Twitter Has 412 Years in Cash to Fix Itself

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Twitter’s (TWTR) stock is crashing. Management is in upheaval. But the micro blogging site has one giant thing going for it — $3.5 billion in cash — which buys it lots of time.

Shares of Twitter are down 65 cents, or 3.6%, to $17.19 Monday after CEO Jack Dorsey said four top executives were leaving the company. The stock is now down 68% from its highest point over the past 52-weeks and off 55% over the past year. The stock is indicating a serious situation for the company.

Investors seem to be preparing for the worst — but the company’s financial standing indicates it has plenty of time to get things right: 412 years to be exact. Twitter — like many of the most valuable recent technology initial public offerings — has a giant advantage: Cash. And lots of it. The company ended its most recently reported quarter with $3.5 billion in cash and investments, says S&P Capital IQ. If the company only burns $8.5 million a year in free cash — as it did the past 12 months — that’s enough cash to last 412 years.

That’s a long time for Dorsey to figure things out. It is important to note that Twitter does have $1.4 billion in long-term debt. But the servicing of that debt is already included in the company’s free cash flow. Debt could cause issues, though, if the company’s interest rate is driven higher when if it looks to refinance in the future.

Twitter is the best example of recent technology and consumer electronics companies with the deep pockets to endure a serious market disruption. Twitter is one of the 39 cash-burning tech and consumer electronics companies that went public the past five years that also have two years or more of cash and investments based on their free cash flow over the past 12 months. Another 65 tech companies that went public the past five years generate free cash flow. There were 113 tech and consumer electronics companies that sold shares to the public over the past five years.

The financial situation shows the interesting disconnect between disastrous stock prices — and the relative strength of the company’s cash reserves. Online gaming company Zynga (ZNGA) is another example. Shares of Zynga are down 75% over the past five years — as investors lament the company’s uneven growth and perpetual losses. The company has burned $52 million over the past 12 months. But here’s the bright spot — the company ended its most recently reported period with nearly $1.1 billion in cash and investments. That would last 20 years at the current burn rate. That gives the company lots of time to find the next FarmVille.

Certainly, some of these companies could increase their burn rates which would reduce their dry powder. Some, too, could use up some of the cash to make acquisition, buy back stock or pay dividends. But with their cash reserves so full — you can see why  many aren’t breaking a sweat under their hoodies.


Company, Symbol, Years of cash left, % ch. from hi (stock)

Twitter, TWTR, 412, -68%

Quotient Techology, QUOT, 264, -66%

FireEye, FEYE, 52, -73%

M/A-Com, MTSI, 36, -8.4%

Rapid7, RPD, 33, -50%

Source: S&P Capital IQ, USA TODAY

* Based on free cash flow

** IPOs over the past five years in tech and consumer electronics

Written by Mat Krantz of USA Today

(Source: USA Today)

Monopoly Success Strategies for Real Life

With Monopoly just having turned 80 this year, many real-life personal-finance lessons can be learned from the classic money-loving board game, which is now made in 47 languages and sold in 114 countries.

Brian Valentine, 30, the 8th-grade teacher from Washington, D.C. who was the American representative and placed third at the World Championships in Macau offers a few tips.

“Know what your purpose is, keep your eye on the ball, and do it without being a bully,” says Valentine, who was edged out by champions from Italy and Norway.

Some specific strategies to win in both Monopoly and life.

It is all about location, location, location.

Aerial view of a suburban community.

© Thomas Northcut/Getty Images 

Not all properties are created equal, as every buyer needs to know. In Monopoly, some get landed on much more than others – Illinois Avenue and B&O Railroad most of all, according to the game’s maker, Hasbro.

Most competitive Monopoly players tend to focus on the orange property group (New York Ave., Tennessee Ave. and St. James Place) or the red (Illinois, Indiana and Kentucky Aves.), says Valentine.

But some that are popular with regular players are overvalued, according to Valentine. In particular, he shies away from the yellows (Marvin Gardens, Ventnor Ave and Atlantic Ave.), greens (Pennsylvania, North Carolina and Pacific Aves.) and dark blues (Park Place and Boardwalk).

The bottom line: Know your game, in whatever market you are playing.

Relationships matter.

Portrait of businesswomen talking.

© Westend61/Getty Images 

Even though there is now a mobile app, Monopoly is traditionally a face-to-face game. That means that how you interact with people is going to affect the outcome.

“You can have lots of money and properties, but a lot of the game comes down to human interaction and your ability to make deals with people,” says Mary Pilon, author of the book “The Monopolists” about the origins and history of the game.

Do not stretch yourself too thin.

Stacks of $100 bills.

© Jeffrey Coolidge/Getty Images 

Of course you want to collect multiple properties. But if you overspend and do not keep enough of a cash cushion in reserve, then you could go bust by landing on someone else’s property.

“While I was writing the book I was also buying an apartment, so the Monopoly themes got really meta,” says Pilon. “I never buy more house than I can afford, in the game or in real life. It makes me nervous just thinking about it.”

Read your opponents.

Serious older woman.

© Don Bayley/Getty Images 

Just as in poker, the game is often not about the cards you are holding, but about the person holding those cards. Brian Valentine, for instance, made a concerted effort to get to know the people he was playing against at the World Championships, to gain insight and generate goodwill.

A corollary of that: “Don’t underestimate people by how they look,” says Pilon. “I have a grandmother in her late 80s – tiny, churchgoing, harmless – who is an absolute killer at the Monopoly table. She turns into somebody else.”

Buy income generators.

Rainbow over freight train depot.

© iStockphoto/Getty Images 

Many Monopoly players turn up their noses at railroads (Reading, Pennsylvania, B&O, and Short Line) or utilities (Water Works and Electric Company). Since you cannot put houses or hotels on them, they have a much lower ceiling of how much rent you can potentially collect.

But ignore them at your peril, because all those rent payments may become very attractive. “They won’t be enough to win the game all on their own, but they will give you a constant revenue stream.” says Valentine.

Never discount luck.

Close up of dice in man's hand.

© Tetra Images/Getty Images

As any successful person will tell you, luck plays a role in getting to the top. Same thing with Monopoly.

“At the end of the day, it is still a game of dice,” says Valentine. “No matter how strategic you are, you still don’t really know how the game is going to turn out.”

Written by Chris Taylor of Reuters

(Source: Reuters)

Are You Making This Money Move That’s Ruining Relationships?

© (Getty Images)
© (Getty Images)

Financial guru Dave Ramsey has been warning for years that borrowing money from family members makes Thanksgiving dinner taste different, and now a study is backing him up.

According to the PayPal Money Habits Study released this month, 35 percent of U.S. adults under age 55 say an unpaid IOU has damaged at least one of their relationships. It doesn’t take much money to cause a rift either. Among the 1,041 people surveyed, it was an average $450 unpaid debt that ruined a friendship or family bond .

“I’m not really surprised,” says Neil Krishnaswamy, a certified financial planner with Exencial Wealth Advisors in Plano, Texas. “[Unpaid IOUs] hurt the trust factor in a relationship.”

Owing money you can’t pay back puts you in a sticky situation, one that unfortunately has no easy fix.

Why Money Ruins Relationships

Ryan Howell, an associate professor of psychology at San Francisco State University, says money can cause stress even between those who are sure their relationship is strong enough to withstand an IOU. “A lot of people think we can control our emotions,” he says, “but when we’re in the position where we’re owed money, we become resentful or angry.”

On the flip side, lending money can also change the dynamic of a relationship. “Once you borrow funds from a family member or friend, they often feel entitled to give unsolicited advice,” says Gretchen Cliburn, senior managing advisor at BKD Wealth Advisors in Springfield, Missouri.

What’s more, that change could end up being permanent.

“Even if debts are paid back, maybe the relationship takes on a new dimension,” Krishnaswamy says. That means a friend or family member may no longer want to share details of their life that could reflect on their money management skills or financial situation.

Other Options to Consider

The best way to avoid broken friendships is to not borrow from family or friends in the first place. David Weliver, founder of financial website, suggests selling items at a pawn shop or going through an online loan service, such as LendingClub or Prosper, if you have a decent credit score.

However, he warns some sources of cash should be avoided. “I would never recommend a payday loan,” Weliver says, noting they can result in a cycle of taking out new loans to pay off old loans. “You get trapped.”

Cliburn says people in dire straits may even be better off taking money from a retirement fund than someone they know. “Personally, I would prefer to borrow from a 401(k) than a friend,” she says, “but neither is a good solution.” While pulling money from a 401(k) can prevent a friendship from becoming collateral damage, raiding a retirement fund could be detrimental to your quality of life later. Plus, if you leave your job for any reason, 401(k) loans must be repaid immediately. Failure to do so means the money becomes taxable and is subject to a 10 percent tax penalty.

Basics of IOU Etiquette 

If you don’t have any other option than to borrow from someone you know, you can take steps to minimize the negative effects of an IOU. “If you’re a borrower: communicate, communicate, communicate,” Cliburn says. “If you’re a lender: document, document, document.”

Lenders should keep careful records of what they are owed, any interest charges and when payments are made. Borrowers should try to make timely payments and let the other party know as soon as possible if they expect to miss one. Howell notes some people might find online payment services like helpful since they automate the process and eliminate the awkward money conversations that can occur when cash is changing hands.

In addition, you can takes steps upfront to reassure a lender you aren’t taking advantage of his or her generosity. “From a borrower’s point of view, a great gesture you can make is to write up a promissory note,” Weliver says. “It’s basically a written IOU.” Putting the details in writing can signal to the lender you’re serious about paying the money back.

Still, if you’re on the lending side of the equation, recognize that anyone approaching you for money is at high-risk of not paying you back. “If you’re willing to lend, you have to expect to never get it back,” Weliver says.

It’s not that they don’t want to repay the debt, but the fact that they had to resort to borrowing cash from you means they may be in serious financial trouble or have poor money management skills. Cliburn’s rule of thumb is “don’t lend money you can’t afford to lose.”

Howell, who studies money and happiness, says people should keep their eyes focused on what is important: the friendship, not the money. “Don’t let an IOU damage a friendship,” he says. “Friendships are the most important part of happiness.”

Copyright 2015 U.S. News & World Report

Written by Maryalene LaPonsie of US News & World Report

(Source: US News & World Report)

Cash Beats Stocks, Bonds for First Time in 25 Years

© MarketWatch
© MarketWatch

Cash is on track this year to outperform both stocks and bonds, something that hasn’t happened since 1990, according to Bank of America Merrill Lynch. And it might all be down to the notion that central bank-fueled liquidity has peaked.

Year-to-date annualized returns are negative 6% for global stocks and negative 2.9% for global government bonds, according to analysts led by Michael Hartnett in a Friday note. The dollar is up 6% and commodities are down 17%, while cash is flat.

Here’s what this has to do with the liquidity story:

[Quantitative easing] & zero rates reflated financial assets significantly. The only assets that QE did not reflate were cash, volatility, the US dollar and banks. Cash, volatility, the US dollar are all outperforming big-time in 2015, which tells you markets have been forced to discount peak of global liquidity/higher Fed funds. Frequent flash [crashes] (oil, UST, CHF, bunds, SPX) tell the same story. Peak in liquidity = peak of excess returns = trough in volatility.

The note speaks to what has become a very important theme for investors. While the Bank of Japan and the European Central Bank continue to provide quantitative easing, the Fed has stopped its asset purchases and is moving toward lifting rates from near zero, as is the Bank of England. The notion that liquidity has peaked and that financial markets must now adjust to that new dynamic.

Indeed, billionaire hedge-fund investor David Tepper earlier this month argued that as China and other emerging-market central banks shed foreign reserves, liquidity is no longer flowing one direction, making for more volatile conditions.

Back to the note. The strategists observed that September has been marked primarily by a “risk-off” theme across markets.

It isn’t all doom and gloom, however. While it is “suddenly impossible to find a bull” (see chart below), there are some positive notes, they said, including the observation that “bond and credit markets are not doing anything freaky right now,” they said. In the event of “true quantitative failure,” falling stock prices would be accompanied by falling credit prices and rising bond yields.

Also, housing markets, the job market and bank lending haven’t reversed their recent recovery and global earnings-per-share figures have already seen a sharp fall, dropping 9.6% from peak to trough.

So what would it take to revive “risk-on” sentiment? The strategists, who recently lowered their year-end target for the S&P 500  to 2,100 from 2,200, said a successful defense of 1,850 would be a positive. “[I]n a world without conviction, investors seek solace in technicals and SPX defending lows is as important as it gets right now,” they wrote.

Also, oil needs to avoid setting new lows, they said. Other positives would include emerging-market rate increases and reforms that allow emerging market currencies to rally; improvement in China’s export growth, which would remove the risk of further yuan devaluation; and the ability of individual investors to continue viewing the recent price action as an overdue correction rather than the start of a bear market.

And finally, there is the need for resilient U.S. domestic demand, “because the best narrative for risk assets in the next three to four quarter is still higher growth/higher rates,” they said.

So maybe it is no surprise stocks are catching a lift Friday from Fed Chairwoman Janet Yellen’s signal that a rate increase by year-end remains likely.

Written by William Watts of MarketWatch

(Source: MarketWatch)

6 Basic Bills You Should Always Negotiate

© Caiaimage/Rex Shutterstock/Rex Features
© Caiaimage/Rex Shutterstock/Rex Features

Does the thought of haggling over your monthly bills make you break out in a cold sweat? You’re not alone because most people don’t like trying to talk their way into a lower price. A 2013 Consumer Reports survey found that less than half of consumers had tried negotiating a better deal on everyday goods and services in the past three years. But if you can get over your fear of negotiating, you’ll see the payoff in your pocketbook — especially when it comes to bills that you pay regularly or even occasionally.

Tai McNeely, a money-saving expert and founder of the His & Her Money blog, said she frequently negotiates with service providers to get a better rate. She’s successful nine out of 10 times. “I don’t have a problem with calling and asking for a discount because they budget for this stuff,” she said. “If you don’t use it, someone else will.”

Find out how to negotiate bills down to a more affordable cost:

1. Medical Bills

A pricey medical procedure can be a big blow to your budget, especially if your insurance policy has a high deductible or your insurer denies your claim. But you shouldn’t assume that you’re on the hook for the full amount you’re being asked to pay. “If you know what the going rate for a procedure is, you can always negotiate,” said Adria Gross, CEO of MedWise Insurance Advocacy, which helps people navigate the medical claims system.

You can use free online source to look up the reasonable amount you should expect to pay for a medical procedure, test or service in your area. Or, visit, and use the consumer cost look-up tool to get cost estimates of medical and dental services in your area. This information can help you determine whether you’re being charged more than the estimated cost, giving you a starting point for negotiations.

Offering to pay with cash — rather than credit — is another good way to get a discount of at least 10 percent to 50 percent, Gross said. She recently got a medical bill for a client reduced by 75 percent by using this strategy.

McNeely said that by taking the time to understand what her insurance plan will and will not pay for has helped her dispute charges and avoid overpaying for medical care. “You have to know your rights and what is covered,” she said.

2. Wireless Phone Service Bill

Whenever McNeely signs up for wireless phone service, she never expects to pay the price advertised by a provider. She researches what other wireless providers are offering, then uses that information to negotiate a lower price with the provider she wants. “A lot of times, they have flexibility to offer you a better package because they know you can go to their rivals,” McNeely said.

Make sure you research at least three competitors’ prices and have their websites open when you make your call so you can quickly reference their rates, she said. According to the Consumer Reports survey, half of the consumers who negotiated their cellphone planssaved $100 or more.

3. Cable or Satellite TV Bill

You likely got a special promotional rate when you signed up for cable or satellite TV service. But after that promotional period is up after a year or so, the cable company is banking on you not noticing that your rate has jumped, McNeely said. That doesn’t mean you’re locked into paying a bigger bill, however.

Call the cable company, and let it know that you’re considering switching providers or dropping your service if it won’t lower your rate. Also, cite a competitor’s offer. With more and more people cutting the cord and opting for online and pay-as-you-go services, cable companies “want to keep your business, and they’ll do whatever it takes,” McNeely said. She typically gets her cable provider to lower her rate back to within $5 to $10 of the introductory rate and throw in a freebie, such as a premium channel.

McNeely schedules a calendar reminder on her smartphone to alert her one month before her rate is due to increase so she can call the cable company and start negotiating. To avoid getting stuck on hold, she always presses the key during the menu options that corresponds to the “change or cancel your service” option. “They won’t leave you on hold because they don’t want to lose you,” she said.

She also negotiates a discount whenever there are problems with her service, such as an outage. She recently got $25 knocked off her bill when she lodged a complaint.

4. DSL Internet Service Bill

Curious to find out how to negotiate internet service? Many consumers get their internet service through their cable company as part of a bundled package that typically offers a discounted rate for a year or two. My household actually gets its internet service through our telephone service provider, AT&T.

When my husband noticed that our rate for our bundled services shot up after what he calls the “bait-and-switch” rate expired, he called our provider and threatened to drop both our internet and landline service. To avoid losing a customer that was paying for two of its services, AT&T lowered our monthly bill by $20 — an annual saving of $240.

5. Rent

The cost of cable, phone and other services might be just a drop in the bucket compared with how much you’re paying each month for housing. Like those services, though, you can negotiate your rent.

According to real estate site Zillow, renters who can demonstrate that they’ll be responsible, reliable tenants because they have a steady job, good credit and plan to stay in an apartment for several years have leverage when it comes to negotiating rent. Also, renters in a market where there’s not as much competition for apartments will have better luck getting landlords to lower their price.

Use a site such as to find out if your rent is reasonable for your area or whether you’re being overcharged and can negotiate a better deal.

6. School Tuition Bills

“It is a little-known fact that private school tuition rates are rarely set in stone,” writes author Ruth Soukup on her blog Living Well Spending Less. When comparing schools, parents should ask whether their rates can be adjusted — especially if more than one child from the family will be attending, according to Soukup. If the school isn’t willing to budge on its tuition, maybe it will offer a payment plan so you don’t have to pay the entire amount upfront.

Bonus Tip

Consumers who are behind on their utility bills might be able to negotiate payment plans. However, you typically won’t have much luck negotiating a lower rate for water, gas or electricity from the get-go as you can with services such as cable TV, McNeely said. But that doesn’t mean the only way to lower your utility bills is to resort to cost-saving moves such as setting the thermostat lower in the winter or using a low-flow shower head.

Some utility companies — typically water companies — offer discounted rates at certain times of the day, said McNeely. Check with your local utilities to see if they have off-peak rates. Then, take advantage of them by running the dishwasher, washer and dryer as well as watering your lawn during those times.

Written by Cameron Huddleston of GoBankingRates

(Source: GoBankingRates)

Wealthy Foreigners Snatch Up $100B in US Real Estate

© Provided by CNBC
© Provided by CNBC

Overseas buyers snapped up more than $100 billion in U.S. real estate over the past year, as the foreign wealthy sought safe shelter for their fortunes.

According to the National Association of Realtors, sales of U.S. residential real estate to overseas buyers between April 2014 and March 2015 reached a record $104 billion, or about 8 percent of total existing home sales. While the number of properties sold slowed to 209,000 from 232,600 last year, buyers acquired more expensive properties, which brought up the sales total.

Chinese were far and away the top foreign buyers of real estate last year, with buyers from China, Hong Kong and Taiwan accounting for $28.6 billion in sales, according to the report. Canada ranked second, with $11.2 billion, followed by India with $7.9 billion. They mainly favored homes in Los Angeles, San Francisco, Seattle and New York.

Overall, Florida was the top state for overseas real estate buyers, accounting for 21 percent of all U.S. sales to foreign buyers. California ranked second, with 16 percent, followed by Texas with 8 percent and Arizona with 5 percent. The top four states accounted for half of overseas buying.

Overseas buyers accounted for only 3 percent of sales in New York state, though that share is far higher for New York City, where most of their buying is concentrated. The buyers were split almost evenly between resident and nonresident foreigners.

Europeans and Canadians were attracted to Florida and Arizona, while California and Texas were favored by buyers from Asia. Buyers from Latin America, including Mexico, favored Texas and Florida.

Foreign buyers were focused on higher-end homes. The mean purchase price for overseas buyers was $499,600, nearly twice the national mean purchase price of $255,600. Foreigners are also paying more than they were last year: The mean price paid by overseas buyers jumped 26 percent over the previous year. Most favored the suburbs over the city and most favored single-family detached homes over apartments.

Most buyers—some 55 percent of overseas buyers—paid all-cash, according to the report.

The declining number of properties sold was primarily attributed to the stronger dollar, which makes U.S. real estate more expensive for overseas buyers.

The report said that U.S. real estate remains a relative bargain compared to other global cities favored by the wealthy. For instance, a condo costing $1.6 million in New York would cost more than $4 million in Paris and $2 million in Moscow.

Fully 46 percent of foreign buyers planned to use their properties as a primary residence, while 20 percent plan to use as them for rentals and 15 percent plan to use it them as vacation homes.

Written by Robert Frank of CNBC

(Source: MSN)

10 Common Refinance Misconceptions

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© Provided by

Evolving regulations and occasional horror stories of traumatic mortgage transactions add confusion to the perception of refinancing.

Misconceptions about refinancing are not surprising when you consider that most people experience a mortgage transaction only four or five times in their lifetime, says Faramarz Moeen-Ziai, senior vice president of national sales and production for Commerce Home Mortgage in San Ramon, California.

“The gap between one mortgage application and another is so wide that it’s natural for people to find the process confusing, especially if the last time someone applied for a loan was in 2006,” he says. “Today’s mortgage market is completely different.”

It’s a natural instinct to avoid what you don’t understand, but Rick Roque, managing director of retail for Michigan Mutual in Boston, says fear keeps too many people from benefiting from a refinance. Consulting a lender is free and can lead to a satisfying financial conclusion.

No. 1: Most people can’t qualify for a mortgage refinance 

© Ariel Skelley/Blend Images/C

“A lot of people have what I call ‘low financial self-esteem’ so they opt out of refinancing without even finding out if they can qualify,” says Roque. “People think their credit is worse than it is. They don’t realize that even if they do have challenged credit a lender can help them.”

No. 2: Getting one mortgage quote is enough

Roque says consumers often don’t realize how valuable it can be to compare loan options from more than one type of lender such as a local bank, an online lender and a mortgage banker. “It’s important to shop around for good service, not just to compare rates,” says Moeen-Ziai. “Call different places and ask questions to see if you can get help understanding your loan options.”

No. 3: An appraisal won’t impact your refinance rate

© Jim Craigmyle/Corbis

An appraisal is a primary driver of your interest rate because it determines your loan-to-value, says Moeen-Ziai. A higher loan-to-value, such as when you borrow 80 percent or more of your home value, requires private mortgage insurance (PMI) and a slightly higher interest rate. “It’s important to work with a lender who hires a local appraiser who can give you an accurate appraisal,” says Moeen-Ziai. “But every appraisal has a subjective element, so it’s a good idea to clean up your home before an appraisal so it doesn’t appear that you have any deferred maintenance.”

No. 4: You can take out as much cash as you want from your home equity

You may not have as much access to your home equity as you think, says Moeen-Ziai. You can borrow up to 80 percent with a cash-out refinance as long as you have a conforming loan balance of $417,000 or less. “If you live in an area with higher housing costs that have ‘high-balance conforming loans’ up to $625,500, you’re limited to borrowing 60 percent of your home value for a cash-out refinance,” says Moeen-Ziai. If you don’t plan to take out cash, you can refinance up to 95 percent of your home value with some lenders, but you will have to pay PMI whenever you borrow more than 80 percent of your home value.

No. 5: Advertised mortgage rates are what most people pay

© Image Source/Corbis

“There’s a gap between the published interest rates and what most people pay,” says Moeen-Ziai. “The advertised rates are for an optimal purchase loan rather than a refinance, and they reflect the rate an owner-occupant would get for a single-family home with a high credit score and a 30 percent down payment.” Contacting lenders directly allows you to compare realistic mortgage rates.

No. 6: Refinancing to a slightly lower interest rate isn’t worth your time

“Most people are so busy that they don’t want to take the time to look into refinancing and they don’t know that interest rates are still low,” says Roque. “They don’t realize that they are missing out on saving a lot of money. Even $50 or $100 per month is a lot when you add it up over 30 years.” Saving $100 per month comes to $36,000 on a 30-year home loan.

No. 7: Staying current on your mortgage means you can qualify for a new loan

Borrowers sometimes think an approval should be simple because they make their mortgage payments on time and they have a higher income than they did when they took out their current mortgage, says Moeen-Ziai. However, all borrowers need to document their credit and income and qualify for a loan based on current guidelines, not just on their mortgage payment history.

No. 8: You can’t improve your credit score fast enough to refinance before rates rise

© 237/Rob Daly/Ocean/Corbis

While a long history of missed payments and overuse of credit cards can’t be fixed fast, Moeen-Ziai says most lenders can do a “Rapid Rescore” to correct an issue that has temporarily driven down your credit score. For instance, a recent borrower was able to increase his credit score by 40 points simply by having his employer pay the balance on the company American Express card that appeared on his credit report.

No. 9: A no-cost refinance is free

“Borrowers often don’t understand that you always pay for a no-cost refinance in some way, typically with a slightly higher interest rate,” says Moeen-Ziai. “You should always shop around to compare fees and to find a lender who can calculate whether it makes sense to pay money upfront for a lower interest rate or to pay a higher mortgage rate for the life of your loan.”

No. 10: Paying cash to refinance is always a bad idea

Moeen-Ziai says that borrowers can often get a lower interest rate if they opt to pay down their principal balance a little when refinancing. For example, if your loan-to-value could drop to 70 percent with a payment of $2,000, the saving on your interest rate could quickly recoup your investment. Plus, you’re paying yourself when you reduce your loan balance, he says.

Written by Michele Lerner of

(Source: HSH)

Not all ETFs are Created Equal

© (Getty Images)
© (Getty Images)

When investors think about the risk in their 401(k) or other brokerage accounts, they often frame it in terms of volatility. Most often, they are concerned about sharp declines in the U.S. stock market. With memories of the 2008 market plunge fresh in people’s minds, it’s understandable that many view volatility and risk as one and the same.

But that’s not necessarily the best way to think about portfolio risk. In his most recent annual letter to Berkshire Hathaway shareholders, Warren Buffett addressed that topic, writing, “Volatility is far from synonymous with risk. Popular formulas that equate the two terms lead students, investors and CEOs astray.”

Buffett was making the point that over the past 50 years, the return of stocks far outpaced the purchasing power of the dollar, which declined over that time. The “riskier” investment in stocks is actually the way to stay ahead of inflation and maintain purchasing power. That’s a key premise behind a carefully crafted retirement investment plan.

Exchange-traded funds provide a window into an understanding of portfolio risk. Historically, ETFs tracked basic market-capitalization-weighted indexes such as the Standard & Poor’s 500 index of large U.S. stocks. On the fixed-income side, a number of ETFs track the Barclays U.S. Aggregate Bond Index (formerly the Lehman Aggregate Bond Index) of investment-grade, dollar-denominated bonds.

A broadly diversified portfolio, constructed with ETFs representing several stock and bond asset classes, has its own distinct risk-and-return profile. For example, a portfolio containing 70 percent stocks has more risk than a portfolio with 40 percent stocks. Stocks are riskier than bonds, because in a bankruptcy, debt holders are repaid before equity holders. Investors demand to be paid more for taking that risk; hence, stocks have higher returns relative to bonds.

With the information at investors’ fingertips today, it’s not particularly difficult to design a portfolio with the right asset mix to achieve an expected return over time, while dampening the volatility of stocks.

But when investors veer into more esoteric ETF products, such as those concentrated in a single sector or that use complex strategies, the risk-and-return trade-off changes.

Ron DeLegge, U.S. News blogger, founder of and host of the Index Investing Show, a weekly podcast, says the more specialized, niche ETFs should be considered as noncore parts of a portfolio.

“The core portfolio is the foundation. That’s where the bulk of the assets will be allocated,” says DeLegge, who is based in San Diego. “The core is always broadly diversified and invested across the five major asset classes: stocks, bonds, commodities, real estate and cash.”

DeLegge says in this area of the portfolio, investors should use low-cost ETFs that track broad-market indexes.

“The noncore portion of a portfolio is complementary. This is where you have things that are narrowly focused, concentrated, higher risk, maybe leveraged,” he says.

Individual stocks, he adds, are outside the core because they represent concentrated positions in one very specific asset. Likewise, sector funds, regional funds, hedge funds and actively managed funds are noncore because none track a broad asset class.

Although risk and volatility are not the same, investors are familiar with the nail-biting experience of volatility, even when their portfolio is taking a level of risk appropriate for the desired outcome. Understanding what he or she owns, and why, can help smooth an investor’s ride.

Elisabeth Kashner, a chartered financial analyst and director of ETF research at FactSet in San Francisco, says investors should be realistic in their expectations of niche or esoteric ETFs. “By and large, you’ll find that these products are not magic. Usually, if a fund has greater returns than a comparable vanilla, market-cap-weighted benchmark, it’s because it has taken on more risk to get there. If the returns are lower, it’s generally because the fund has taken less risk,” she says.

“Most of the time, the index and fund construction process has not delivered more return for less risk,” she adds. “You have to be careful. I’m not saying these products are underperforming, I’m saying they are performing in line, that their performance is driven by risk.”

Alex Bryan, an analyst with Morningstar’s manager research team in Chicago, says the category of “strategic beta” – also known as “smart beta” – has been growing rapidly. Strategic beta funds use methods like tracking indexes not constructed using traditional market-capitalization weightings. Strategic beta funds, which do have strict methodologies, differ from most active funds, which rely heavily on stock picking and generally don’t have ironclad investment rules.

Bryan says part of the growth in the category is due to fund companies marketing the products heavily. “There’s been a push on the fund company side. They can charge higher fees for creating products that look different from other people’s, whereas if you are offering vanilla, broad-based exposure, you are competing on cost,” he says.

He cautions investors to understand what they are buying if they decide to put money into an ETF that doesn’t track a broad index. “There are some where the methodology is not transparent. We at Morningstar are more skeptical if you don’t know exactly what’s going on under the hood. You want to know what are the drivers of performance,” he says.

Kashner offers similar advice for retail investors. “There are reasons to go into a complex strategy, but there are usually more compelling reasons to keep it simple,” she says. “Or, if you are going to take something simple and make it more complex, you should understand exactly why you are doing that and what you hope to get out of it. If you don’t understand that, you are probably best off keeping it simple.”

Copyright 2015 U.S. News & World Report

Written by Kate Stalter of U.S. News & World Report

(Source: U.S. News & World Report)

Should You Ever Pay Cash for a Home?

© House
© House

While some of us may be struggling just to afford a down payment, there are people out there who are paying for their homes in full in cash. Finding a great property and forgoing all the bank paperwork and loan repayments may seem like a dream, but it can, in fact, be a mixed blessing. So, if you are looking to buy a home and could afford to pay all cash for it, should you?

Running the Numbers

A great place to start in this process is figuring out how much money you would save buying a home in an all-cash payout versus with time-based loan payments. Compare the sticker price to the eventual price tag of your home if paid for with a 15- or 30-year fixed mortgage with a down payment of around 20%. You will save money on interest, but it’s a good idea to factor in the loss of the mortgage interest deduction when it comes to tax time. Also, consider what paying in cash will do to your savings — emergency, retirement and otherwise — in the short term.


If you truly have the money available immediately and it won’t put you in jeopardy of going into debt if an emergency were to come up, you will most likely save money by not paying interest on a loan. You will also avoid all of the paperwork that comes with securing a loan, pesky closing costs and the often-frustrating loan process.

Your credit history also will not come into play, which may be beneficial if you have a shaky credit past or have run into trouble before while still having considerable savings. (You can check your credit scores for free on to see where you stand.) You will also have available equity in your home that you could likely tap in case you hit tough financial times. Furthermore, you can only lose the amount of money you have put in because you are not leveraged, meaning you do not need to get as concerned about market fluctuations.

Another benefit is mostly psychological — you actually own your house, giving you a sense of security and pride. Probably most importantly, you are a very attractive buyer to motivated sellers, giving you an edge over other buyers. The deal will be simpler and faster for both sides and buying in cash may even put you in a position you to get a better deal. After all, time is money.


Paying cash for your home likely means most of your savings or at least a lot of your money will be tied in one asset, leaving less money to invest in other, diversified assets. Also, real estate has a historically lower return on investment than stocks or bonds, meaning you could be losing out overall if other investments would have outperformed the interest on a mortgage.

Additionally, you are sacrificing liquidity, so it’s probably only a good idea to buy a house with cash only if you can afford it without emptying your emergency fund. A home can take months to sell, and borrowing against your home’s equity brings fees and borrowing limits into the equation. You further lose the financial leverage a mortgage provides because your payment is locked in and hopefully received a favorable interest rate. Lastly, you will not qualify for the tax deductions mortgage payers receive, which often total over $10,000 when itemized.

How you pay for your home is a very personal decision and paying in all cash will likely work for some people but not for others. This generally makes sense if the home’s price does not subtract a significant portion of your liquid assets and/or the interest rate you would pay on a mortgage is higher than what you could earn on other investments. It’s important to properly assess your financial situation and long-term investment strategies, the drawbacks as well as the benefits.

Written by AJ Smith of