Friday, 8 January 2021

Filing Chapter 7 Bankruptcy In COVID-19_ Pros And Cons

In this article, I'm going to go through the pros and cons of filing for Chapter 7 bankruptcy. The decision to file for bankruptcy is an excruciating one for most people. And there's a lot of thought that goes into is this the right step? Is this worth it? In this article, I'm going to go over all of those considerations that you may have and some may be that you hadn't thought of.

let's talk about chapter 7 bankruptcy and some of the considerations that go into filing Chapter 7. This is a very difficult decision for pretty much everybody. I always say no one wants to file for bankruptcy. People get into this situation where they feel like that there are no other options, you're losing sleep. Maybe you're getting your wages garnished you're getting sued and things are just getting super stressful and so you're looking for a way to deal with it and deal with it quickly.

So in this article, I want to go over three of the pros three of the good side of filing a chapter 7 bankruptcy, and then three of the things that can negatively impact you about going through the chapter 7 bankruptcy process.

Pro: It Will Eliminate Almost All Of Your Unsecured Debt

Now unsecured debts are debts where there's no collateral or property attached to them. For instance, credit cards, are unsecured debts. Medical bills, personal loans, all of those debts go away completely in a chapter 7 case. Now it's important to note that some unsecured debts do not go away in chapter 7. Taxes, most taxes don't go away. Even though if the taxes are more than three years old there's a possibility they could go away. And student loans, are another big one they typically do not go away. They're typically not discharged in a chapter 7 bankruptcy. 

But other than that if you're dealing with credit card debt and medical bills those kinds of things are causing you the problem or you're being sued by one of your credit card companies or a medical issue or a personal loan. Those things can go away completely there'll be discharged to your bankruptcy and you won't legally be obligated to pay those any further. So that's the first big thing is that it eliminates the unsecured debts. 

Pro: Automatic Stay

The second positive thing about bankruptcy is it has a very powerful tool called the automatic stay. And what this is as soon as you file your bankruptcy case, the court issues an order called the automatic stay that stops all collections. This means everything stops. If they're going to foreclose on your house, that stops. If they're garnishing your pay, that stops. If they're going to repossess your car, it stops. And even phone calls, snotty letters, all the things that creditors do all of that stops as soon as your case is filed. And it literally is immediate. That can give you some peace of mind. Sometimes that's what people need just to be able to kind of think clearly and make good decisions is they just need everybody to be put at bay, stop the lawsuit, stop the garnishments, allow you to really kind of regroup and make a decision going forward.

So the automatic stay that stops all collections is the second thing that the second real positive thing about a chapter 7 filing. 

Pro: It Does Give You A Fresh Start

One of the best things about chapter 7 is it does give you a fresh start. It's kind of cliche. We hear about the fresh start, that chapter 7 offers but it really is. It stops the collections, it gets rid of the unsecured debts and it allows you to start over and rebuild your credit. You're going to take a big hit. I mean there's no doubt about that, but I can tell you off of when I see people who try to do debt settlement on their own, particularly if they have a lot of debt, they actually struggle to recover from that more than people who file for bankruptcy.

Bankruptcy is one point in time. It's the day you file your case. The further you get away from that, the better off you're going to be. Debt settlement, allowing credit cards to be charged off in lawsuits, those can stick around for years and even decades if they get a judgment. So chapter 7 really brings some finality to it. It wipes the debts out. There's one point in time where we know this is when you filed it. And again, like I said, the further you get away from it the better. 

Let's talk about the negative side of things.

Con: You're Going To Take A Credit Hit

There's just no way around it. If you owe money on a credit card or medical bills, personal loans, whatever it is, and you're unable to pay it, the credit is going to be damaged no matter what you do. But with bankruptcy, it's kind of the nuclear option. You are going to take a pretty significant hit anywhere from a 100 to 150 point drop in your credit score. And the bigger issue is it does stay on your credit for 10 years. 

Now, if you look at your credit report, there's a public record section. And the two things that typically show up there are tax liens and bankruptcy filings. That bankruptcy filing will stay there 10 years from the date that you filed your case with the court. Now the good news is it's not going to impact your credit score for that long. Most people recover from as far as their credit score coming back up within about two to three years. Like FHA will do mortgage loans again two years after chapter 7, most other lenders are three to four years. Car loans are available almost immediately. You're just going to have a bad interest rate on that until you get a year or two away from your bankruptcy filing. 

So the downside is, yes, it's going to be on there for 10 years. It can impact credit decisions for 10 years. And frankly, it can impact credit decisions for you longer than that. Because sometimes they'll just ask, have you ever filed? Not if you filed within the last 10 years but the good news is that it's not generally as bad as most people think. I don't ever want to sugar coat it there are definitely credit consequences to the filing, but it's just typically not as bad. It's not as devastating as most people anticipated. 

Con: It's Possible You Could Lose Assets

So with the chapter 7 case, the upside is you're going to wipe out all that debt. All of that's going to go away. The downside is the court or more specifically, the trustee that's assigned to your case is going to review all of your assets that you have to disclose in the paperwork. And they're going to determine if you have any assets that can be sold and then the money be given to your creditors.

Now, the good news is that most assets are protected in most states, they have laws called exemptions. Like most people have heard of the homestead exemption. Most states have exemptions for household goods retirement accounts, cars, those types of things. So most of the general basic stuff that you have is exempt. But if you have a fishing boat that's been paid off for years, and it's your pride and joy. If you file chapter 7, high likelihood something like that's going to be liquidated unless there's an exemption in your state to protect it.

In Arizona, that specific example you would lose the boat. It would go away. So that's one of the downsides to it is it's potential there to lose assets. One way to think about it is, let's say you have $50,000 in credit card debt and you're going to lose a few $1,000 in assets. That's a little bit painful there, but it's also better than you're wiping out all of that credit card debt. 

If I would have told you beforehand that you could wipe out $50,000 of credit card debt by selling your $4,000 boat would you do it? And the answer is yes, you would have jumped at the chance to be able to do that. So you may lose some assets, but I can tell you in most states most things are protected by the exemption laws.

Con: Preferential Payments To Insiders

The third thing that I want to mention as far as the downside is something that some people get caught up in particular people who file bankruptcy without an attorney. And that is, there are certain lookback periods that the court has over certain financial transactions or transfers that you've done over the last couple of years prior to the filing of your bankruptcy. So a big one is what we call preferential payments to insiders. 

Insiders are family members or friends. If you owe money to a family member or friend and often when we get into the financial difficulty that rightly so, that's the first place we go is to see if we have family that can help us out. So they may borrow some money and then we're paying them back. If you owe money to a family member or a close friend, and you've been repaying that debt over the last 12 months prior to the filing of your bankruptcy, the bankruptcy trustee can go and get those payments back over the last 12 months. Particularly if it's a large amount, they're going to go after it. There's just no doubt about it this makes Thanksgiving super awkward. If they have a federal employee coming and trying to get all this money back that you've paid them. So that may be something where you'd either not want to file chapter 7 or delay filing it. And so they don't have that look back period. 

A similar type of thing for what they call fraudulent transfers. This often sounds scarier than it is typically these aren't situations where people are truly trying to be fraudulent. But if you transferred an asset out of your name in the two years prior to the filing of bankruptcy and you got less than what it was worth, and you were essentially the courts calls it insolvent or broke at the time that you did it, the court may be able to undo that transaction. The idea behind this statute is, let's say that, let's use a boat example again. Let's say that you have that fishing boat you're worried about losing it in a chapter 7 bankruptcy. So instead of going into bankruptcy with the boat, you transfer it into your brother's name and then file for bankruptcy. 

The court is aware of this trick. They've done millions of these things over the years. And so what they do is if you've transferred that and you didn't get any money back for it, if you didn't truly sell it, then they can go and they can get that asset back bring it into the bankruptcy estate and then sell it give the money to your creditors. Again, this causes some issues because if you transfer it to a family member particularly or a friend, they're going to get wrapped up in this as the court reaches out to bring that asset back. So, the lookback period can cause a few issues with bankruptcy filings that you got to be aware of. And this is where hiring an attorney and consulting one before you jump into the bankruptcy realm is a big help because these are the types of things that cause people problems, losing assets, preferential transfers, fraudulent transfers.

Those are the things that can really turn into what should be a simple chapter 7. It can really throw a wrench into it and cause you some problems on the road. 


So, those are kind of my pros and cons of a chapter 7 filing. It's absolutely necessary for some circumstances, in other circumstances I think people could put together a payment plan or get work with their creditors to get out of it. 

But it is a very powerful tool it can bring some total organization and structure to dealing with your debts if you find yourself in that situation. 

Chapter 7 Or Chapter 13 Bankruptcy _ Which is Better

In this article, I'm going to talk about the differences between Chapter 7 and Chapter 13 bankruptcy. I'm going to tell you which one is going to be better for your situation and just really what to expect from the process. 

Most people have done some initial research into the different chapters and what they can do, what they can't do. And a lot of people will say, well, which one is better? Now, a lot of that will depend on what you're trying to accomplish with your bankruptcy. But in general, Chapter 7 is way better. I can have this be a really short article. Chapter 7 for most people is what they're really looking for. When they think of bankruptcy, they're thinking, hey, I've got too much debt, I can't deal with this, I'm getting garnished. I just have all these credit cards or medical bills, or whatever it is, and they want to get rid of it. 

Chapter 7 is really great at getting rid of credit card debt, medical bills, unsecured debts that don't have any collateral attached to them. They're discharged. They just go away. They're done. You're not legally responsible for them. And so, if what you're facing is credit card debt, if it's medical bills, if it's those types of debts are the biggest problem, Chapter 7 is always where I look first. I hear sometimes attorneys saying, oh, you should do Chapter 13. It's got so many more tools. There's so much more of this and that. It's just really long is what it is. 

The Length Of Time Of How Long These Cases Last

Chapter 7 bankruptcy cases usually last between 4 to 5 months, as far as having an active case with the court. You file your case, the initial petition with the court, and then you get your discharge. The discharge order is the order from the judge that says you're no longer legally obligated on those debts.

In the Chapter 13 case, it's going to be 3 to 5 years, and in most cases five years, before you receive that discharge order. So it's a much longer process. The problem with that is that a lot happens in five years. I mean, think of five years ago of everything that's happened since then. That's how long you're going to be in this Chapter 13 case. 

Why Do People File A Chapter 13?

So you may be asking yourself, okay, Chapter 7 is good for getting rid of credit card debt. I have credit card debt. I want it gone. You may be thinking to yourself, I want it done quickly. I don't want to be devoting the next five years of my life to this process. Why in the world would anybody file a Chapter 13? The main reason that people file Chapter 13, there are three reasons.  

1. They Don't Qualify For A Chapter 7 Bankruptcy

Back in 2005, they revamped the bankruptcy code and they instituted what's called "the means test". And so now, in order to be able to qualify to file a Chapter 7, they're going to look at how many people live in your home, how much income your family receives each month, and then they're going to compare that to these tables that they have, which have the average income for a household of your size. And so, if you make more than that, then you're usually not going to qualify for a Chapter 7 bankruptcy. 

There are some deductions that you can make, which attorneys do, that can help you to qualify even if your income is too high, but in general, if your income, particularly if it's significantly over that, you're not going to be in a situation where you're going to be able to file a Chapter 7 bankruptcy. So the first reason is you make too much money. If you make too much money, your only option may be a Chapter 13, and then you're going to be in there for a three- to five-year period, and you're required to pay back a portion of your debts during that time period. That's one of the other little differences in Chapter 13. 

2. Chapter 13 Does Have More Tools Than Your Typical Chapter 7 Case

The other reason that people file Chapter 13's, even if they qualify for it, is because Chapter 13 does have a lot more tools in it than your typical Chapter 7 case. And particularly if you're dealing with something like home foreclosure, or if your car's going to get repossessed, Chapter 13 has some awesome tools in there, that will allow you to be able to get caught up and stay in your home. 

So for instance, let's say you're behind on your house payment for 4 months, and the bank is saying they're going to foreclose soon. You can file a Chapter 13 bankruptcy. That'll stop the foreclosure from going forward. And then, you have to propose a plan to your mortgage lender of how you're going to get those payments caught up over the next five years. So you have a long time to get 'em caught up. You have to start making the payment as it comes due each month. But basically, it gives you a lot of time to be able to put the foreclosure on hold, get going on the monthly payments and then have quite a while to get the rest of it caught up. 

So, those are usually the two typical situations where we see people file a Chapter 13 is that they make too much money, so they don't qualify for a Chapter 7, or if there is some type of secured debt, home loan, car loan, something like that, that they're trying to bring current. 

3. In Chapter 7, You're At Risk Of Losing Stuff

If you file Chapter 7, it's going to wipe out all that credit card debt. But if you have any assets that you own that are not protected by one of the exemption laws in your state, the court could seize the asset, sell it and give the money to your creditors. Most states have exemptions that protect the basics, like the homestead exemption to protect your home, exemptions for your cars, 401ks, IRAs, your household goods, those types of things. In most states, those are protected and they are exempt, so the court can't take 'em. 

But let's say you have a boat, you have a brand new boat that you just bought. It's all paid for. You file Chapter 7 bankruptcy. At least in Arizona, chances are super high they're going to go in, take that boat, sell it, and give the money to your creditors. 

Chapter 13, on the other hand, they're not going to take the asset. Having the asset will increase the amount you have to pay your creditors over five years, but you can keep the boat, still work your way through the five-year process paying off some of the debt along the way, but you can keep the boat through the process.


I would look at Chapter 7. Chapter 7 is fairly quick. It can be fairly painless and it allows you to move on. And not only that, you recover from it more quickly. Chapter 7 will stay on your credit for 10 years. But most lenders, like if you're trying to get into a home, like FHA, they will loan to people who are two years outside of their Chapter 7 bankruptcy. Other lenders are three to four years. So, you can recover more quickly, as opposed to a Chapter 13 where you're in an active bankruptcy for five years, and that can limit the possibilities as far as getting credit extended to you just for the reason you have an active case. Chapter 7 is almost always better.

How To Buy A House After Chapter 7 Or Chapter 13 Bankruptcy

I'm going to share some insights here as to how to buy a house or get a mortgage after a bankruptcy. Individuals who have a recent bankruptcy that is trying to either purchase a new home or refinance the home that they're in, I want to take you through all the different types of mortgages, how long you have to wait, and also some examples or mortgages where you don't have to wait very long to either refinance or purchase your house 

The Difference Between Chapter 7 And Chapter 13 Bankruptcy

The first thing is to understand the difference between chapter 7 and chapter 13 bankruptcy, and it's really simple. Chapter 7 bankruptcy is essentially a liquidation of your assets, and even still with that oftentimes you can still retain your home. Chapter 13 it's essentially a reorganization of the debt and you make payments against it. So that's kind of the difference on the surface. There are many more differences that we could dive into another time. But right now, we're going to focus on how you can purchase a home after you've had a bankruptcy

Conventional Loan

The most common mortgage that people apply for is conventional. And for a conventional loan if you've got a chapter 7 bankruptcy you're going to have to wait 4 years before you can get a new mortgage, and if you have a chapter 13 you can wait two years. So there's the difference between the two. Even after waiting for two years, you're going to have to show that you've improved your credit, you're making payments on time against your payment plan for the bankruptcy, and you're going to have to get the trustee involved as well. So that's for conventional loans

FHA Loan

For many people after bankruptcy, you're not going to have a lot of money set aside for a down payment. So as a result, an FHA loan is something that many people will try to use to finance their new home. The problem is that with an FHA loan those guidelines will require a minimum of two years to pass after a chapter 7 bankruptcy. Plus, you'll need approval from the trustee and the lender

Chapter 13 can be reduced to one year, but again, you have to be showing just like in the other scenario with conventional you have to be showing that you've been making payments and that your credit is improved. And you're basically getting an exception as long as you meet some of those other conditions, it's not always easy to get. So it's a long shot even with chapter 13 to be able to get the mortgage before your two years have expired. so hopefully that's clear 

VA Loan

VA loans for veterans and active military, the wait time is essentially the same as FHA. 

How Do You Prepare For A Mortgage After Bankruptcy?

Well, the first thing is you have started making on-time payments, you have to improve your credit, you have to change whatever it was that led you to bankruptcy. And I know a lot of people like to say, well, I've had an unfortunate situation in my life or this happened to me it's not my fault. And you know what? There are some situations where some people find themselves that was beyond their control. Maybe they had a medical thing happen and they lost their job because they were in the hospital and couldn't make the payments those things happen.

But what I also find is that a lot of individuals end up in bankruptcy because they're just not good with money and they're not good with managing their credit and they overextend themselves, they have no safety net at home, they don't have any reserves, and one little bump in the road next thing you know you're not able to make your payments. So that's what I see typically.

So what you need to do if you want to reapply is you have to show that you're back on the right track. Now that's going to be the case where regardless of whether it's a conventional FHA or VA loan.

Getting A Mortgage After Bankruptcy Without Having To Wait For Years

I told you before the article started that there are ways to get a new mortgage without having to wait. In fact, there are a few lenders that will refinance your property or will allow you to get a new mortgage on a purchase just one day out of bankruptcy. You know, if it was discharged yesterday, you could apply today.

However, you still need to have improved credit scores. Don't expect to be getting this mortgage with a 550 credit score, and you need to show that you've been making on-time payments-especially if you've had the bankruptcy time has lapsed, and now you're you still have a mortgage on your existing home you need to show that you've been making on-time mortgage payments. 

The other thing is that your down payment is going to be likely at least 20% as I wrote this article, this is what the situation is today. By the time you're reading this article, you might be reading six months or a year, two, three years down the road, and maybe the down payment requirements are less or more, maybe the credit requirements have changed.

This can be done, you definitely going to pay a little bit more an interest rate also so. In addition to the 20% down payment, now this is really essentially a subprime loan, and you can expect to pay a couple percentage points higher than a conventional loan if you had good credit. 


That's part of reality and part of life because you filed for bankruptcy. But it does get you into the home you're trying to purchase, it does get you to refinance you need to make. So again, there are options for you.

Filing Chapter 7 Bankruptcy In Covid-19 _ 5 Things You Must Avoid

We're right in the middle of the whole COVID-19 pandemic and it's causing a lot of financial hardship for a lot of people. A lot of people are realizing that they may have to file bankruptcy in the near future. In this article, I'm going to share with you five tips of things that you need to avoid if you believe bankruptcy may be in your near future. 

Particularly if you think that you're going to end up needing to file for bankruptcy in the near future, there are some things you need to avoid. And I'm going to share with you five things you must avoid if you think that filing bankruptcy is going to happen, unfortunately, in the near future for you or for your family. These things can make or break your bankruptcy and your ability even to file for bankruptcy. So each and every one of whom is extremely important. 

1. Avoid Taking On A Second Job Or Working A Bunch Of Overtime

I know that sounds completely backward when you're dealing with financial hardship, but here's why I'm saying this. If you're looking to file a chapter 7 bankruptcy, which is what most people file when they go through the bankruptcy process, it's relatively short. It takes four to five months as compared to like chapter 13, which is a five-year process. Chapter 7 gets rid of all the credit card debt, medical bills, unsecured debts, for the most part, they go away. In order to file a chapter 7, you have to qualify for that based upon a means test. 

They look at your income and your household size, and they compare that to the average income of your household size in your state. And these numbers are kind of fluid. They change even quarterly sometimes. And so the reason why I say to avoid the second job or overtime is that if you get a bunch of income that you normally don't have, it may push you over those limits and you may not qualify for a chapter 7 bankruptcy. So at the time when you need it the most, you may find yourself having to file a chapter 13, or bankruptcy may not be an option. So you want to be careful with adding a bunch of income that you don't normally have through a second job or overtime, which I know is a tough thing because you're just trying to get by day-to-day and that's the smart thing to do is to go out and try to generate more income. But if the writing's on the wall that bankruptcy is in your near future, you may want to avoid that second job or doing a bunch of overtime. 

2. Paying Family Back

The second thing that you need to avoid is paying your family back. Assumes that if you owe money to a family member or a friend, and you're thinking, "Hey, I need to file bankruptcy here in the next month or so. It's natural to say, I want to protect those people so I'm going to go and I'm going to pay them back just so I don't have to deal with that in the bankruptcy." That can cause problems. So that's what's known in the bankruptcy world as a preference. If you pay back a family member or a friend money that you owe them, and you do it in the year prior to the filing of your bankruptcy case, the bankruptcy trustee who gets assigned to your case can actually go get that money back. And how they do that is they sue them. They sue the family member, they sue the friend, makes thanksgiving super awkward when you've kind of dragged them into your bankruptcy. 

So if it's a situation where you owe money to family or friends, you can pay them back or wait until your bankruptcy is over.  Don't do it in the year prior to filing your bankruptcy. That could cause some big problems. 

3. Transferring Assets

If you are going into a chapter 7 bankruptcy, you do not want to transfer any assets out of your name. You don't want to take your car and put it in your brother's name or sell your boat to your dad or something like that. Any transfers of assets within the two years prior to filing bankruptcy have to be disclosed. And if they're not legit transactions where you just sold it, you actually received money back. You received approximately what it's worth. If they're not legitimate transactions, again, the bankruptcy court through the bankruptcy trustee can undo those transactions. They go, and they sue the person that you sold it to bring the asset back into what's called your bankruptcy estate, where they can then sell it and give the money to your creditors. 

So if you are thinking bankruptcy is in the near future, status quo, just keep things as they are. Don't be taking your name off the titles. Don't transfer assets to family or friends, keep things as they are, because, in most situations, those can be protected through the different exemptions that are in your estate. That's something you need to talk to a bankruptcy attorney about, but don't do a whole lot of moving stuff around. Just keep it as it is. Go talk to an attorney and figure out if you can protect it or not, or put together a game plan. 

4. Credit Card Use Prior To Bankruptcy.

If you buy luxury items on a credit card within 90 days prior to the filing of your bankruptcy, those specific charges can be deemed non-dischargeable. Meaning they don't go away through this process. Further, if you take out cash advances within 70 days, more than $1000 of cash advances in 70 days, prior to the filing of your bankruptcy, the credit card company can come in and object to those specific charges going away.  

So the best advice is to not use the credit cards if you think that you're heading into bankruptcy, which again, I know is when these things where it's if you're in financial hardship, that may be kind of the safety net that you have there, but you got to be careful what it's used for. You don't want to buy luxury items, you don't want to go on trips or buy jewelry or buy real fancy electronics, things like that. And cash advances try to avoid those as well. They can cause issues in a chapter 7 bankruptcy down the road. And then the last, 

5. Do Not Pull A Bunch Of Money Out Of Any Retirement Accounts You Have

If you have a 401(k) or an IRA, I know there's a temptation to say, "I'm going to go and take that money and deal with my debt issues with that." A couple of reasons I don't recommend you do that, 

One, if you go into bankruptcy, the 401(k)s and the IRAs are almost always protected. They're exempt under federal and most state laws. And so you're not going to lose those assets. You can keep the retirement accounts as you go through the bankruptcy. 

Two, if you're taking money out of your retirement account, if you pull money out of a 401(k) to pay off debt, not only are you taking the penalty for doing it, but you're missing out on the compound effect that that retirement account has had for the years prior and in the years in the future, and you're putting your retirement to risk. So, those funds can be protected in bankruptcy. So you can go through bankruptcy, deal with the debt issue and then still have the retirement account so that you can be prepared for retirement when it comes. 


So I hope that helps, I know these are hard times and it's kind of a weird economy. Like here in Arizona, where I live, the housing market is booming, but everybody kind of sees this kind of dark cloud off in the distance where they're concerned that there's going to be a lot of personal bankruptcy filings due to the fact that a lot of the forbearances and some of these executive orders by governors stopping evictions, all of that is coming to an end in the near future.

The stimulus packages, the unemployment payments, those are down significantly. So hopefully that helps. If you think that bankruptcy is going to be in your future, and it's a very powerful tool, it can definitely help bring some structure to your debt issues, get rid of the debts that you're dealing with. But there are some things you got to be careful of prior to filing that can cause some big problems and sometimes can make it so you can't even file. So that's the purpose of this article is to give you kind of a heads up on things to be aware of as you're heading towards bankruptcy or dealing with your financial problem. 

Friday, 1 January 2021

Best ETFs And Index Funds For Retirement Investing

Purchasing index funds or ETFs is the easiest way to begin investing in the stock market, In begins reaping returns in the form of dividends and capital appreciation. They're not just for beginners though, a small selection of these funds has the potential to make everyday people extremely wealthy over time. 

There are so many to choose from that are offered by different companies with varying levels of expense past returns and sectors. But which funds are going to be most profitable and suit the needs of your portfolio? You might feel at a loss of where, to begin with too many options available, unable to understand which funds are geared towards your goals 

Here are some of the best funds in which to invest that will ensure the likelihood that your nest egg will be ready to hatch upon your retirement years.  

1. VOO

Warren Buffett suggests that the majority of investors put 90% of their money into a fund such as voo. Which is vanguards S&P 500 ETF. The S&P 500 is a basket of 500 of the largest U.S companies in a variety of sectors ranging from technology to healthcare which provides a substantial amount of sector diversification. Some of the criteria the stock must meet in order for a company to be selected for this index;

  • It must be a U.S company, 
  • The market cap must be 5.3 billion dollars or more, 
  • The company must report positive earnings for the past four quarters The stock must be trading at a reasonable share price

These are some of the reasons why Warren Buffett suggests an S&P 500 in most investors. A few names included in the fund are Apple, Microsoft, Exxon, and Johnson & Johnson. The dividend yield is currently less than 2%, in the fund's expense ratio is just .03%. If you're looking for the easiest ETF investment, it's hard to go wrong with a fund such as this 

2. DIA

The SPDR, Dow Jones Industrial Average ETF, tracks the 30 companies held within the Dow. These 30 companies are designed to be the best representation of the stock market. This as well as the S&P 500 is representative of the US economy. The holdings include Home Depot, McDonald's, coca-cola, Disney, and more. The Dow is one way to gain exposure to different aspects of the stock market, but if you're looking for diversification the S&P 500 would be a better bet because you'd be purchasing 500 or so companies

The Dow is more vulnerable when one company isn't performing well. The expense ratio is .17%, in the dividend is higher than the S&P 500 at just less than 2.5% 

3. VHT

VHT is a Vanguard fund comprised of healthcare stocks in relation to medical and healthcare products. Services, technology, or equipment. The three largest holdings consist of Johnson & Johnson, United Health Group, and Pfizer. Currently, there are almost 400 companies held in this fund and offered to investors at an expense ratio of 0.1%. The dividend yield is approximately 2% which will provide an average amount of income for shareholders

With the aging population in the United States, it's reasonable to assume that health care needs will be rising in the coming decades. Since the find is comprised of companies directly pertaining to the single stock sector of health care, risk will be above average. Investors can also attribute the higher than average risk due to the volatility associated with   pharmaceutical and healthcare companies  

3. VNQ

This is a Vanguard fund comprised of real estate investment trusts, which own office buildings, hotels, apartment buildings, and other income-producing properties, as well as a mortgage-backed security. REITs or real estate investment trusts are required by law to distribute 90% or more of their income in the form of dividends due to their business and tax structure which makes them great for income investors 

Vnq holds almost 200 different real estate-related stocks including American tower corporation, Simon Property Group, in Equity Residential. Investors looking to take part in real estate without owning tangible property can enjoy the benefits REITs have to offer, other than investing in property in dealing with the issues of renting, maintenance, and capital expenses. REITs offer the stability of real estate investing without the headaches. Additionally, the real estate sector has provided stellar returns in recent times, the VNQ fund has a healthy dividend yield of around 4%, which is great for retirees seeking income with an expense ratio of 0.12%


SPDRs S&P 500 growth ETF owns stocks held within the S&P 500 that are geared towards growth, or stocks that are likely to appreciate in value. A growth fund is more volatile than a standard S&P 500 or high dividend fund, but long-term returns are historically higher than the overall market. If you're a younger investor who has plenty of time to wait out market fluctuations, this is a great option. However, during late market cycles when stocks are well into the longest bull run in history, it might be worth holding off on buying heavily into a more volatile fund such as this one.

When the economy suffers, growth stocks tend to get hit the hardest. The fund holds nearly 300 different stocks including names like Microsoft, Amazon, Facebook, and Google. Which are all fast-growing and evolving businesses. The dividend yield does less than 1.5 % in the expense ratio is 0.04% 

5. IVE

iShares sp500 value ETF owned stocks that are potentially undervalued in relation to other companies. In other words, stocks that are missed priced by the market in out trading at a discount. These ishared funds hold almost 400 different companies. The largest holdings consist, Bank of America, Chevron, Wells Fargo, and Walmart.

Value investing is the same strategy that Warren Buffett has implemented throughout his career and has provided him the ability to achieve an astonishing net worth of over 80 billion dollars. So if you enjoy the sale opportunity and believe that prices will eventually return to retail, adding this position will align with your beliefs. The expense ratio is 0.18%, in the dividend yield is just over 2%


The Invesco S&P 500 high dividend low volatility ETF is a great fund for older investors or those nearing retirement. This fund holds about 50 different companies, many of which are real estate investment trusts which are designed to provide higher income and lower capital appreciation. Kymco Realty, iron mountain in AT&T are some of the largest holdings 

The dividend yield is currently over 4.5% which makes it desirable for those seeking income to pay bills. Buying that with lower volatility and can be a great holding for retirees who are able to live off their dividend payments without touching the principle of their investments.  What's most preferable about this fund compared to other high dividend alternatives is that the dividend is paid out monthly instead of quarterly. It's much easier to budget income received on a monthly basis instead of trying to plan three months ahead when your next diffident payment will arrive   

The expense ratio is slightly higher at 0.3%, but the monthly dividend payments might be worth the added cost. Unless you're simply reinvesting the dividends. Regardless, it can be very rewarding seeing payments come in every month instead of waiting for quarterly payments

7. VDC 

Vanguard consumer staples is a position to hedge against a poor economy due to the fact that the stocks held are non-discretionary. Consumer staples include companies like Procter & Gamble, which makes laundry detergent, dish soap, paper products, and related products. Philip Morris in Altria sells tobacco products in Walmart and Costco. You can expect to receive a tolerable amount of risk because the products sold by these companies are going to sell during all economic conditions

Some of these companies even tend to perform better during poor markets. In other words, more people will be buying food at Costco instead of eating out when times are tough. The dividend yield is just over 2.5% with an expense ratio of 0.1% which is extremely competitive

8. VT

The vanguard total world stock fund is an easy inexpensive way to gain exposure to global stocks comprised of the US and foreign companies. The fund owns an amazing amount of shares of over 8,000 different companies ranging from micro or a large-cap with most of the fund consisting of US stocks in a smaller combination of global markets. Holding companies such as Nestle, Berkshire Hathaway, and Apple. This fund is a great way for investors to add shares of global companies to their portfolios to avoid being invested in only US companies 

The expense ratio is .09%, in the dividend yields of approximately 2.5%

9. MJ

The alternative harvest marijuana ETF is a fund that holds companies related to the legal cannabis industry. There are currently 37 global holdings related to the marijuana industry including Aurora Cannabis, Canopy Growth, Tilray.

With the legalization of marijuana products in many locations, this can be a good opportunity to add some risk and excitement to your portfolio. Obviously, you want to assume a sizable amount of risk due to the volatile nature of these companies and their regulations, but if you're a younger investor and see potential in this industry, it's a good allocation for some fund money 

It's probably not a good idea to dedicate too much money to risky investments such as these, and how your risk might not even align with your plan. But a small amount of riskier investments is something to consider. The expense ratio is 0.75%, in the dividend yield is around 1%    


There are so many different funds available at a reasonable cost. While many of them don't experience the day-to-day fluctuations that individual stocks are susceptible to, but allow investors to pick them up at a discounted price. Decreased volatility can be a good thing for most. However, it's been said that the exact investment isn't what's going to make you rich. It's the act of setting the money aside on a regular basis in receiving returns for a long period of time.

It's possible to build a well-diversified portfolio with just a small selection of these ETFs. So there's no reason to be overwhelmed by the number of options. If they're seemingly too many choices, take Warren Buffett's advice and put your money in a low-cost sp500 fund. Which will provide diversification among many different sectors and many different companies.

If you're the type of investor who enjoys doing more research on various sectors in making decisions based on what you think is likely to outperform, that's also possible with ETFs. A seemingly infinite amount of exchange-traded funds makes it possible to build a portfolio that will align with nearly anyone's investing goals  

How Does Compound Interest Really Work?

If you want to become wealthy one day, then you absolutely must become familiar with compound interest. This is it, the most powerful wealth-building tool in existence. I'm going to be talking about how you can build unimaginable amounts of wealth by harnessing the power of compound interest. 

Albert Einstein once called compound interest the 8th wonder of the world. Compound interest is like a bonus, you get paid for having a bunch of money and leaving it alone. And the longer you leave it alone, the bigger the bonus gets.

It works like this

  • Invest $1,000 at 12% Annual rate of return
  • Year 1: Interest on $1,000 investment only
  • Year 2: Interest on $1,000 + year 1 interest

Let's say you invest $1,000 and your investment earns 12% interest per year. The first year, you only earn interest on your $1,000 investment, but the next year, the magic starts happening. Not only do you earn interest on your original $1,000 investment, but you also earn interest on the interest from the first year. That's compound interest 

  • Invest $1,000 12% Annual rate of return
  • After 30 Years It will be worth $35,949.64* When compound monthly*

It might not seem like a whole lot at first, but keep that going for 30 years and you'll wind up with $35,949.64. If you like the idea of being able to invest $1,000, leave it alone for 30 years, and wind up with over $35,000, then give this article a thumbs up. Add a couple zeros to your initial investment, and you can start to understand just how powerful compound interest can truly be.

Calculating Compound Interest

I'm going to show you two ways to calculate compound interest 

Fair warning: there is a little bit of math involved in this article, and I'm not gonna lie, some of it can seem pretty intimidating at first, but I'm going to do my best to break it down so you can easily understand it.

Method 1: Manually, Step By Step

For this first method, I'm going to show you my work in Google sheets, but you can do it just as easily with a pen, paper, and a calculator on your phone. 

Before we continue, it's important that you understand the concept of compounding. 

  • Compounding is when the interest you've earned is calculated and then added to the principle.

  • Compounding happens once a month, but it can happen once a year, once a quarter, or even once a day. 

  • The more frequently compounding happens, the more compound interest you'll earn.

Let's start with a $1,000 investment, this investment is projected to earn 12% interest per year, and it's compounded monthly. I want to figure out how much money I'll have if I just let this money chill out and earn interest for one year

With Google Sheets, I'll start with entering my initial investment of $1,000. I have my annual interest rate of 12%, but because interest is going to be compounded monthly, I need to divide that interest rate by 12, since there are 12 months in a year. if I divide 12% by 12, I end up with 1%. That's my monthly interest rate

Next, I divide 1% by 100 to get my interest rate in decimal form. I wind up with 0.01. Now, I can multiply my initial investment or principal by the interest rate, figure out the interest generated in one month, so I take $1,000 and multiply it by 0.01, and I get $10. In one month, my investment will generate $10 of interest

The $10 of interest is then added to the original $1,000 investment to get the new principal amount after the first month, my new principal is now $1,010. For the second month, I take a new principle of $1,010 and multiply it by the interest rate 0.01, and I get $10.10. Add that back to the principal, and my new principal is now $1,020.10 

If I repeat that process for ten more months, my final balance will be $1,026.83, And that, in its most simplified form is how compound interest works.

You may be saying, I only made an extra $6.83 over an entire year, thanks to compound interest. Why the heck is Einstein calling it the 8th wonder of the world?

The truth is that compound interest really doesn't do a whole lot in the beginning when you're just starting out. But as you'll see in the next example, what it does over a long period of time is absolutely bonkers.

Method 2: The Compound Interest Formula

I'm going to show you the second method for calculating compound interest. Which replaces all the busy work we just did with a single formula. The formula looks like this

P(1+r/n)^nt = A

  • P = original investment (principal)
  • r = annual interest rate
  • n = number of times compounded per year
  • t = time in years
  • A = final amount

Let me break it down so you can understand it more easily

  • P = is the original investment you started with

  • r =  is the annual interest rate, is the number of times the interest is compounded per year

  • t =  is the number of years we want to project for.

  • A =  is the final amount after all the interest is compounded and added.

Not so bad, right?

Let's give it a try with the example from before, and fill in the blanks. 

$1,000(1+0.12/12)^12*1 = $1,126.86

  • P = $1,000, our original investment 
  • r = 0.12, our annual interest rate in decimal form. 
  • n = 12, the number of times the interest will be compounded in a year, once every month
  • t = 1 since we're only projecting for one year. Plug all that into a calculator and we'll find that 'A' = $1,126.86

Exactly the same result as before, but much more quickly this time.

Now that we've got this great formula to work with, let's use it to figure out what our final balance would be if we just let our investment chill for 30 years.

Investment Value After...

I plug in all the same numbers as before, except I change T to 30 this time. And the answer is;

  • 30 Years: $35,949.64
  • 40 Year: $118,647.73
  • 50 Year: $391,583.40

That is what's so incredible about compound interest. If you put $1,000 into an investment earning 12% per year, compounded monthly at age 20, and left it alone until your 70th birthday, you'd wind up with almost $400,000. And that is why Albert Einstein called compound interest the 8th wonder of the world. It is truly incredible just how much wealth can be built with some compound interests and some time

I encourage you to try out some compound interest calculations for yourself to begin to understand how powerful it can truly be.

401k Investing Mistakes For Beginners

401k Investing Mistakes For Beginners

401k can be a financial blessing to many families. It's much easier to use a matching 401k plan offered through your employer and to open your own account elsewhere and begin investing. However, contributing money to a 401k for years doesn't necessarily guarantee a prosperous life during retirement. Surprisingly, the average 401k balance is just slightly over $100,000 which is just a fraction of what most people need to retire. The AARP estimates that around 1.2 million is needed to provide an income of $40,000 for 30 or so years. There's much more involved in ensuring a secure retirement than just signing up for a savings plan. 

Most people aren't knowledgeable about both the many ways to prepare correctly for retirement with the 401k. To help, here's a list of the most prominent mistakes that could be costing you your retirement

2. Not Taking Advantage Of A Company Match

The best thing that a 401k plan can offer is the employer matching contribution. This is basically a bonus that your company kicks in when you contribute to your retirement account which is usually based on a certain percentage of your pay. If your company contributes up to 6% of your salary, make sure you're contributing at least 6% to take advantage of that entire map.

Otherwise, it's simply money of your employer's pocketing and not paying you. These matches can double your retirement savings in some cases, but like anything, there is a catch and that's what's called vesting, rules vary, but might state they own 0% of the company's contributions during your first year of employment. 50% after two years, 70% after three years, 100% of your match after four years. 

This means that if you leave the company after just one year, none of those matching contributions will be yours. If you're considering finding a new job, you might want to make sure you're fully vested. You might decide you have to stick around at a less desirable job for a few more years to receive that money

2. Cashing Out When You Changing Jobs

If for some reason you find yourself changing jobs, do not cash out your 401k. This could result in hefty penalties due to age restrictions, in addition to large tax implications. Some funds allow you to leave money with your former employer, but many don't. If you're required to move the money, do a rollover into an IRA or into your new employer's 401k plan if possible. In a direct rollover, the funds are moved right into the new account leaving little chance for you to spend the money

3. Not Increasing Contributions Over Time

401k contributions are more often based on a percentage of your salary. So if you contribute 6% to your 401k, the contributions will rise in line with any increase in pay. But if you want to get even further ahead financially, creating the possibility of reaching financial freedom sooner, you want to boost those contributions more than that.

Say you make $75,000 a year and contribute 6% or $4,500 to your retirement plan. If you get a 5% raise, your salary goes up to $78,750 and that increases your 6% 401k contribution to $4,725. You are now making $3,750 more, but your annual contribution only went up by $225. Your cost of living doesn't change the day you get a raise, in this scenario, you could afford to increase your annual contribution to 10% which would be $7,500 annually

It might be tempting to grab that immediate gratification, but investing in your retirement instead will bring greater rewards.

4. Being Oblivious To Investment Performance

At some point, you decided how to invest the money in your 401k usually when the account was opened. The options are probably provided based on a varying level of risk. If you haven't been paying attention to how those investments have been performing compared to the overall market, start doing so now.

Every year that goes by is one year you won't be getting back. So it's important to take full advantage of compound interest. A portfolio that averages 10% over a career, in one that averages just 6% will be hugely different at retirement. The overall market averages about 10% per year, so that's a good benchmark to aim for. Remember that returns vary based on market conditions, though to understand if your returns are realistic, compare the funds that are available to you to a similar fund. If you're holding a small-cap fund, you could compare its performance to the S&P small-cap 600 over the same time period. If you have a target-date fund, compare that to an equivalent offered through a company such as Vanguard.

There's no reason to hold on to an underperforming fund. The more years you have between now and your projected retirement date, the more aggressive you can be. You might come to the conclusion that there are no excellent options available with your 401K, in which case, divert some extra cash after taking advantage of the match into an IRA or even a traditional brokerage account

5. Loading Up On Too Much Company Stock

Chances are that you get a discount on any company's stock. It's possible that this is a good opportunity but there's extra risk associated with individual stock. Experts recommend that most individual investors keep most of their money in index funds or ETS in a portion and individual stock. Say 20%. This 20% could be comprised of one single stock or multiple, but make sure you're not allocating too much of your portfolio to one stock or putting too many eggs in one basket

Many times employees are overconfident in their employer, keeping much of their retirement in their stock only, to find out that the company is filing bankruptcy. If your company runs into trouble, not only your job might be in jeopardy, but also your retirement will be as well.

6. Not Understanding The Downsides

401K isn't perfect, and it's critical to understand that. It's wise to be aware of these downfalls and alternative choices. For example, they usually have very limited investment selections. Most often between a dozen or two options. While these choices might be decent, the fees that you'll be paying are likely higher than what you'll pay with an individual retirement account where there are virtually endless investment choices. Don't underestimate the ability fees have to eat away your savings. Even fees of 1% or 2% will dramatically decrease the amount you've amassed by retirement

In addition, IRA offers the ability to invest in an individual stock if that's something you're interested in. Tax diversification is another big reason to think about spreading out your investment. Contributing to a Roth IRA will ensure you don't pay any taxes on those funds during retirement, which can be a huge advantage since 401k disbursements are taxed at ordinary income rates. Whether or not the taxes better paid now or later will depend primarily on if your income bracket is predicted to be higher or lower during retirement. If it's projected to be higher, income solely from a 401k will result in a sizeable tax bill

7. Cashing Out

Taking money from your 401k for a major purchase is one of the worst things you can do for your financial future. It can be tempting to take a lump sum out of this account to purchase a new car or expensive item instead of funding your purchase another way. But this can have a negative impact that can last your lifetime. Not only will you be forced to pay hefty fees if you withdraw before retirement age, but you could also face a big tax burden. Possibly the worst part about cashing out is that you'll be missing out on compound interest, leaving that money in there to grow allows it to snowball much quicker

Taking money out of this account before retirement should only be done after all other options have been exhausted. By ensuring your emergency fund is established with at least three to six months of living expenses it's possible to limit the likelihood of resorting to this.


Investing in a 401k is engineered to be simple for everyday investors. And contributing to one is a fantastic start. With some basic knowledge, you can earn substantially more passive income. Make the most of your account by saving early and often, resisting the urge to cash out, and managing how your money is invested. These small tweaks can dramatically increase your savings over time, which puts you that much closer to turning in your notice and living more comfortably in retirement