly £550,000 – means a percentage fee could work out more expensive.

Fidelity’s 0.2% on pots of more than £250,000, for example, would work out at £1,100 a year, assuming I did not take out a tax-free lump sum.

That compares with £342 a year at Alliance Trust or £380 a year at Interactive Investor. Alliance’s annual fee includes four free trades a year. Interactive Investor’s fee includes two per quarter.

Look out for charge caps

However, the comparisons are not quite that straightforward, as the companies charging percentage fees cap them.

Fidelity caps charges for any portion of the Sipp held in shares (as well as investment trusts or exchange traded funds) at a maximum of £45 a year, AJ Bell caps at £100 a year and Hargreaves at £200 a year.

I am a long-term fan of investment trusts and I intend to use them for the bulk of my pension, so the capped fees are more appropriate for me.

Some companies also charge for taking benefits, particularly if I opt for what is called an uncrystallised funds pension lump sum.

If you go for one of these, instead of taking the 25% tax-free lump sum up front, you take the 25% tax relief on each withdrawal from the fund and pay tax only on the 75% balance.

Fidelity and Hargreaves Lansdown don’t charge for these, Alliance Trust and Interactive Investor charge £48 for making occasional one-off withdrawals, while AJ Bell charges £100 a year for taking benefits, whether conventional or uncrystallised.

The next consideration is dealing fees. Again, charges differ depending on whether I am buying open-ended funds or investment trusts.

Fidelity and Hargreaves Lansdown don’t charge for funds, and they may be able to negotiate discounts on managers’ own initial charges; AJ Bell charges £1.50 (or £9.95 for investment trusts); Interactive Investor charges £10; and Alliance Trust’s basic charge is £9.99.

Alliance Trust offers loyalty discounts, depending on the length of time you have been a customer. I qualify for the maximum discount, so I would pay £7.49 per deal. For shares, including investment trusts, Interactive Investor and Alliance Trust charge the same fees as for open-ended products, Fidelity charges 0.1% of the transaction value, AJ Bell charges £9.95 and Hargreaves £11.95.

Interactive Investor, Hargreaves and AJ Bell offer discounts to regular traders. These usually apply if a trader has made 10 trades in the previous month, but as I don’t intend to trade regularly, I am not taking these into account.

Prepare well to make a difficult decision

It is hard to translate these various fees into expected annual costs, so choosing a Sipp is very difficult. I am tempted by Fidelity’s Sipp, because of its low £45 fee for holding investment trusts and ETFs, but I’m deterred by its 0.1% dealing fee. If applied to all £550,000 of my fund, I would face a set-up fee of £550.

I am attracted by Alliance Trust’s discounted low dealing fee, but put off by its £342 annual cost. The appeal of the other options falls somewhere between these two.

When I started this exercise, I had expected to opt for either Alliance Trust – on the grounds that I know the trust well and have been happy with its services – or AJ Bell, which I have always considered one of the Sipp experts.

Having met my Hargreaves Lansdown adviser, I was impressed by his knowledge and the flexibility of the company’s services.

• Confusion surrounds age at which savers can access private pensions

However, having weighed up the different charges and bearing in mind that I intend to use investment trusts mostly, I have decided to opt for Fidelity’s service. While Fidelity’s dealing fees are high, the £45-a-year flat fee for investing in trusts and ETFs is very attractive.

The saving compared with the other services is at least £150 a year, enough to trade £150,000 a year (although if I was switching investments, that would represent sales and purchases of £75,000). That is more trading than I am likely to do.

In my next diary, I will look at the investment choices for my pension pot.

Heather Connon is a freelance financial journalist who writes for The Guardian, The Observer and The Independent. This article first appeared on our sister website, Money Observer.

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• SIPPs
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Related stories

• My first steps to an early retirement: getting a valuation
• My steps to retirement: a series of personal pension decisions
• How will you fund your retirement? A guide to planning your income

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Love Races But Not the Fees? Virtual Races Could Save You Hundreds

Running is an affordable sport, right? Well, yes… in theory. To run, all you need is a supportive pair of shoes and the open road. But in reality, running expenses can quickly add up (especially when you have a running shoe addiction like mine).

Race fees — and travel/accommodations for said races — can end up costing as much as a short vacation. And, while some runners like planning their vacations around their races, it’s not feasible to do that if you’re on a budget.

In 2016, I made a slightly crazy goal to run 12 half-marathons in 12 months. Not only did I crush my goal, but I also managed to do it without going bankrupt, thanks in part to virtual races.

What are Virtual Races?

As early as 1957, ‘national postals’ consisted of high-school athletes mailing their times into a national postal competition that selected and announced the winners. These days, anyone can sign up for a virtual race online for a variety of distances, from 5Ks and 10Ks to half and full marathons. You can sign up on websites like Virtual Strides, Gone for a Run and Will Run for Bling. After you finish a race, enter your time on the race organizer’s website to see where you rank.

Unlike regular races, you can run a virtual race whenever and wherever you choose. That means you can fit it into your life rather than the other way around. You can even run a virtual race on a treadmill if you want — it’s completely up to you.

Virtual races are sometimes tied to charities, meaning your money goes toward a good cause. So, if you need help getting out the door to run, registering for a virtual charity race can be a great motivator.

How Can Virtual Races Save You Money?

If you’ve ever run an organized race, you know that entry fees can be expensive — especially if you register for a larger race like the Chicago Marathon. In 2016, entry to this marathon cost $185 for residents and $210 for non-residents, according to Competitor.com.

When I decided to run 12 half-marathons in 2016, I knew I couldn’t afford to spend upwards of $70 per race. By running local races and virtual races, I paid an average of $26.80 per race instead.

My Virtual Race Experiences

My first virtual race was a half-marathon through my local chapter of the women-only running group Moms Run This Town. I paid $16 and got a medal and a swag bag with coupons and samples for local goods.

The moms planned to run the race on a certain date in February, but that day ended up being extremely cold (I’m talking the weatherman warning that your toes might fall off if you dare to go outside). Since it was a virtual race, I stayed indoors that day and ran the race the following weekend with a friend. I not only saved my fingers and toes — I also saved money.

My second virtual race was through Virtual Strides and was called One Tough Mother Runner. For $28, I got a seriously unique medal that doubles as a wine stopper (a necessity for any mom at the end of a long day). I admit that I chose this race solely for the medal, and I ran the 13.1 miles by myself around my neighborhood.

This was a charity race which benefited the Family Lives On Foundation, an organization that supports grieving children. I felt good that my money was going to a good cause in addition to a kick-ass wine stopper medal.

Finally, I ran the She Power Half Marathon virtually through 131 Event Productions for $36. The original race is located in Indianapolis, and, in 2016, you had the choice of running it entirely on a paved trail, entirely on a dirt trail or half and half. I ran this race with a large group of friends in Glen Helen in Yellow Springs, Ohio, and it was honestly one of the most fun and memorable races I’ve run due to the people I ran it with.

Though they aren’t always as fun as live races, if you’re willing to forgo the water stops, course entertainment and cheering spectators of organized races, virtual races can easily help you meet your training goals for a fraction of the price.

Catherine Hiles is a four-time marathoner and 17-time half-marathoner. One of her proudest accomplishments is running a half-marathon with her 2-year-old daughter in a stroller.

This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.

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Why Employer Stock Is One of the Riskiest Investments You Can Own

I have a client who works for Apple. He’s been there for years, loves his job, makes good money, and would like to spend the rest of his career there.

He’s also fortunate enough to participate in a restricted stock program, which in his case means that he receives a pre-determined number of shares of Apple stock every six months. He’s taxed on the value of those shares, but other than that they are 100% his to do with as he pleases.

Now, Apple has been the darling of the stock market for the past decade-plus. A quick look at Morningstar’s charting data shows a mountainous climb since 2005, and that doesn’t even factor in all the dividends it has paid over the years.

Today it stands as the largest public corporation in the world, a testament to its long run of outstanding performance.

And despite all of that, every time my client receives Apple shares I recommend that he immediately sell them and invest the money elsewhere.

This recommendation has nothing to do with my opinion of Apple. Honestly, I’m not in the business of predicting which specific stocks will outperform and underperform in the coming years. Almost no one can do that reliably and I am certainly not one of the lucky few.

My recommendation comes down to the simple fact that employer stock is one of the riskiest investments you can own, even when your employer is one of the most successful companies in the world.

The Danger of Concentration

Owning employer stock is simply an extreme case of failing to diversify your investments.

Diversification is the time-tested investment principle that says that you’re better off spreading your money across a number of different investments as opposed to putting all of it into a single investment.

For example, diversification says that instead of investing in a single company, you should invest in an index fund that represents the entire stock market. Or at least a big enough subset of the market to prevent any one company from having too large of an impact on your overall return.

The power of diversification is that it is the only investment strategy that allows you to reduce your overall risk without reducing your expected return. The only one.

The flip side is that there’s a lot of risk in investing too much of your money in any single company.

Unless the entire U.S. economy fails, a U.S. stock market index fund can only lose so much value. For example, the stock market lost about 50% of its value during the financial crisis in 2008 and 2009, which was a lot. But even at the very bottom of that decline, you still would have had about half of your money left.

But any individual company can go bankrupt, meaning your investment in that company could go all the way to $0. That’s the risk of being undiversified — that you could lose everything with a single bad bet.

And the risk is doubly great when you’re talking about employer stock.

The Double Risk of Employer Stock

Simply by working for your employer, you have already staked a substantial percentage of your personal financial success to that one company’s success.

You rely on that company for your income, which is what fuels your ability to pay bills, save money, and invest in your future. If the company succeeds, odds are that your income will continue and maybe even increase. If the company fails, your financial prospects could falter along with it.

In other words, your personal financial risk is already intertwined with your employer’s financial risk.

Adding investments in that same company’s stock only increases that risk because now both your income AND your investments are heavily dependent upon your employer’s success. If your company runs into trouble, you could potentially lose your job and face a significant investment loss at the same time.

That’s why investing in your employer’s stock is one of the riskiest investments you can make, even if you work for a company like Apple.

It’s as undiversified as it gets.

When It Does Make Sense to Buy Employer Stock

Given the risk, is it ever a good idea to invest in your employer’s stock?

The short answer is yes, but generally only under very specific conditions.

Some companies offer an employee stock purchase plan (ESPP) that allows employees to buy company stock at a discount. Some of these plans then allow employees to immediately sell that stock, essentially guaranteeing a profit as long as the process is managed correctly.

In that scenario it can absolutely make sense to purchase employer stock. But even then it’s only to the extent that you sell it as quickly as possible, locking in your profit and subsequently moving to a more diversified investment portfolio.

The real risk in this scenario is behavioral. A study by Ilona Babenko and Rik Sen found that over 45% of employees participating in these plans never actually sell the stock, maintaining the highly undiversified portfolio and the associated risk.

If you can implement a disciplined process of buying the stock at a discount and selling as soon as possible, an employee stock purchase plan can be profitable. If not, you may simply be falling into the trap of taking on more risk than you should.

Eliminating Unnecessary Risk

Financial planning always involves taking calculated risks. We never know exactly how the future will go, but we have to plan for it anyways.

Investing itself is a risk, with the expectation of positive returns but no guarantee that you will actually receive them.

Risk is unavoidable, but a good financial plan does what it can to eliminate unnecessary risks that needlessly put your financial future at risk.

And with your income already dependent upon your employer’s financial success, owning employer stock almost always falls in the category of an unnecessary risk.

Related Articles:

• 401(k) Vesting: What It Is and Why It Matters
• Why You’re Guaranteed to Lose Money in the Stock Market
• Seven Reasons You Need to Start Investing Right Now

Matt Becker, CFP® is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents take control of their money so they can take care of their families. His free book, The New Family Financial Road Map, guides parents through the all most important financial decisions that come with starting a family.

The post Why Employer Stock Is One of the Riskiest Investments You Can Own appeared first on The Simple Dollar.

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Here’s Everything You’ve Ever Wanted to Know About Becoming a Notary Public

If you’re looking for a way to make a little extra money on the side — or maybe even land a full-time gig with decent pay — you might want to consider becoming a notary public.

The startup costs are relatively low, the work is flexible and your new skill will give your resume an extra boost. Plus, becoming a notary public offers some pretty good earning potential.

There are a lot of ways to make money as a notary public, but the most common job opportunities include working as administrative support in an office setting or freelancing as an independent notary.

And, because there will always be legal documents to sign, notaries public (yes, that’s the real pluralization, and yes, it’s awkward) will always be in demand.

According to Payscale, the average hourly pay for a notary public ranges from $9 all the way up to a little over $21. The fees notaries are allowed to charge for particular services vary from state to state; however, in many states, notaries are allowed to charge what they like for travel fees.

What Exactly Is a Notary Public?

A notary public impartially witnesses the signing of legal documents and deters fraud by ensuring the people signing the documents are who they say they are and that they are willingly and knowingly entering into the legal agreement.

A notary does this by verifying the signer’s identity and making sure they’re fully informed and aware of what the documents they are signing entail.

Who Can Become a Notary Public?

In most states, anyone over the age of 18 who does not have a criminal record can become a notary public.

You must be legal resident of the state you are applying in, and most states require that you be able to read and write in English.

How Much Does it Cost to Become a Notary Public?

Initial startup estimates range from anywhere between $100 to $500, although other expenses may pop up along the way (these could include a website or advertisements to let people know about your services).

How To Become a Notary Public

The process, qualifications, compensation and duties for notaries public vary from state to state.  This is meant to be a general overview to help you on your way to becoming one.

If you decide to pursue a certification, be sure to check your specific state requirements. You may find that you have to fulfill all of the following requirements — or only a few.

Take a Notary Class

Only a handful of states require you to take a training course, although most states will encourage you to do so. You can visit the National Notary Association (NNA) website to find education and training resources by selecting your state at the top of the page and then visiting the “Training & Education” tab.

Take a Notary Exam

Currently, 12 states require potential notaries to take an exam. Exam locations near you can also be found by visiting the “Training & Education” tab on the NNA website.

Submit an Application

Fill out and submit an application. Go here to locate your state-specific application form on the “Become a Notary” tab.

Fingerprinting and Background Check

Not all states will require fingerprints and a background check. Fingerprinting may also be done immediately following the exam if you are required to take one.

Obtain a Surety Bond

Most notaries are required to purchase a surety bond in case they make a mistake that hurts someone. If that were to happen, the bond could compensate the injured person up to the limits of the bond amount. Bonds range in amount from as little as $500 to as much as $25,000 and are used to protect the people who use your services.

You’ll pay only a fraction of the value of the bond up front. For example, in Florida, a $7,500 notary bond plus filing fees would only cost you about $74 — and you’d be protected for up to four years from claims resulting from mistakes you might make.

If the bond were needed to pay for damages in case of a mistake or negligence on your part, you would then be required to pay back the bond amount in full.

You can select the “Insurance & Bonds” tab here to learn more about your specific state requirements.

Purchase Errors and Omissions Insurance

While no state requires notaries to purchase an errors and omissions insurance policy, some notaries invest in one. The bond is the first line of defense for a notary in the case of a mistake, but this insurance policy could  help cover the costs of legal fees if someone decides to take you to court.

A four-year, $25,000 insurance policy costs anywhere from $60 to $300. If someone takes legal action against you, the policy will usually cover court costs and legal fees up to the policy amount. Unlike a bond, you would not have to repay this amount, and there is no deductible.

Submit Commission Paperwork to the State

After you receive your commission certificate in the mail, you’ll need to file it — along with your bond — with your state’s notary regulating office. If you use the services provided on the NNA’s website under the “Become a Notary” tab, you may have the option to have your paperwork filed for you by the NNA, although not all states allow this.

Purchase a Notary Seal and Kit

Each state has different requirements for what tools and supplies you’ll need to purchase to begin practicing as a notary public. The primary tools are your official notary seal (or stamp), acknowledgement certificates and a notary journal to help you keep a clean record of all notarial acts.

How Long Does It Take to Become a Notary Public?

The process to become a notary public can take anywhere from three weeks to six months, depending on which state you live in and how extensive the requirements are.

In most states, once you become a notary, your certification is good for four years. After that, you will have to renew your notary certification by retaking training and exams, purchasing a new four-year notary bond or re-submitting your paperwork (or all of the above).

Grace Schweizer is a junior writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, one of the largest personal finance websites. We help millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. In 2016, Inc. 500 ranked The Penny Hoarder as the No. 1 fastest-growing private media company in the U.S.

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