Money Management

You might be surprised at the average investor’s performance, but you can take steps to do better. Find out more. 

Over the long run, the S&P 500 has delivered annualized returns of 9% to 10%, depending on the exact multi-decade time frame you’re looking at. But the typical investor doesn’t do nearly as well as they would by simply buying an S&P 500 index fund and matching the stock market’s performance.

According to the 2023 Dalbar Quantitative Analysis of Investor Behavior (QAIB) study, the S&P 500 produced a 9.65% annualized total return in the 30-year period through the end of 2022. However, the average equity fund investor only managed a 6.81% return over the same period.

To put this in perspective, a $10,000 investment in the S&P 500 would have grown to $158,584 over those 30 years. However, the average investor’s returns would have grown to less than half of that amount.

Why does the average investor do so poorly?

Of course, every investor is different, and there can be some unique situations that explain poor performance. For example, if you had a disproportionate amount of your money in bank stocks before the 2008–2009 financial crisis, it could certainly weigh on your long-term performance. But for the most part, the average investor underperforms the overall stock market for three reasons.

Emotional investing: Investing based on emotion can lead you to make portfolio moves at inopportune times. When we see all of our friends making money in a bull market, we get the urge to put as much money as we can in the market. Conversely, when the market is crashing and your portfolio is way down, it is human nature to want to sell and cash out before things get any worse. It is common knowledge that the goal of investing is to buy low and sell high, but our emotions encourage us to do the exact opposite.Overtrading: This is similar to the above reason, but one of the biggest reasons cited in the Dalbar study to explain investors’ underperformance is moving in and out of investments way too frequently and trying to time the market. If you sell every time a stock or mutual fund goes up a little and move your money into something else, you’re missing the point of long-term investing.High fees: A 1% annual investment management fee might not sound like a lot, but you might be surprised at the impact it can have over the long run. As a simplified example, a $10,000 investment in an S&P 500 index fund would be worth around $152,000 after 30 years, based on the index’s historical rate of return. However, if you paid a 1% management fee every year, the long-term return would drop to about $115,600. In other words, that “little” 1% fee would have cost you more than $36,000.

How to do better than the average investor

With those reasons in mind, there are some steps you can take to set yourself up for investing success.

Invest consistently

One of the best ways to remove emotion from the returns equation is to invest regularly, no matter what the market is doing. For example, if you plan to invest about $5,000 per year, maybe invest $100 per week in your brokerage account no matter what, even if you have the money in a lump sum. This concept is known as dollar-cost averaging, and by using equal dollar amounts at set intervals, it will naturally result in you buying more shares when prices are low and fewer when prices are high.

Buy and hold for the long run

Trying to time the market is usually a losing battle, and as mentioned, moving in and out of investments too frequently is one of the biggest reasons why the typical investor underperforms the market. So, one of the easiest ways to set yourself up for success is to keep trading activity to a minimum.

To be sure, there are some good reasons to sell stocks, mutual funds, and ETFs. For example, if something fundamentally changes with a stock you own, it’s okay to sell and move on. But the goal should be to stay invested for the long haul.

Use index funds

The average actively managed mutual fund or ETF not only underperforms the market, but comes with rather high investment expenses. It isn’t uncommon for a mutual fund to have an expense ratio of 1% or more, which means that for every $10,000 you have invested, $100 is going toward paying fees every year. Meanwhile, a simple S&P 500 index fund can cost as little as 0.03% in annual investment fees and has historically delivered a 9% to 10% annualized total return over long periods.

To be sure, if you have the time, knowledge, and discipline to invest in individual stocks, go for it. But if you don’t, putting your portfolio on autopilot can set you up for better long-term returns than you might think.

The bottom line

The key takeaway is that most investors underperform the market because they let their emotions get the best of them, they try to incorporate too much “market timing” into their investment strategy, they pay too much in fees, or a combination of the three. By understanding these concepts and taking steps to avoid making these mistakes, you can set yourself up to handily outperform the average investor.

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Being a freelancer means getting more say over the work you do and where you do it. Read on to learn why one writer is leaning into freelancing. 

It’s a fact of life that some jobs require the worker to be in a certain location. My old career was nothing but jobs like this. It makes sense, as you can’t install museum exhibits or manage an artifact collection from off-site. Whenever I wanted a new job title or a modest bump in salary, I had to change jobs, which meant moving — again. All told, I moved almost 5,000 miles in pursuit of education and positions. There were always more qualified candidates than roles available, meaning there usually wasn’t much choice for me among cities and states.

I am happy I chose my current state of residence — as I got to apply for positions more selectively that time around and happened to get hired for a job here several years ago. But it wasn’t until I completely changed careers two years ago to one that can be fully remote that I got to move to my current city, where I hope to stay for a while.

While this was a step in the right direction, it wasn’t until I became a full-time freelancer that I finally found what I was looking for: flexibility. Here are the two kinds of flexibility I lean on to work smarter and improve my personal finances.

Schedule flexibility

For most of my working life as a W-2 employee, I worked some variation of the standard day shift, commonly known as the “9 to 5.” This is a perfectly fine schedule, and is pretty common among white collar and knowledge workers, but it isn’t very flexible. My working hours coincided with that of many professional businesses, like doctor’s offices, and so I’d have to use paid time off (or take time off unpaid) if I had a medical appointment or needed to run some other timely errand. My total hours worked in any given week usually averaged 35 to 50, depending on what I had going on.

Now as a freelancer, I set my own hours. I still tend to work a fairly regular schedule, and the bulk of my work time is on weekdays during the day. But if I have an appointment or an errand that takes me away from work, I’m free to make up the time I miss (or not!) whenever I want.

I also work more hours per week than I did as a W-2 employee, and definitely work on the weekends, which could be a potential downside to freelance life for some people. Having the flexibility to work more for my freelance clients means more money in my savings account for future goals. And when I have plans (on any day of the week and at any time), I can unplug.

Location flexibility

This is another area where freelance life really shines for me — I can work wherever I want. I usually work at home, and creating a nice home office space for myself last year boosted my productivity immensely. I purchased a refurbished computer that gives me all the computing power I need. I have a comfortable desk chair and my office is a cozy space I enjoy working from.

However, I can also take my laptop and work from anywhere I can get wifi. This year, I worked in other countries for two weeks. I’ve worked in airports, hotel rooms, and vacation rentals. Taking time off is important, but it’s great to have the flexibility to work and pad my checking account even when I’m away from home.

Should you become a freelancer?

If you’re in a field (or can switch to one) where freelancing is possible, and you’ve wondered whether it might be a fit for you, here are some questions to consider:

Are you comfortable making your own schedule and choosing your own assignments? This is the essence of being a freelancer, and some say it’s the best part.Can you manage paying taxes every quarter? If you forget about this, you’ll be penalized. I recommend hiring a good accountant to help you.Are you motivated enough to work without a boss standing over you? If you struggle with motivation, freelancing might not be for you.

I love my new freelance life, and I especially love the balance that comes from flexibility, both in work schedule and work location. At this point, I can’t imagine going back to a regular job. If this kind of flexibility sounds good to you, you might consider going freelance, too.

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Spending money can become a bad habit. Here’s how to break the cycle so you have more cash in savings. 

Spending money is a part of life, and most people charge dozens of small purchases on their credit cards or debit cards over the course of the week.

While there’s not necessarily anything wrong with spending your hard-earned money on things that make you happy, many Americans are woefully behind on fulfilling important goals like saving for retirement or preparing for emergencies. As a result, cutting back a little on that spending could help you accomplish big things.

No-spend days are one way to do that. A no-spend day is exactly what it sounds like. It’s a day during which you don’t spend any money. If you can, you should aim to have four of those a month throughout the rest of 2023. Here’s why.

You can put away more money in savings to accomplish financial goals

The most obvious benefit of having four no-spend days is that you will spend less money if you aren’t opening up your wallet on four days of the month.

Some older research revealed the average American spends about $165 daily. While this calculation included things like housing costs and cellphone service (which you aren’t going to eliminate on a no-spend day), it also included close to $40 in discretionary spending on things like dining out, alcohol, and entertainment.

If you can save $40 four times per month by doing that many no-spend days, that adds up to $160 monthly. If you turn around and invest that $160 every month for 30 years and earn a 10% average annual return, you would have a whopping $315,845.97 at the end of that period.

Those four no-spend days a month could give you more than a quarter of a million dollars you could use for important future goals like retirement or sending your kids to college. It’s not a huge sacrifice to go just one day a week without spending anything, but the payoff is gigantic.

A no-spend day every week can help you establish better habits

There’s also another big reason to try a no-spend day every week. When you do, this helps you to break the unconscious habits you tend to develop that drain your checking account. Many people spend money almost mindlessly because it’s become part of their routine.

But if you stop that cycle once every single week, you can get out of the consumer mindset, start to really consider what kind of spending is worth it, and perhaps develop free alternatives to some of the things you’d otherwise buy. For example, if you tend to meet a friend for a drink every week and this falls on your no-spend day, you could instead opt for a walk in the park. It’s free, and better for your body as an added bonus.

You can embrace new activities if you aren’t spending

Finally, if you commit to not spending, this can encourage you to think out of the box and find new ways to entertain yourself without incurring added costs. You can pick the day you tend to spend the most money as your no-spend day if you want a real challenge and then challenge yourself to find better solutions.

For example, if you always spend a lot on date nights with your spouse on Saturdays, make that day your no-spend day and take turns finding a new fun free thing to do every week.

No-spend days can actually be both fun and good for your wallet, and as these three big reasons show, there are some major benefits of trying to fit in one a week. You just may decide you like the idea and want to do even more.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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There are a few consequences of maxing out your credit card, and none of them are great. Find out what to do if you’ve reached your credit card limit. 

Credit card debt can be sneaky. If you’re not able to pay off your balance each month, it can creep up quickly. Before you know it, you’ve reached your limit — also known as maxing out your credit card. The latest Transunion data reveals that American credit card balances remain at near record highs, showing many households are dependent on debt to stay afloat.

If you are close to your credit limit, here are four things that will happen when you max out your card.

1. You won’t be able to spend any more

Your credit card limit is the amount you’re able to spend. For example, if you have a limit of $3,000 on your card, transactions that take you over this level will likely be declined. Some issuers let customers opt in to over-limit protection programs, but this comes with a hefty fee and is only a short-term solution.

Generally speaking, once you max out your credit card, you won’t be able to use it until you’ve paid down some of your balance. This leaves you with very limited wiggle room. If you don’t have any savings and have to cover an unexpected cost, your card won’t be an option.

2. Your credit score will suffer

There are a few different factors that go into calculating your credit score. An important one is credit utilization ratio — the percentage of your available credit you’re using. So if you have a credit limit of $3,000 and your balance is $500, your ratio would be 17%. If your balance is $2,999, your ratio would be almost 100%.

Most financial experts recommend you keep your utilization ratio under 30%. If it’s close to 100%, it’s going to drag your credit score down. A lower credit score will make it harder to borrow money, and may mean you pay a higher interest rate or your application is denied.

3. Your minimum payment will increase

Your minimum payment is usually calculated as a percentage of your balance. Depending on your card agreement, it can also be a percentage of your balance plus interest and fees. However it’s calculated, as your balance increases, so will your minimum payment.

If you can’t make the minimum payment on your card, this can also torpedo your credit score. Payment history is the most important criteria in your score, and even one late payment can have a dramatic impact. Plus, credit card issuers can increase your APR if you miss several payments, which would make life even more difficult.

4. You could pay a lot in interest

The average credit card APR is over 20%, according to the Federal Reserve. Most card issuers compound interest daily, based on your average daily balance. To illustrate with a simplified calculation: If your APY is 20% and your balance is $3,000, you could be accruing $1.64 in interest every day — almost $50 a month. The difficulty with compound interest is that it adds up quickly as you’re paying interest on your interest.

What to do if your credit card is maxed out

It’s all very well to give you a laundry list of bad things that will happen if you max out your card. Unfortunately, in some cases, people max out their card because it’s the least bad option available to them. Even so, if you’ve reached your credit limit, it’s time to act.

Here are some steps to take:

Pay down your balance as soon as you’re able. Don’t wait until the end of your billing cycle to make payments. If you have cash to bring your balance down, even a little, make the payment straight away.Take a hard look at your budget. If you’re using your credit card to top up your income each month, see if there are any cuts you can make to bring your costs down. Look for any non-essential spending you can put on hold, as this could help you live within your means.Look for ways to increase your income. In the immediate term, you might look to sell unwanted items to raise some cash. Longer term, see if you can take on any extra hours at work or take on a side hustle to bring in more money. Put your increased earnings toward your credit card debt.Make a payment plan. There are a few different ways to pay down debt. What all of them have in common is that you work out how much you can put toward your debt each month and consistently pay it down. Check out our guide to getting out of credit card debt for more information.Consider debt consolidation. A debt consolidation loan can let you pay off multiple debts with one loan, sometimes lowering your APR along the way. Another route might be a balance transfer credit card with a low introductory APR. However, if your credit score isn’t in the best shape, you might not get great terms.

You might also wonder about asking for an increase to your credit limit. This could be an option, but bear in mind that it is dependent on your credit score, which won’t be as high as it could be because your card is maxed out.

Bottom line

Maxing out your credit card isn’t ideal, but you can minimize the impact by keeping on top of your minimum payments and paying down your debt as quickly as you can. Not only will tackling your credit card balance give you more breathing room in terms of available cash, but it could also improve your credit score, which would give you more borrowing options.

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A down economy can harm all kinds of people, but single women are uniquely positioned to have it worse. Read on to learn why, and how to protect yourself. 

Unless you’ve been hiding under a rock for the last several months, you’ve likely heard warnings of an impending economic recession. A recession isn’t outside the bounds of possibility, especially in light of the Federal Reserve’s 10 rate hikes since March 2022, which have served to bring down inflation at a cost of making borrowing (and carrying variable-interest debt) more expensive for consumers. Plus, bank failures and debt ceiling debates have left many experts worried about the economy.

In short, many people are concerned, and perhaps with good reason. One group is particularly vulnerable to economic volatility: single women. Let’s take a look at why, and discuss a few steps you can take to shore up your finances if you only have your own income to rely on in these troubling times.

The gender wage gap means women earn less

The first reason single women could bear the brunt of a recession is our old friend, the gender wage gap. American women earn an average of just $0.82 per $1 an American man earns, which means we’re already facing a potential recession on a less-secure financial footing. Earning less money means having a reduced ability to put money in your savings account, pay down debt, and even invest for the future.

What can we do about this? Currently, eight states have pay transparency laws, meaning that employers must disclose a pay range when advertising a job opening. More states are considering these laws as well. They can impact the gender wage gap by giving women more information before we potentially waste time applying for positions that don’t pay enough to meet our needs.

Beyond laws (which may or may not become a reality, depending on where you live and work), you can fight for pay equality by discussing salaries with your colleagues, researching salary data for your industry, and learning as much as you can about how to manage your personal finances. Remember, knowledge is power.

Financial independence means bearing all expenses

In addition to earning less than men, women also must absorb all the costs of financial independence if we have it. This is sometimes referred to as the “singles tax,” and it means you pay all your own living expenses, such as rent/mortgage, utilities, food, and so on. In fact, Forbes Advisor recently surveyed single folks and discovered that 93% of them were painfully aware of the increased expenses of being single.

One bright spot is that the rampant inflation we’ve all been living with for the last year and change seems to be easing, likely thanks in part to those Fed rate hikes mentioned above. The most recent Consumer Price Index Summary report found that prices were up 4.9% over the previous year, which is definitely a positive change from June 2022, when prices were up 9.1%. Just the same, single women can ill afford the higher costs on just about everything lately, making them more vulnerable to the economic slowdown of a recession that could go hand in hand with job losses.

A few ways to protect yourself

My finances are solo, and often I feel as if it’s just me (and my money) against the world. If this is your position too, the good news is that there are a few areas you can focus on to be in a stronger position should we end up in a recession:

Increase your income if you can: This is especially crucial if you’re already living paycheck to paycheck and struggling to pay the bills every month. I’ve been there, and there’s no budgeting your way out of not earning enough. Consider a side hustle, extra hours at your regular job, or even changing jobs altogether if you’re not earning enough to flourish. You’re worth it.Pay down debt: If you have variable-interest debt, like that on a credit card, it’s only becoming more expensive due to those previously-mentioned rate hikes. If you can increase your income, it’s worth parlaying some of the extra into debt payoff. And if you can find ways to cut back your regular spending, chip away at your debt with the money you save.Pad your emergency fund: Speaking of saving money, if you’re in a position to be able to put money aside, now is the best possible time to do so. Your emergency fund is your shield to keep you from going into debt for every unplanned expense.Add to your job skills: Finally, now is the time to become the kind of employee any employer would be lucky to have. If there’s a way to gain more knowledge in your field (or to develop new skills via a side hustle), you’ll be helping to shield yourself against a potential layoff if the economy goes south. You might also be able to parlay new skills into a new job.

This isn’t an easy time to live through, and if you’re a single woman and have made it this far on your wits and your grit, I’m proud of you. Prioritize debt payoff, emergency savings, and improving your position in your career to stay ahead of the curve.

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A survey shows that over 60% of business owners who’d applied for credit recently said it was hard to qualify. Find out how to give your business the best chance. 

The number of small business owners who are concerned about accessing credit has changed dramatically in the past year. In April 2022, a Goldman Sachs survey showed that 77% of business owners were confident about raising capital. One year later, and that number’s been turned on its head. In April 2023, 77% of owners said they were worried about how they’d access credit.

Small businesses face significant credit challenges

Almost 1 in 5 of the owners surveyed by Goldman Sachs had applied for a loan in the past three months. Of those, over 60% said it had been hard to access affordable credit. Access to affordable credit can be crucial, whether it’s to fund the initial start-up costs or expansion. A large proportion of business owners are able to use personal savings to get their companies off the ground, but that’s not always possible.

If you’re a small business owner trying to qualify for financing, here are some steps you can take.

1. Build your business credit history

Just as a strong personal credit history makes it easier to borrow money, a business credit history can help your company access credit. If you haven’t already incorporated your business or formed a limited liability company, this is the first step. You’ll also need a federal employee identification number (EIN), which is similar to your Social Security number.

The credit bureaus that deal with businesses are Dun & Bradstreet, Equifax, and Experian. The Small Business Association recommends setting up a free Dun & Bradstreet number. As lenders may use this 9-digit number when you apply for a loan. Another key step? Open a business bank account and use it for all your business transactions.

2. Apply for a business credit card

You can often use your personal credit score to get a business credit card, which can make the process easier. Using the card and making regular payments will help build your business credit history. Business credit cards often pay sign up bonuses and rewards on business spending. They’re also a good way to separate out your personal and business spending.

Read more: Best business credit cards for no credit.

That said, the interest rate on credit cards is often much higher than a loan or other forms of borrowing, which is why it’s advisable to avoid carrying a balance if possible. However, if you’re having cash flow issues because someone’s late paying their bill or another unexpected issue, it might be the least worst option.

3. Explore all your options

There are several types of business loans available, including business lines of credit and loans for specific equipment. See whether you qualify for a loan that’s backed by the Small Business Administration (SBA) and check out the Consumer Financial Protection Bureau resources.

Don’t rely only on what your bank has to offer. The latest biz2credit report showed alternative lenders had the highest approval rate on small business loans, closely followed by institutional lenders. Small business loan approval rates at big banks slipped to 13.5% in April.

In addition to the different types of business loans, you might also qualify for a federal or state grant. Grants can involve a lot of paperwork, but they could open doors for your company in terms of cash and support. You’ll find a bewildering amount of information online, but Grants.gov and the U.S. Chamber of Commerce are good places to start.

4. If you get denied credit, find out why

If your loan application is rejected, talk to the lender and ask for the reason. Perhaps your business credit score isn’t high enough, you don’t have enough collateral, or you haven’t been in business for long enough. Once you understand why, you can take steps to address the issue.

Bottom line

It is a challenging time to run a small business. The pressures of inflation have been compounded by high interest rates, and 50% of Goldman Sachs respondents said their profits are lower than before the pandemic. On top of which, if we do hit a recession, it could become even harder to raise capital. If you think you might need to access credit in the next couple of years, the sooner you apply, the better.

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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.Emma Newbery has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.

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