A lot of people think they need professionals to be able to handle their money. But these professionals can come at a hefty price. That's why, we're all about coming up with solutions to make you more self-sufficient in the investing world. Here's what you need to know.
What is a DSPP?
A Direct Stock Purchase Plan allows investors to purchase shares from a company without the need of a broker at minimal cost. Typically, the initial investment is low ($50 to $500) and you can choose to make regular monthly contributions to increase your holdings over time. If the company pays dividends, they can also be reinvested into more shares to further build your account balance. Would you like shares of AT&T? You can! Thirsty for Coca-Cola? Quench it! Interested in Campbell Soup? You can take stock! A list of companies and plan details can be found here.
Say Goodbye to the Broker
We all know that brokers earn commissions, whose fees can add up for the small investor. DSPPs have low transaction costs so more of your money goes to work. Most people haven't heard of DSPPs because brokers don't have a vested interest in promoting this option. We can imagine why!
Time and Budget
When investing, it is important to have a specific monthly budget and a time horizon. The amount you invest should be a number that you can easily afford and should be funds that you can commit for a period of time. The stock market fluctuates, so keep that in mind.
Building a Portfolio
You are not limited to a specific number of DSPPs, so participating in multiple plans over time would help diversify your holdings. Subsequent investments are low, so you may be able to join many plans if you like based on your budget. Most investment professionals feel that diversification and a long-term investment view can be quite helpful in improving returns. In addition, by purchasing over time you can benefit from the concept of dollar cost averaging. This means that your cost per share will be leveled out rather than being one fixed price. Check out a popular site that gives you investment tips.
Be sure to review all plan program details before investing to make the best and most informed investment decision. For more information on specific companies, click here.
When you take out a loan for a car, charge something to your credit card, or get a personal line of credit, there is going to be an interest rate that applies to your loan.
A lot of different factors go into what you will be charged, including your own personal credit score. But even those with flawless credit still see a minimum charge that they can't get around. That all goes back to the Federal Funds Rate.
One thing consumers rarely realize is that all of our banks are lending money to each other every night. Banks are legally required to maintain a certain percentage of their deposits in non-interest-bearing accounts at the Federal Reserve to ensure they have enough money to cover any withdrawals that may unexpectedly come up. However, deposits can fluctuate and it's very common for some banks to exceed the requirement on certain days while some fall short. In cases like this, banks actually lend each other money to ensure they meet the minimum balance. It's a bit hard to imagine these multibillion-dollar financial institutions needing to borrow money to tide them over for a bit, but it happens every single night at the Federal Reserve. It's also a nice deal for those with balances above the reserve balance requirement to earn a bit of money with cash that would normally just be sitting there.
The Federal Reserve
The exact interest rate the banks will charge each other is a matter of negotiation between them, but the Federal Open Market Committee (FOMC) (the arm of the Federal Reserve that sets monetary policy) meets eight times a year to set a target rate. They evaluate a multitude of economic indicators including unemployment, inflation, and consumer confidence to decide the best rate to keep the country in business. The weighted average of all interest rates across these interbank loans is the effective federal funds rate.
This rate has a huge impact on the economy overall as well as your personal finances. The federal funds rate is essentially the cheapest money available to a bank and that feeds into all of the other loans they make. Banks will add a slight upcharge to the rate set by the Fed to determine what is the lowest interest that they will announce for their most creditworthy customers, also known as the prime rate. If you have a variable interest rate loan (very common with credit cards and some student loans), it's likely that the interest rate you pay is a set percentage on top of that prime rate that your lender is paying. That's why in times of low interest rates (it was set at 0% during the Great Recession), a lot of borrowers should go for fixed interest rate loans that won't increase. However, if the federal funds rate was relatively high (it went up to 20% in the early 1980's), a variable interest rate loan may be a better decision as you would be charged less interest should the rate drop without the need to refinance.
The federal funds rate also has a major impact on your investment portfolio. The stock market reacts very strongly to any changes in interest rates from the Federal Reserve, as a lower rate makes it cheaper for companies to borrow and reinvest while a higher rate may restrict capital and slow short-term growth. If you have a significant portion of your investments in equities, a small change in the federal funds rate can have a large impact on your net worth.
Whether you're leaving a job involuntarily, departing for something new, or just want to prepare for the unknown, it is smart to understand all your options regarding your 401k.
Frugal gifting often gets a bad reputation. However, this shopping method does not make you cheap — it makes you practical. Frugal gifts often avoid waste and overspending and can be just as meaningful (if not more so) as any other present.
With the National Retail Federation predicting each consumer this holiday season to spend upwards of $1,000 on holiday gifts amidst an economic recession —this year might be the perfect time to reconsider your spending budget. We've formulated the ultimate list of frugal gift-giving ideas to get you started.