The Worst Way to Fund Your Retirement

The Worst Way to Fund Your Retirement

Blog Post Originally From DaveRamsey.com You’ve probably seen the commercials: Trusted household names promising an easy way to make your retirement dreams come true. There’s no risk. No obligation. Simply a lifetime of income that enables you to live happily ever after on the bank’s dime. End of story, right? Wrong. If you’re considering a reverse mortgage, it’s time to explore the rest of the story. Mortgaging Your Future A recent report by the Research Institute for Housing America found that older Americans have an average of $184,000 in home equity. If you’re entering your golden years with a paid-off home and little to nothing in your retirement account, a reverse mortgage might seem like the perfect way to ease your financial fears. With a reverse mortgage, you convert your home equity into cash. Instead of paying a monthly mortgage payment, you receive money from the bank in the form of a lump sum, a line of credit, or a monthly draw. Why not take advantage of the equity you’ve worked so hard to build? The reason is simple: You’re throwing a lifetime of blood, sweat and tears down the drain. A reverse mortgage isn’t straight-up cash with no strings attached. It’s a loan that’s loaded with interest and fees. Suddenly, your biggest—perhaps even only—financial asset is a stinking pile of debt. Reverse mortgage lenders lead you to believe you’ll never have to repay the debt, especially if you plan to live in your home for the rest of your life. But life doesn’t always go as planned. What if your health declines, requiring you to move to a...
Diversification Under Pressure

Diversification Under Pressure

With any investment approach, it is crucial to have a plan, and the bedrock of any investment plan is to have a well-diversified portfolio among various asset classes. The rationale behind diversification is to mitigate risk, as you never know when something could adversely affect one of your investments. If you had a portfolio concentrated in equities in 2008 or in energy-sensitive securities following the recent drop in oil prices, you would have lost a significant amount of your investment value. As investors, we diversify portfolios to seek to reduce this risk. However, simply because diversification has been an effective way to potentially reduce risk over long periods of time, by definition you would expect it will outperform some years and underperform others. Unfortunately, this can be painful when the outperforming asset class is the most well-known U.S. index—the S&P 500, an index of the 500 largest U.S. public companies. This is exactly what happened in 2014—the S&P 500 significantly outperformed many other often diversifying asset classes, including small cap stocks by nearly 9% and foreign developed stocks by approximately 18%. Therefore, a diversified portfolio last year would have significantly lagged the S&P 500. So why not just invest in large cap stocks or the S&P 500? Over the past 20 years, the S&P 500 has only outperformed all other major asset classes (including small, mid, foreign developed, and emerging markets) 30% of the time, and it was the worst performing asset class 25% of the time. It is important to stick with your investment plan and be invested in at least several different types of investments. Diversification has...
It Pays to Pay Attention: 9 Everyday Details Worth a Second Glance

It Pays to Pay Attention: 9 Everyday Details Worth a Second Glance

Original Blog Post From DaveRamsey.com Remember the last time you picked up fast food, and that nice teenager overcharged you for two adult meals instead of the two kids’ meals you ordered? You weren’t too happy. But nobody’s perfect. Not you and not fast food employees. That’s why it’s so important to double-check your bills, receipts, premiums and paychecks before they end up costing you. Here are nine more everyday scenarios where it pays to pay attention. 1. Shopping Receipts Between fumbling for coupons and scanning the magazine rack, it’s easy to get distracted in the grocery store checkout lane. But before you exit those automatic glass doors, stop and read your receipt carefully. If a price doesn’t look right, or a coupon wasn’t applied properly, take it to the customer service counter and get your cash back. Even if it’s just a few bucks, it’s your few bucks. 2. Medical Bills Doctor bills are about as easy to decipher as hieroglyphics. So don’t feel silly if you’re confused. Call the billing department right away and have them explain the charges in plain English. Even if you aren’t sure how to read the medical mumbo jumbo, look for red flags like identical charges or no mention whatsoever of your insurance company. Never pay a bill you don’t understand. 3. Settled Debts You settled that old credit card debt years ago—at least you think you did. So why are they billing you again? After you pay back your agreed-upon amount, keep proof filed away forever.  Then if you get a duplicate $5,000 statement down the road, you can confidently point...