Money Management

A five-year CD could earn you a high yield, but you’ll have to lock your money away for a while. Here’s how to know if this is the right move for you. 

Investing your money in the stock market is one of the smartest ways to grow your wealth over the long term, but not everyone is comfortable taking that kind of risk. If you’re worried about losing money in the short term, you might consider putting your money in a certificate of deposit (CD) instead.

Five-year CDs typically offer some of the highest rates, but if you open one of these, you’re agreeing to lock your money away for a long time. Here’s how to know if that’s the right move for you right now.

How CDs work

CDs enable you to earn a high annual percentage yield (APY) on your savings if you agree to leave your money untouched for the length of the CD term. This could be anywhere from a few months to a few years, depending on the CD you choose.

A five-year CD is the longest term that many banks offer. And to incentivize you to leave your money alone for that long, these CDs generally offer higher rates than shorter-term CDs. But you have to remember that you lock in your rate for the full term the moment you open the account.

Opening a five-year CD can be a lucrative decision when interest rates are falling. By locking in a high rate, you’ll probably earn more in interest than you could with a high-yield savings account over that same time. That’s because the savings account’s interest rate isn’t locked in and will rise or fall based on economic conditions.

But it may not be a great choice when interest rates are rising. In this case, it’s possible that CD rates could rise in the future, but you’d be stuck earning the same lower rate you started with. So it’s always important to look at what interest rates are doing before deciding whether to open a five-year CD.

Is now a good time to open a five-year CD?

Interest rates have been climbing over the last few years as the Federal Reserve attempts to combat the high inflation we’ve all been dealing with. Though many had hoped the rate hikes would end soon, the Fed’s chairman, Jerome Powell, recently indicated that more interest rate hikes could be coming later this year.

This isn’t great for anyone looking to borrow money affordably, but it’s also not great news for those invested in long-term CDs right now. Rising interest rates could boost the APYs of new five-year CDs. But if you open one today, you’ll miss out on the chance to earn the better rates that could be forthcoming.

A better solution might be to keep your extra cash in a high-yield savings account right now. These offer APYs that are close to what many of the best long-term CDs are offering, and you could earn even higher APYs in the future if the Fed initiates another rate hike.

Those who really want to invest in CDs could also opt for a shorter term length instead. This way, your money isn’t locked up for as long. If rates have risen by the time the CD term is up, you can move your money where it’ll earn you even more.

Many banks recognize that short-term CDs are more popular right now, so they’re offering especially competitive rates for terms of six months to one year. This might be a good place to start if you are looking to earn a high yield on your savings right now.

It doesn’t hurt to compare a few CDs before deciding which — if any — is right for you. Just make sure you review the terms of whichever account you sign up for, so you aren’t caught off guard when you need to withdraw your cash.

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It’s important to prioritize your retirement savings. Read on to see how doing so from a young age can make a world of difference. 

Many people enter retirement without a whole lot of money in savings. Some wrap up their careers with no nest egg at all. But if you don’t make an effort to save nicely, you could end up in dire financial straits once retirement rolls around.

Social Security will replace about 40% of your wages if you’re an average earner. But that doesn’t account for potential benefit cuts, which could leave you collecting less money from the program in retirement.

And also, it’s common for seniors to need well more than 40% of their former paychecks to manage their bills. So saving for retirement is pretty crucial.

In a recent Edward Jones study, 51% of current retirees said they have a couple of regrets with regard to building savings — that they should’ve started earlier in life, and they should’ve saved more. If you don’t want to end up with similar regrets, you’ll need to start saving from a young age, and make every effort to pump as much money as possible into your retirement account.

How much should you be saving for retirement?

It’s a good idea to sock away 15% of your income or more for retirement savings purposes. But for some people, that 15% just isn’t doable.

If you’re in that boat, that’s okay. It’s hard to part with 15% of your paycheck when you have a mortgage payment to cover, debts to pay off, and childcare expenses to contend with. So if 15% isn’t doable, do the best you can. And also, aim to ramp up your savings rate as much as you can over time.

It may be that during your 20s and 30s, you can only afford to save 5% of your income for retirement. In your 40s, your earnings might pick up and your childcare costs might drop, allowing you to save 10% of your pay for retirement. And by the time you reach your 50s, 15% may be possible.

How soon should you start saving for retirement?

You may not be able to sock away 15% of your paychecks for the future. But saving even 1% of your income in your 20s is better than not starting to save at all.

In fact, let’s say you were to start funding your IRA at age 22 and kept contributing all the way through age 67. Let’s also say you’re only able to contribute $100 a month to your retirement savings throughout that entire window.

Over the past 50 years, the stock market has delivered an average annual 10% return before inflation, as measured by the S&P 500’s performance. So if you invest your IRA heavily in stocks or S&P 500 ETFs, you might enjoy that same return. And in that case, after 45 years of contributing $100 a month to your IRA, you’ll end up with about $863,000.

The last thing you want is to enter retirement feeling as if you didn’t save enough or start early enough. So take steps to avoid that by committing to funding your IRA starting now, and doing your best to save as much as you can.

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When a small business owner gets stuck, they have the SBA to turn to. Here’s how one SBA loan program can help them secure up to $500,000. 

Are you a business owner and feeling stuck? You want to grow your business and expand your operations. You have the business down to a fine art and now want to see how far you can take it. However, to do so, you’re going to need capital — money to spend on the essentials needed to make growth a reality. Fortunately, the Small Business Administration (SBA) has been around since 1953, helping businesses like yours become all they can be. This is how one SBA loan program can help.

1. The SBA Express Program loan can provide an influx of cash

Whether you operate an online business or have several small shops spread across town, the SBA has well-tested ways to help. In addition to some of the practical, everyday knowledge-sharing programs the SBA has in place, it also provides loan guarantees to businesses that are ready for the next step. The SBA Express Program is one such loan.

The SBA Express Program loan offers loans up to $500,000, and as the name suggests, those loans are streamlined in a way that ensures you’ll have a response to your loan application within 36 hours. From that point, it takes from 20 to 30 days to get the money into your business checking account.

2. You don’t have to go through the application process alone

Whether you’re applying for a personal loan through your neighborhood bank or applying for a loan through an SBA-approved lender, the process can be intimidating. Fortunately, the SBA has people who will explain the process and offer insights into how to land the best loan.

3. The SBA will have your back

If you’ve attempted to secure a loan through another financial institution but have been turned down, the SBA will act as your wingman by guaranteeing up to 50% of your loan amount. That way, the lender knows that if you miss payments, the SBA will step in to repay 50% of the loan. That’s a powerful tool to have in your arsenal.

4. The interest rate you pay will be limited

The SBA does not offer money directly. Rather, you’ll apply with one of its approved lenders. You can negotiate the interest rate with the lender, but the rate can never exceed an amount set by the SBA. In other words, the SBA will ensure that you’re not paying a ridiculous amount to borrow money.

5. You’ll have adequate time to repay the debt

If your loan is for financing real estate for your business, you’ll have up to 25 years to pay it off. Otherwise, terms range from five to 10 years. Keep these terms in mind as you determine how much you would like to borrow.

6. It’s the lender’s ballfield, but the SBA is playing on your side

While the SBA sets some loan standards and backs 50% of your loan, you’ll still be dealing with an outside lender. For example, other than SBA Form 1919, you’ll be required to fill out the lender’s own forms and follow its loan procedures. Lenders are not required to request collateral for loans up to $25,000. However, a lender will use its standard collateral policy for loans over $25,000. And it’s the lender that makes the final credit decision.

Still, you’re not alone. Any time you feel stuck or are confused about something being asked of you, the loan experts at the SBA can provide you with answers.

7. You’ll have an influx of cash to grow your business

Here are some of the acceptable uses of the Express Program loan:

To cover the cost of long-term working capital, including the purchase of inventory, furniture, equipment, machinery, supplies, materials, and administrative expenses like accounts payable and receivable.To provide short-term working capital for things such as seasonal financing.To cover the costs associated with construction and renovation.To purchase a new business or expand an existing business.To refinance existing business debt (with some restrictions)

While we’re talking about acceptable uses of the loan, here are some of the prohibited uses:

To repay delinquent taxes.To reimburse an owner for a previous personal investment in the business.To make changes that will not have a positive impact on the business.

8. You have a better chance of being eligible for the loan

Loan eligibility is quite basic. It includes:

The business must be operated for profit.The business must be located in the U.S.The business must be in operation for at least 24 months.The owner must be able to show the need for financing.The owner must have already attempted to secure financing through alternative means.The owner must provide evidence that the funds will be used for sound business purposes.The business cannot already owe money to the federal government.

In some cases, the old adage “it takes money to make money” proves to be true. If you currently find yourself in the position of needing money to grow your business, the SBA Express Program loan is worth exploring.

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IKEA and Costco both have great summer deals on outdoor furniture. Compare both prices and see which is better for your finances. 

At first glance, IKEA and Costco may not seem all that comparable, but they actually have some things in common. Both have low prices that appeal to bargain-hunting shoppers, both store merchandise in giant warehouses, both sell hot dogs and pizza, and both have annual summer deals on outdoor furniture.

Of course, the differences in furniture are worth noting, as IKEA sells very different products than what you’d traditionally find at Costco. But if your personal finance goals this summer permit only a little margin for patio chairs and tables, which store would offer you the best deals? Let’s take a look at both.

IKEA’s best deals for outdoor furniture

In general, if price is most important to you, you’ll probably find better deals at IKEA than Costco. Its furniture styles will be basic — some might call them bland — but IKEA’s prices are simply unbeatable, especially when the store is having a sale. Just to give you an idea of how much you could save, here’s what you’d pay for IKEA patio furniture that’s currently on sale.

As you can see, IKEA’s prices are very low. For example, a $269 outdoor table plus four chairs is hard to beat, unless you’re buying it used.

Another advantage to shopping at IKEA — the in-app shopping experience is seamless and user-friendly. The app lets you virtually “place” furniture in your own space, so you can see what it looks like before you buy it. And the “shop and go” feature lets you scan items while you’re shopping so you don’t have to wait long at the checkout line.

Now, the downsides. For one, IKEA’s inventory is notoriously inadequate to supply the heavy demand for its products. Often, you’ll see something that you absolutely love only to find out it’s out of stock (both in-store and online). If you’re shopping in a store, I definitely recommend checking its inventory in the app beforehand, as it can be nothing short of frustrating to show up and find the warehouse emptied of its best stuff.

Another potential downside is that you’ll need to be handy to assemble furniture, or at least have a background in Lego. Constructing IKEA furniture isn’t usually intuitive, and the instructions must be followed faithfully to get it right. You could also hire someone to assemble furniture (such as through Taskrabbit), though this will tack on extra costs to your final price.

Costco’s best deals for outdoor furniture

Costco doesn’t specialize in flat-pack furniture, and its prices are going to be higher than IKEA. That said, Costco’s furniture typically comes with more than one piece and the materials are often varied and sturdier than wood. Costco also has numerous styles of furniture, which could suit your flair, whereas IKEA offers basically the same style just under different impossible-to-pronounce Swedish words.

Even if Costco’s prices will run up your credit card tab more, you could find some good deals on outdoor furniture. Here are just a few things that are currently on sale.

One caveat: these are online prices, which will likely be higher than what you find at your local Costco. For more accurate pricing, visit a Costco warehouse.

Comparison shop before you decide

Comparing Costco and IKEA on price alone seems like an easy call — buying and assembling individual pieces of flat-pack outdoor furniture would likely be less expensive than buying one of Costco’s packages.

But aside from doing the math yourself (after visiting a Costco store), consider things that aren’t numerical, like product reviews, warranties, and how comfortable the furniture is. Both stores offer generous return policies (anytime for Costco and 180 days for IKEA), so if you don’t like the furniture from one, you could also always return it to try the other.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has positions in and recommends Costco Wholesale and Intuit. The Motley Fool has a disclosure policy.

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AARP is a popular membership that promises discounts to its members, and even young adults can join AARP. Learn more so you can decide if it’s worth joining. 

Have you ever received a letter inviting you to become an AARP member, only to toss it directly in the trash because you assumed you were too young to join? I’m in my 30s and have received many similar marketing mailings in my mailbox. You may be surprised to learn that adults well under the age of 50 can become members. Keep reading to discover why you may want to join AARP in your 20s, 30s, or 40s. All members can enjoy money-saving perks.

Everyone, young and old, can join AARP

AARP, formerly known as the American Association of Retired Persons, is an organization dedicated to enhancing the quality of life for all as we age. But you may not realize you don’t have to be semi-retired or fully retired to become a member.

While many people over 50 are members, membership is open to all. There are no age restrictions or minimum age requirements to join. Many young people invest in a membership to take advantage of the available discounts.

Many benefits come with an AARP membership. Some well-known perks include discounts on travel, shopping deals, discounts on prescription drugs, dining deals, insurance discounts, event deals, and low-cost vision exams, frames, and lenses. If you’re working hard to reach your personal finance goals, a membership like this can help you save money.

Unlike many other memberships, becoming an AARP member won’t drain your checking account balance. It costs only $16 per year to join, or $12 per year with auto-renewal. If you prefer, three-year and five-year memberships are available at a cheaper rate. A five-year membership offers a 21% discount.

There are also quite a few little-known AARP membership perks. Some examples include free virtual movie screenings, free games, career tools for job seekers, and a free at-home yearly hearing test. You’ll have to decide if becoming a member makes sense for you. But now you know you don’t have to be 50 or older to take advantage of the many membership benefits.

You don’t need an AARP membership to save money

While an AARP membership is a worthwhile investment for many, you don’t have to become a member to save money. There are many ways to save money and earn rewards.

Here are a few tips to help you spend less and earn more:

Use budgeting apps to stay on track with your spending: Overspending is easy if you’re not careful. Do you need help managing your spending so you don’t rack up credit card debt? You can use budgeting apps to make it easier.Get a bigger discount with coupon codes: You can use promotional codes to save money when shopping online. You can check coupon apps to find codes for your favorite retailers. Entering these codes at checkout can allow you to waste less money.Use cash back apps when you shop: You can easily earn cash back rewards when shopping in-store or online. Cash back apps make it easy to earn rewards when you shop. Rakuten is one popular website and mobile app that offers cash back rewards.Use cash back credit cards: You can earn rewards if you have the right rewards credit card in your wallet. And, did you know you can earn cash back every time you swipe your card? Learn more by reviewing our list of the best cash back credit cards.

Life is expensive, but it’s still possible to get a good deal. Don’t miss out on opportunities to save money and earn rewards so you can continue putting money in your savings account.

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The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Personal finance expert Ramit Sethi shared how he invests his money. Discover how he sets up his investment portfolio and why it’s an effective approach. 

As an investor, your asset allocation is one of the biggest factors in your success. This is the ratio of different assets you have in your portfolio. Most investors have a mix of stocks, bonds, and cash, which are the three main types of assets.

Asset allocation isn’t something to gloss over, because getting it wrong can have serious consequences. For example, if you’re a young investor and you have more money in bonds than in stocks, that will significantly limit your returns over the years. Or, if you’re near retirement and you have a very stock-heavy portfolio, it could be too volatile at a time when what you really need is stability.

So, what should you aim for? Expert Ramit Sethi, the star of How to Get Rich on Netflix, previously shared his own asset allocation and recommendations you can follow based on your age.

How Ramit Sethi invests

Sethi shared his personal asset allocation in an Instagram post on Nov. 13, 2020. At that time, his portfolio was:

85% stocks13% bonds2% cash equivalents

That’s a stock-heavy portfolio, but it makes sense for Sethi’s age. He was 38 years old when he shared his asset allocation, still nearly three decades from the traditional retirement age.

With so much time until retirement, stocks are one of the best investments you can make. Stocks have historically outperformed most other assets. They’ve delivered an average return of about 10% per year before inflation.

The biggest drawback with investing in stocks is volatility. Returns can fluctuate quite a bit on a year-to-year basis. When you have a long time left until retirement, that volatility isn’t an issue. As long as you stay invested, you can ride out the ups and downs, and your portfolio will most likely see good long-term growth.

Sethi’s recommended asset allocation by age

Your asset allocation isn’t a one-time decision. It’s something you need to adjust as you age so that it fits your current stage of life. Here’s what Sethi recommends each decade, from 35 to 65, based on figures taken from Vanguard’s target-date funds:

Age 35: 90% stocks, 10% bondsAge 45: 90% stocks, 10% bondsAge 55: 69% stocks, 31% bondsAge 65: 53% stocks, 47% bonds

These are all reasonable recommendations if you’re planning to retire in your mid to late 60s. Until your late 40s, most of your money should be in stocks to maximize growth. As you get into your 50s and 60s, it’s time to start shifting your portfolio more to bonds, which are a more conservative investment. They won’t provide as much growth, but they will help protect you from losses.

You may have noticed that these recommendations don’t mention cash. Cash doesn’t always fit neatly into asset allocation. As a general rule, everybody should aim to have an emergency fund that can cover three to six months of living expenses. If you’re also saving to buy a house, then you’ll likely end up having a much higher cash allocation than someone who isn’t.

It often makes sense to figure out your asset allocation and your cash needs separately. Decide on the ratio of stocks and bonds you want, and then set separate cash savings goals for your emergency fund and any major expenses you’re planning for.

There’s room for some flexibility in your asset allocation

For most investors, it’s not a good idea to veer too far from those recommendations. Your asset allocation is ultimately up to you. But if you’re 25 and have your entire portfolio in bonds, that’s going to end up costing you a lot of money.

Your asset allocation also depends on your risk tolerance, though. For example, investors who don’t mind more volatility tend to go with higher stock allocations. Some younger investors, myself included, go with 100% stocks and no bonds to prioritize growth. And there are other types of assets out there, such as real estate, which you can invest in easily through REITs. Many investors have more than just stocks and bonds in their portfolio.

Still, as you can see by Sethi’s investments, asset allocation doesn’t need to be complicated. He’s a personal finance expert and a millionaire many times over, and he sticks to a widely recommended mix of stocks and bonds.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.

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