Money Management

You don’t need to worry about losing your investments. 

In the wake of Silicon Valley Bank’s (SVB) collapse, people have been understandably concerned about their money. The good news is that the FDIC guaranteed deposits for all SVB clients, so they didn’t lose anything. Still, it raises the question of where your money is safe.

Nearly all U.S. bank accounts have FDIC insurance covering up to $250,000 per depositor, per ownership category. But what about your brokerage account? After all, you may have far more money invested there than you do in cash. It’s natural to wonder what would happen if your stock broker collapsed. Fortunately, this is highly unlikely, and even if it did happen, you’d be covered.

Are brokerage accounts safe?

Yes, brokerage accounts are safe places for your money. To explain why, we need to get into the difference between putting your money in the bank and investing it through a brokerage account.

When you deposit money in the bank, the bank doesn’t just put that money in a vault. Banks invest money by issuing loans and buying bonds. They only hold a small percentage of client deposits as cash. So, if a bank doesn’t manage its investments and loans well, it risks collapsing and not being able to give clients their money back (this is a rare occurrence).

A stock broker, on the other hand, buys and stores investments on your behalf. Let’s say you invest $10,000 to buy 100 shares in an exchange-traded fund (ETF). Your broker simply makes the purchase and stores your 100 shares for you. Even if your broker collapsed, you’d still be the owner of those 100 shares in that ETF.

The securities you hold in your brokerage account are yours, and they’re completely separate from the broker’s other assets. They are, effectively, in their own vault. Stock brokers can’t use customer assets to finance their own businesses. They’d be in violation of the SEC’s Customer Safeguard Rule, and stock brokers need to comply with SEC regulations.

What happens if your stock broker collapses?

Now, let’s take a look at the worst-case scenario: Your stock broker fails. It’s probably not going to happen, but it’s within the realm of possibility.

Where do all your investments go? This is a common question, and the Financial Industry Regulatory Authority (FINRA) has the answer: “In virtually all cases, when a brokerage firm ceases to operate, customer assets are safe and typically are transferred in an orderly fashion to another registered brokerage firm.”

So, your securities will go from the stock broker that failed to one that’s alive and well. For example, that’s what happened in 2008 when Lehman Brothers went bankrupt. None of the investors who used Lehman Brothers lost money, and investments were transferred.

One last potential issue is if your stock broker collapses and there are securities missing. The most likely reason this would happen is due to fraud on the broker’s part. In this case, the Securities Investor Protection Corporation (SIPC) would step in.

SIPC insurance is used to cover investors if a brokerage fails and there’s a shortage after all customer assets have been recovered. Coverage limits are up to $500,000 per customer, up to half of which can be used to cover cash. The broker must be an SIPC member, but almost all of those registered with the SEC are.

It’s worth reiterating how rare this all is. Stock brokers don’t fail often, and when one does, there are hardly ever securities missing. The SIPC was created in 1970, and in all the brokerage failures it has handled since then, 99% of eligible investors got their investments back.

Protecting yourself as an investor

Thanks to U.S. financial regulations, it’s easy to stay safe as an investor. What’s most important is choosing a broker that’s an SIPC member. As mentioned earlier, the vast majority are. You can find out if a broker is an SIPC member on its website or by contacting it. With any of the best stock brokers and the big names in the industry, your money is going to be safe.

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

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It may not necessarily get more expensive to borrow for a home. 

The Federal Reserve has been on a mission to cool inflation since last year. In 2022, the central bank raised interest rates seven times. And on March 22, the Fed hiked up interest rates by 0.25% for the second time this year.

If you’re looking to buy a home, you may be worried that this recent rate hike will make it even more expensive to take out a mortgage. But actually, you may not need to worry so much.

Federal Reserve rate hikes don’t tend to influence mortgage rates

One big misconception about the Federal Reserve is that it sets consumer interest rates, like the rates credit cards come with. That’s not true. Individual credit card issuers and lenders set their own interest rates.

Rather, the Fed is tasked with setting the federal funds rate. That’s the rate banks charge each other for short-term borrowing. However, when the federal funds rate increases, it tends to drive up the cost of consumer borrowing in most categories.

Mortgage loans, however, happen to be the exception. Mortgage rates commonly rise and fall in accordance with the 10-year Treasury rate (meaning, when the 10-year Treasury bond goes up, mortgage rates tend to follow suit, and vice versa). But interest rate hikes by the Fed don’t always nudge the 10-year Treasury, which means mortgage rates aren’t necessarily influenced by them.

To put it another way, this recent rate hike on the part of the Federal Reserve might make your credit card balance more expensive, and it might result in a higher interest rate when you go to sign an auto loan or personal loan. But it won’t necessarily result in a higher mortgage rate if you’re planning to buy a home in the next few months.

Now that said, mortgage rates happen to be relatively high right now. So that’s something you’ll need to consider when determining how much house you can afford — or if you can afford to buy in the first place.

It’s also possible that mortgage rates will rise in the coming months. But they might fall, too. And in either case, you probably won’t be looking at too drastic a swing — though you technically never know.

Is now a good time to buy a home?

Between higher home prices and elevated mortgage rates, some buyers might struggle in today’s housing market, even though it’s been cooling. As a general rule, your housing costs, including your mortgage payments, property taxes, and homeowners insurance premiums, should not exceed 30% of your take-home pay. So if you bring home $5,000 a month after taxes, your housing costs should, ideally, amount to $1,500 or less.

If you’re able to stick to that guideline, then you may be more than able to afford a home. But if you can’t, then you may want to wait to buy.

In addition to higher home prices and mortgage rates, housing inventory happens to be really low right now. So you might struggle to find a home that meets your needs — and that’s in addition to potential issues with affordability.

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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 a disclosure policy.

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Your debt was forgiven? Congratulations! Now get ready to pay taxes. 

Have a personal loan? If you are lucky enough to have it forgiven, that may be a huge relief. But you may not be out of the woods yet. Did you know if it is forgiven you have to pay taxes on it?

It’s important to understand what your tax obligations are if the loan is forgiven. If the money you borrowed becomes cancellation of debt (COD) income, you must report this income when filing your taxes for the year in which the loan was forgiven. Let’s take a closer look at how personal loans and taxes intersect.

Cancellation of debt (COD)

When a lender decides to forgive or not pursue repayment on debt that you owe, this forgone debt is known as cancellation of debt (COD) income. This means that if you didn’t pay the full amount owed, the difference between what you did pay and what was owed will be considered taxable income at the end of the year. When COD income occurs, you must report it on your taxes as regular income for the year in which it was forgiven.

So if you have taken out a personal loan and are expecting it to be forgiven, make sure you’re prepared to account for this extra income when filing your taxes next year. For example, if you had a loan balance of $10,000 but only paid back $8,000 before it was discharged by the lender, then $2,000 would become taxable COD income in that tax year.

Exceptions to the rule

It is important to note that COD income does not always apply just because a loan was forgiven. There are certain exceptions that allow borrowers to avoid reporting it on their taxes. These include amounts canceled as gifts or inheritances, certain loan forgiveness programs, qualified real property business loans, qualified principal residence indebtedness, and certain other types of exemptions defined by IRS regulations. These exclusions include insolvency or bankruptcy events.

If any of these apply to you or your situation, then you may not need to pay tax on it. These exclusions apply depending on the specifics of your situation, so you may want to contact a tax professional for more information. If none of these exclusions apply to you, then all canceled debt must still be reported as taxable COD income at the end of the year.

If you have COD income due to debt cancellation for less than what was owed, then that amount needs to be reported as taxable income on your tax return for the year it occurred. Knowing what your tax obligations will be can help you avoid trouble with the IRS. Knowing which exclusion, if any, you qualify for can help you save money on taxes. As always, double check with a financial professional before making any decisions related to reporting COD.

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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 a disclosure policy.

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Museums are for everyone. 

Visitors are one of the biggest reasons museums exist. This is why museums employ hardworking and dedicated individuals to create exhibits, programs, and other engaging experiences for the public. Unfortunately, many museums must also charge admission fees to help cover the cost of operations (and pay those staff members).

As a result, some families may struggle with being able to afford museum admission costs, and could miss out on the educational and entertainment opportunities museums offer. But if you know where to look, there are ways to save on costs for arts and culture experiences.

The Institute of Museum and Library Services (IMLS) is a federal government agency that works to support and advance museums and libraries by offering grants and influencing government policy for the betterment of arts and culture. One of its initiatives is a program called Museums For All. Here’s how the program works, and how it helps low-income families access museums.

Museums For All

The Museums For All program gives free or reduced-cost access to more than 1,000 museums across the United States to those receiving SNAP benefits. SNAP is the Supplemental Nutrition Assistance Program, and it helps millions of lower-income Americans put food on the table.

To take advantage of Museums For All as a SNAP recipient, have a look at the program website, where you’ll find a map and a search bar to locate participating museums. I checked my state and found two participating museums right in my very own city. Visit the participant of your choice (definitely call ahead or check online for hours) and show your SNAP EBT card and a photo ID.

You can get admission for $3 or less (and some museum admissions are even free!) for up to four people just by showing one SNAP EBT card. Note that you don’t pay for admission charges using the card, this is just to verify that you meet the criteria. This is an easy way to get free or reduced-cost admission to museums and keep more money in your checking account — and it couldn’t come at a better time, as life is even more expensive than usual as of late!

Other ways to save on museum visits

Here are a few more ways to save money while getting your museum fix:

Some financial institutions cover museum admission on certain days if you’re a bank account or credit card holder. Flip through your wallet and see if any company you do business with offers a program like this.Think local, and you may get a sweet deal on museum admission. Some museums offer reduced ticket prices to area residents to get more of them to come visit. Give your city’s history, science, or art museum a call and see if there are any perks for locals to stop by. Plus, visiting a museum in your town is a lovely staycation idea for the whole family.Some museums partner with others nearby to offer reduced admission to all participating institutions. This is especially handy if you’re visiting a city for a few days and can take advantage of the deal by visiting one museum, then a second the following day.

If you’re looking for a nice day out, try Museums For All if you’re a SNAP recipient, or give one of these other tips a shot to save money on your next museum excursion.

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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 a disclosure policy.

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