Money Management

Opening a CD with your emergency fund money could leave you stuck facing hard choices if you encounter an unplanned expense. Find out why. [[{“value”:”

Having an emergency fund with three to six months’ worth of living expenses is really important to protect your financial security. If you have a fully funded emergency account (or close to it), chances are this means you have a good amount of money in your savings account.

With so much money just sitting there, it may be really tempting to put some of it into a certificate of deposit (CD) right now. That’s because CDs are paying record high rates, with many options above 5.00%. Considering the fact that a 2.00% or 3.00% rate used to be considered great, today’s CDs are really tempting.

And it is indeed true that you could easily earn a great return if you opened a CD with your emergency savings — all while taking very little risk, since CDs are FDIC-insured. Despite this fact, putting your emergency savings into a CD is still a terrible idea. Here’s why.

Locking up your emergency fund is a recipe for disaster

While CDs may seem tempting, there’s a really important reason why you should never put your emergency fund into one: Certificates of deposit require you to make a commitment to keep your money invested for the entire CD term. And they enforce this requirement with a penalty.

CD terms typically range from three months to five years. But no matter what your term length is, you’re going to be expected to stick with it. Otherwise, you could pay a fee — early withdrawal fees on CDs typically range from 90 to 365 days of simple interest (although fees vary by bank).

This could mean you lose a lot of your gains, and even some of the money invested, if you have to make an early withdrawal. And when you have your emergency fund invested, making an early withdrawal is a very real possibility. After all, that money is supposed to be there for surprise expenses, and you can’t control when one of those surprises crops up.

There’s only one place your emergency fund belongs

The bottom line is, no matter how great the rate is on CDs (or any other investment, for that matter), there’s only one place to keep your emergency money: You should have it in an accessible savings account where you can take it out right away to cover unexpected costs.

Thankfully, that doesn’t mean giving up the chance to earn a great rate now. The Ascent has identified plenty of savings accounts that are paying rates around 5.00% or higher. While these rates aren’t guaranteed to last, they probably will for a while since the Federal Reserve is unlikely to cut interest rates with inflation at current levels. And you can get your money out whenever you need it.

So forget the idea of putting any emergency savings into a CD. Instead, check out the best savings account rates available, open an account that offers a great rate, and move your emergency money into it today. Then you can maximize your returns without risking early withdrawal penalties that could cost you in the end.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

Banks typically offer CD terms ranging from a few months to several years. Learn how to choose one, based on a few key factors. [[{“value”:”

If you decide that you want to add some certificates of deposit (CDs) to your portfolio, you’ll have an important choice to make: You’re going to have to decide what CD term makes sense for you.

You’ll have lots of choices, as CD terms typically range from three months to five years. This decision is an important one, as your rate is guaranteed for the duration of the term, but your money also has to be kept invested for that long as well in order to avoid penalties.

To help you decide whether to buy a 3-month, 1-year, or 5-year CD (or something in between those ranges), here are four key factors to weigh.

1. Evaluate the yields each CD is offering

The rate you’ll be offered for your CD varies depending on the term. As of the end of April 2024:

You can find plenty of high-yield CDs with three month terms with rates paying somewhere around 4.00%, while some pay as high as 5.30%.The Ascent’s list of the best 1-year CDs has more than a dozen paying rates above 4.50%, including seven CDs with rates of 5.00% or higher.The best 5-year CDs on The Ascent’s list mostly have rates in the 3.75% to 4.00% range, with no 5.00% options available.

If your goal is to maximize your returns in the short term, a 1-year CD would probably be your best bet. It guarantees your rates for longer than a 3-month CD, giving you more chance to earn a great yield. And it provides a considerably better return on investment (ROI) than a 5-year CD.

2. Consider whether rates are likely to go up or down

You’ll also have to consider whether you believe rates are going to trend up or go down. If you think there’s a good chance interest rates will rise and CD rates will climb higher, then you won’t want to commit your money for too long. You could get trapped in a CD when there are way better offers out there in the future.

On the other hand, if you’re concerned rates will fall, then you can expect CD yields to decline. You might want to opt for a 5-year CD (even though it doesn’t pay as much as a 1-year CD), since the current return on investment for 5-year CDs is great by historic standards and you’ll get to keep that great rate for a long time.

3. Decide when you’ll need to access the money

There’s another really important thing to think about as well: When will you need the funds you’re investing?

You don’t want to pull money out of a CD early because you can face hefty penalties for doing so. So be sure you’re OK with making the time commitment. In fact, even if you think rates will go down and you’d love to get your money into a 5-year CD to guarantee you can keep earning at today’s generous yields, you shouldn’t do that if you think there’s a chance you’re going to need the money before the CD matures.

4. Think about the opportunity cost of tying up your funds

Finally, you have to think about what you’re giving up if you tie up your money in a CD. You can’t use that money to do other things, like paying down debt. And you can’t invest it in the stock market, where it could earn a higher return than CDs offer. You’re also stuck if interest rates go up and could lose the opportunity to invest in CDs offering a higher ROI.

If you won’t need the money for more than five years, it probably doesn’t belong in any CD at all. In this instance, you can open a brokerage account and buy shares of an S&P 500 fund. The S&P 500 has consistently earned 10% average annual returns over the long term.

But if your time window is shorter, still take the time to think about just how long you’re OK with giving up your ability to move that money into another investment. If you don’t want to give up the chance to get the funds into the market for years to come, committing to a 5-year CD probably doesn’t make sense.

By considering these four issues, you can decide which CD term is right for you. Once you’ve done that, check out The Ascent’s guide to the best CD rates and find a CD with the right timeline that’s offering you a great rate today.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More 

Are you 60 years old and trying to save more for retirement? See how to maximize your 401(k) at age 60 and get the retirement you deserve. [[{“value”:”

If you’re 60 years old, you’re coming down the home stretch of your career and your retirement savings journey. Full Social Security retirement age for people born in 1964 (age 60 in 2024) is 67, so your retirement is not just a faraway dream; it’s a serious reality. And ideally you’ve been saving some serious money in your 401(k).

At 60, you still have some time to save and invest aggressively for retirement. Along with your future Social Security retirement benefits, you still have seven years (or longer) to maximize your 401(k) and other tax-advantaged retirement savings accounts like a traditional IRA or Roth IRA. Hopefully you’re also earning enough extra cash to save some of it in a taxable brokerage account, giving you even more options to buy stocks and invest for your future.

As a 60-year-old investor, you might wonder how much of your portfolio should be invested in stocks. Although you’re getting closer to retirement, you still have a few years left for your money to grow — and for your money to recover from possible stock market declines. Don’t invest as aggressively as a carefree 25-year-old, but definitely keep a healthy percentage of stocks in your portfolio.

Let’s see how 60-year-olds should consider investing and allocating their money in their 401(k) and other retirement accounts.

1. Use target date funds as your retirement role model

As a 60-year-old, you’re not new to investing. But you can still use one of the simplest strategies that’s also good for early-career investors who are just getting started with the stock market: target date funds. By allocating your investment dollars automatically to a diversified mix of stock and bond ETFs (exchange traded funds), target date funds can help you manage your investment risks and (hopefully) boost your chances of maximum long-term gains.

And keep in mind: Even as a 60-year-old, you should be investing some of your money for the long term. You want that money to grow not just for the next seven years until you’re Social Security–eligible, but for the next 10, 15, 20, 30 years or more — of what will hopefully be a long, happy life in retirement.

The Fidelity Freedom® 2030 Fund is a good example of a target date fund that would be appropriate for a 60-year-old investor who wants to retire in about seven years (2031, as of this writing). As of April 28, 2024, this fund is invested in:

38% U.S. stocks25% international stocks37% bond funds

That’s a total of 63% stocks. Different target date funds will give you various blends of U.S. and international stocks, and some might offer a higher percentage of bonds. If this allocation feels too risky to you, that’s OK. You could choose a different target date year that has fewer stocks and more bonds. But in general, looking at target date funds can give you a good “retirement role model” for how to invest your retirement savings at age 60.

2. Yes, you still need to buy stocks (lots of them)

Whether you agree with the approach of a particular target date fund or not, the fact is that 60-year-old investors should still keep investing a big percentage of their retirement savings in stocks. Unless your retirement accounts have accrued so much value and you’re so close to your “magic number” that you’re considering retiring early, a seven-year (or longer) time horizon is still long enough to invest aggressively in stocks.

At 60 years old, you need to keep buying stocks to stay ahead of inflation. You need to make those numbers in your retirement accounts as big as possible so you can generate retirement income for the next 20 to 30 years. Yes, there are risks of investing in stocks. But retirees also face other risks, like inflation eating up the value of your retirement savings, or longevity risk (the risk of outliving your money).

Target date funds aren’t the only way to buy stocks. You can build your own portfolio with low-cost stock and bond index fund ETFs, like the Vanguard Total Stock Market ETF and the Vanguard Total Bond Market ETF. Just look for low-cost funds that give you hundreds (or thousands) of stocks and bonds, all in one place.

3. Talk with a professional financial advisor

If you’re age 60, retirement is likely starting to feel a lot more real for you. At this age, investors might want to talk with a professional to get personal advice for their situation. Working with a fiduciary advisor like a Certified Financial PlannerTM can be a smart move at this age (or any age). It can be worth hiring a financial planner, even for a few hours of their billable time, so you can get professional advice on how to save and invest for retirement.

Some investment firms like Betterment, Charles Schwab, and Vanguard offer access to personalized advice from fiduciary advisors, such as CFP® professionals. (Fees and/or minimum assets may apply.) Even if you’ve never worked with an advisor before, age 60 could be a good time to get a professional’s perspective on your retirement savings, investments, and other personal finance questions.

Bottom line

As a 60-year-old, your retirement is getting closer — but you still have some good years ahead to save, invest, and earn returns. Try to maximize your investment growth with a healthy dollop of stocks. Keep buying stocks to make the most of your money, and consider meeting with a fiduciary advisor for unbiased, professional advice on your retirement plans.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. The Motley Fool has positions in and recommends Charles Schwab and Target. The Motley Fool recommends the following options: short June 2024 $65 puts on Charles Schwab. The Motley Fool has a disclosure policy.

“}]] Read More 

Are you a 50-year-old investor who wants to make the most of your 401(k)? See how to invest your hard-earned cash for a bigger retirement savings ROI. [[{“value”:”

There’s a (not-so-old) saying that “life begins at 50,” and if you’re 50 years old, hopefully you’re feeling more lively and prosperous than ever before. People who are reaching this age of life might be seeing their kids grow up and leave the nest. You might be reaching a higher level of success in your career with pay raises and promotions. And you might be thinking more seriously about saving and investing for retirement.

50-year-olds are in a special place of their life’s journey as workers, savers, and investors — and the journey isn’t over yet. You might — right now — be entering your peak earning years. That’s good news, but it also makes it even more important to save as much as you can for retirement. If your salary is higher than ever before, you should try to save a higher percentage of it in your 401(k), traditional and Roth IRAs, and brokerage accounts.

The other bit of good news as a 50-year-old investor is that you still have time to invest for long-term growth. If you want to retire at age 65 or age 67 (your full Social Security retirement age, if you were born in 1974), your retirement is getting closer — but it’s still far enough away that you can still afford to take some short-term risks and invest aggressively in the stock market to maximize your pre-retirement return on investment (ROI).

Let’s look at a few ways 50-year-olds should think about maximizing 401(k) investments to have an abundant future life in retirement.

1. Keep using target date retirement funds (if you can)

Just because you’re 50 years old doesn’t mean you need to act like a professional investor or day trader. Keep it simple. One of the best ways to invest for retirement at any age — if offered by your employer’s 401(k) plan — is to use a target date retirement fund. This is a special type of mutual fund that automatically allocates your investment money into a broadly diversified range of stock and bond ETFs (exchange traded funds).

These funds give you an age-appropriate mix of investments that are designed to boost your chances of bigger growth while managing the downsides of investment risk. You get the best of both worlds — stocks to help your money grow, and bonds to protect your money from the risks of the stock market. Your target date retirement fund will get less “risky” the closer you get to retirement age.

Here’s how a target date fund might work for a 50-year-old investor with a 401(k): Let’s say you want to retire at age 67 (your Social Security retirement age). That means you have 17 years left until retirement, so you should consider a target date fund with a “target” that’s about 17 years away, like 2040.

The Fidelity Freedom® 2040 Fund could be a good choice for a 50-year-old investor. As of April 28, 2024, this fund is invested in:

54% U.S. stocks36% international stocks10% bonds

Right now, this fund recommends that a 50-year-old investor should be 90% invested in stocks. During the next five years, the fund will gradually sell some stocks and buy more bonds, so that its bond holdings will be 21% by 2029. By your 2041 retirement year, you’d be invested in 55% stocks, 45% bonds.

2. Keep buying (mostly) stocks

Does a portfolio consisting of 55% stocks sound like too much risk for a retiree? Everyone has a different level of risk tolerance, but a 50-year-old with a 401(k) should still be investing in a significant percentage of stocks. You still have time for your money to grow, and time to recover from potential downturns in the stock market. Just keep buying stocks, and your money will be more likely to keep growing, stay ahead of inflation, and give you a comfortable retirement.

In case you don’t have a target date fund in your 401(k) plan, just try to recreate the percentages of stocks and bonds on your own. Look for low-cost index funds that allow you to buy lots of stocks and bonds in one place, like the Vanguard Total Stock Market ETF and the Vanguard Total Bond Market ETF.

3. Don’t give up on the 60/40 portfolio

Not everyone feels comfortable investing 90% of their retirement money in the stock market. If you’re looking for something that feels safer, you might want to try a classic investing strategy known as the “60/40 portfolio” — 60% stocks and 40% bonds. So for every $1,000 in your retirement account, $600 should be in stock ETFs and 40% should be in bond ETFs.

Having a larger percentage of bonds in your 60/40 portfolio is also not free of risk. Bond prices can go down in the same way as stocks. But if owning more bonds helps you sleep at night and focus on your job performance instead of worrying about investing, then it can be the right choice.

Bottom line

If you’re 50 years old, you still have time to save big money for retirement, and choosing the right asset allocation can help maximize your investment growth. Don’t assume that 50-year-olds no longer need to buy stocks — you should consider including a sizable percentage of stocks in your investment portfolio. Keep buying stocks in your retirement accounts to help make the most of this unique stage of your career.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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 Target. The Motley Fool has a disclosure policy.

“}]] Read More 

Hundreds of thousands of Americans declared bankruptcy in 2023. Find out how to keep your savings secure. [[{“value”:”

When Silicon Valley Bank (SVB), the 16th largest bank in the U.S., was toppled in 2023, the federal government stepped in to keep 100% of savings safe. This was extraordinary; typically, the Fed only insures up to $250,000 per bank account. But many SVB customers had deposited more than that. All their deposits over $250,000 were at risk when the bank went under.

The FDIC guaranteed customers would get their money back, even when they had balances above $250,000. However, there’s no guarantee they will do the same during the next banking crisis. (When such a crisis may come to pass is a hotly-debated mystery.)

Should your bank collapse or you suffer from a financial catastrophe, you could lose a lot of cash. Here are three things you can do to keep your savings safe in an emergency.

1. Have three to six months’ worth of expenses in an emergency fund

An emergency fund is a castle where you can retreat to get through tough times. A good rule of thumb is to keep three to six months’ worth of expenses within the fund.

When you might need it: a job layoff, a car accident, an unexpected hospital visit, or an unplanned vet visit. The point of an emergency fund is to prepare you to face the unknown and give you peace of mind.

The best place to keep your emergency fund is a high-yield savings account. These accounts offer the high rates of a money market account and the flexibility and minimal requirements of a savings account.

2. Pay off 100% of your credit card debt monthly

Paying off your credit card debt 100% is like putting money in a time capsule and sending it to Future You. It’s a good habit to get into for a couple of reasons.

One reason is that card issuers charge you interest fees on unpaid balances at the end of each credit cycle, about once a month. The more debt you have, the more you pay. Like a cresting wave, unpaid debt builds and builds, growing ever more expensive with time.

Another reason to pay 100% of your credit card debt monthly is to keep your credit score healthy. Lenders check out your credit score to determine how trustworthy you are. The better your credit score, the better deals they’ll offer you when you apply to finance a car or a house.

3. Keep $250,000 or less per bank account

When banks like SVB collapse, the Federal Deposit Insurance Corporation (FDIC) typically steps in. If the FDIC insures your bank — and the best banks are always insured — the FDIC will ensure you get back your deposits, up to $250,000 per account type and account owner.

However, if your bank goes bankrupt, you may lose deposits above $250,000. To stay safe, keep less than $250,000 per bank account. That way, the U.S. government has your back.

The FDIC insures checking and savings accounts, money market accounts, and certificates of deposit (CDs). FYI, if you deposit $250,000 in a checking account and $250,000 in a savings account at the same bank, you’re only insured up to $250,000 total. That’s because the FDIC lumps checking, savings, and money markets accounts together for insurance purposes. To get around this, you can split your savings across different banks, which are insured separately.

When is the next financial crisis?

Financial crises share one thing in common: they’re unpredictable. Broad crises like recessions affect millions, but those who predict and profit from them are in the minority.

Personal bankruptcies are much more common than massive recessions. According to the U.S. courts, in 2023, bankruptcy was filed by 18,926 businesses and 434,064 non-businesses. Declaring bankruptcy can be hard on your wallet, credit score, and financial reputation.

Keeping your savings safe in an emergency can help you avoid taking out personal loans or filing for bankruptcy (one often leads to the other). A study by The Motley Fool Ascent cites loss of income as the most common reason for bankruptcy between 2013 and 2016. Building an emergency fund is one of the best ways to support yourself while looking for a new job.

You can start small and build up until you hit six months’ worth of expenses — or whatever amount brings you peace of mind (you know your needs best). The earlier you start, the better off you’ll be.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a 0% intro APR for 15 months, a cash back rate of up to 5%, and all somehow for no annual fee!

Click here to read our full review for free and apply in just 2 minutes.

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.

“}]] Read More