Favorite Stocks of Millennials: Apple, Facebook, GE, Tesla

Investor compares quotes from newspaper and tablet
The kids are all right — or at least they will be. The oldest of the millennials, loosely defined as those born between 1981 and the turn of the century, are approaching 35. And as the generation matures and enters its prime wealth-building years, reality is setting in about long life expectancies and the solvency of Social Security. According to Bankrate’s latest survey of investing professionals, three-quarters of the market gurus polled agree that millennials are ready to take on more risk and invest in stocks in order to afford the things they want, including eventual retirement.

In fact, TD Ameritrade reports that among its customers, two-thirds of the typical millennial portfolio is already invested in individual stocks. “Young investors are stock pickers,” says Nicole Sherrod, managing director of the trader group at TD Ameritrade. “And from what we see of the stocks that they’ve been investing in en masse, they’re doing pretty well.”

Which stocks do they like? It turns out that, despite reports of their many differences, millennials and baby boomers have similar investing tastes. According to Openfolio, a social media network where investors can share and compare their portfolios, six of the top 10 stocks held by people ages 25 to 34 are also favorites of folks 50 to 64: Apple, Facebook, Walt Disney, General Electric, Microsoft (MSFT) and Google (GOOG).

Popular Stocks Among Millennials

Apple (symbol AAPL, $115.15) is the top holding across all generations, according to both Openfolio and TD Ameritrade. Millennials seem particularly enamored. Apple is often the first stock trade for investors of this generation, says Sherrod. Its popularity should be no surprise to anyone who has noticed that the stock has more than tripled in value over the past five years. Less expected: It remains relatively affordable. The stock sells at 12 times estimated year-ahead earnings. That’s cheaper than the 17 forward price-earnings ratio of Standard & Poor’s 500 stock index (^GSPC).

Apple promises to continue its rise as the company consistently churns out upgrades, as well as new products. Anthony David, a Washington, D.C.-based financial adviser with Morgan Stanley, points to high demand for both the iPhone and new Apple Watch to support Morgan Stanley’s 12- to 18-month price target of $155, an aggressive one-third above the stock’s mid August price of $115. In the quarter that ended in June, the company sold more than 47 million iPhones, now in its 10th iteration. That’s 35 percent more than during the same period in 2014. Those sales totaled $31.4 billion, 59 percent more than the product earned the year before. The Apple Watch is off to a good start. After being introduced in the U.S. in April, it sold 20 percent more pieces than first-generation iPhones did in its first six weeks.

Facebook (FB, $93.43) is the second-most popular stock among millennials, according to TD Ameritrade. (According to Openfolio, it’s second among 25- to 34-year-olds and third among investors under the age of 25.) Like Apple, its popularity is evident in the skyrocketing price. Since its initial public offering at $38 in May 2012, Facebook’s stock sank to a low of $18 that September but has since soared to near $100. And it still might have room to run. The site may be relatively old in the social media world, but “it is still early days in the company’s effort to grow as an industry-leading global advertising business,” says David.

The social network does hold the attention of a growing number of users. In the second quarter of 2015, the site reported 968 million people actively using it on a daily basis, up 17 percent from the year before. The number of daily visitors using a mobile device has grown at an even faster pace, 29 percent to 844 million. All those eyeballs mean big money for the company. Advertising revenue totaled more than $3.8 billion in the second quarter of the year, up 43 percent from the same period of 2014. Mobile ads count for 76 percent of those dollars; in 2014, it was 62 percent. Analysts expect sales to increase 38 percent this year and another 35 percent in 2016. Morgan Stanley raised Facebook’s 12- to 18-month price target to $110 from $94.

Old Favorite

A surprisingly popular stock among millennials is General Electric (GE, $25.79). Founded in 1892, it may not be the sexy company you’d think would attract young investors. It’s more like the stable suitor their parents might keep mentioning at family dinners. According to TD Ameritrade, it’s the third-most popular stock among millennials and second-most popular with boomers. “I think probably it’s a brand that their parents have recommended to them, a company that their parents have been invested in for a really long time,” says Sherrod. (Openfolio ranks GE sixth in popularity among investors under 35.)

It just goes to show that sometimes your parents really do know what’s best for you. With the ongoing sale of its financial-services unit, GE Capital, the company is returning to its industrial roots and raising cash in the process. The company has reached agreements to sell about $78 billion worth of its financial-services assets so far in 2015, putting it on track to hit $100 billion in asset sales by the end of the year. GE’s core industrial operations demonstrated year-over-year improvement during the second quarter. Analysts expect earnings will increase by about 19 percent in 2016. The stock sells at 18 times estimated year-ahead earnings, versus a P/E of 17 for the S&P 500. Plus, even if young investors aren’t all that interested in income at the moment, GE’s current yield is 3.5 percent.

Our younger investors tend to look for companies that are a little bit more socially responsible.

One company that younger and older investors don’t quite agree on is Tesla (TSLA, $242.51). According to Openfolio, it ranks second in popularity among investors under 25 and third for investors ages 25 to 34. Yet, it’s just 24th for 50-to-64-year-olds, and it doesn’t even appear in the 25 top stocks for investors over age 65. “Our younger investors tend to look for companies that are a little bit more socially responsible,” says TD Ameritrade’s Sherrod. “Tesla is doing a lot in the green space with electric cars.”

Given each generation’s investing time horizon, Tesla’s popularity, or lack thereof, makes sense. In the short term, Tesla expects losses as it invests in developing new technology and ramping up production. And the stock is very pricey at 181 times year-ahead earnings. But, says David, analyzing the stock based just on near-term expectations won’t work.

In the long run, the company is poised to transform the energy and auto industries and to boost sales exponentially. Morgan Stanley expects Tesla could multiply its revenues by 18 times by 2029. The company expects its Gigafactory outside Reno, Nevada, to be fully operational by 2020. At that time, the facility, where Tesla is set to make its lithium-ion battery packs, will boost production to 500,000 vehicles a year. In 2015, it expects to deliver 55,000 vehicles. Tesla’s base Model S sedan starts at $75,000, though options can easily push the price tag into six figures.

A Word of Warning

While the stock market is the place to build wealth over very long periods of time, buying individual stocks comes with risks. “I wouldn’t recommend young people touch individual stocks,” says David. “They usually won’t have sufficient funds to diversify properly.” Indeed, you’d need nearly $500 in order to buy just a single share of each of the four companies listed above.

And you would be nowhere near a well-diversified portfolio. After all, a large position in any single company allows it to have a great impact on your wealth. If that company tanks for any reason, so do you. For a proper mix, you should limit your stake in any one company to between 2 and 5 percent of your portfolio, meaning you’d need to invest in at least 20 holdings. John Sweeney, executive vice president of retirement and investing strategies at Fidelity, recommends a minimum of about 40 stocks to build a well-diversified portfolio.

A high concentration in a single sector can also be a concern. Millennial investors have nearly one-third of their portfolios in technology companies, according to TD Ameritrade. Baby boomers and seniors have just 26.9 and 19.2 percent of their investments, respectively, in tech. By comparison, 19.8 percent of the S&P 500 is composed of tech companies. “I think that’s a function of the brands that they’re really familiar with do tend to be tech brands,” says Sherrod.

Investing in mutual funds is a simpler way to reap the benefits of the stock market. With a single purchase, you can invest in hundreds of stocks and dampen the risk. Plus, you can still buy a stake in a company you like. “When I have someone really interested in investing in, say, Apple, I let them know there are a whole host of low-cost mutual funds and ETFs that hold a piece of Apple along with a lot of other companies,” says Karen Carr, a financial planner with the Society of Grownups, based in Brookline, Massachusetts. “So you’re getting the best of both worlds there.”

Take a look at the Kip 25 to see our favorite low-cost, no-load funds. No matter what your age, it’s a great place to start.

Retirement Reality Check: 1 in 10 of Us Aren’t Saving at All

Senior African American woman paying bills
For many Americans, lack of savings is making even the thought of retirement feel increasingly stressful.

A Bankrate.com survey examined the state of our nest eggs — and found that 1 in 10 working Americans haven’t contributed to retirement funds at all in this year or last.

“That data point is a trouble spot,” admits Greg McBride, Bankrate.com chief financial analyst. “It’s the highest it’s been in polls we’ve done and does dilute the good news we saw in other areas.”

The limited availability of employer-sponsored 401(k)s and unfamiliarity with alternatives like IRAs are two possible obstacles. Stagnant incomes, McBride adds, continue to hold back saving rates.

In the race to retirement, millennials (aged 18 to 29) are at the back of the pack, with those survey respondents least likely to be contributing to 401(k)s or IRAs.

Sure, their golden years are a long way off, but millennials are missing out big by delaying. Financial pros like to say that time is your greatest ally in saving for retirement because of the power of compound growth.

As for that good news? It turns out that 19 percent of Americans are socking away more this year than last, while only 14 percent are falling behind. (About half are holding steady.)

“We’ve never seen a gap that big in favor of those saving more — it’s a reversal over the past few years that’s consistent with greater job stability,” he points out. “And it suggests recognition that retirement savings won’t happen if you don’t do it.”

The pressure’s increasingly on you, the future retiree, and maybe that’s a reason why the overall sense of financial security declined, especially among women surveyed.

There isn’t necessarily a quick fix to get yourself into that 19 percent power group of savers. But you can watch out for these common retirement mistakes as you shore up your nest egg.

The Big Retirement Blunder Single Americans Are Making

Worried Woman Doing Finances

These days, one isn’t such a lonely number. Singles make up a larger percentage of U.S. households than ever before.

But while staying unattached is a choice that may fit more people’s lifestyle goals, it isn’t necessarily helping with their money goals.

A new study from Mintel shows that only 51 percent of unattached people in the U.S. have a retirement savings account. Which puts singles way behind couples when it comes to building a nest egg.

Nearly 7 in 10 (68 percent) of those living with a partner are saving for retirement — and the figure jumps to 84 percent among married couples.

Granted, singles can face particular savings challenges like missing out on some tax breaks or not having the safety net of a second income. But that also makes it all the more important that they’re prepared to go it alone in their golden years.

This serious lack of savings is only going to become a bigger problem as the ranks of American singles continue to swell.

Millennials, in particular, should take notice, as they’re most likely to stay single longer, according to Robyn Kaiserman, financial services analyst at Mintel.

“Because they are young, however, they may be hesitant to start saving for retirement. By postponing saving they are losing the benefit of time, which allows their savings to accumulate and grow,” she notes.

If you’re looking for some inspiration, follow the lead of these three singles who are successfully saving for retirement on their own.

Should You Go Back to School in Your 20s and 30s?

serious mature male student...

I’m in my mid-thirties. I’ve cobbled together a career I’m happy with, a little more than 10 years after I finished a two-year degree at a tiny school. It has been hard work and it has paid off. But I can imagine how it just as easily might not have paid off. That’s the reality a lot of people my age are realizing. The education they have hasn’t gotten them as far as they wished.

That can be a troubling conclusion. It’s no secret that expensive university education has gotten a bad name since the Great Recession. Many are the college graduates working entry-level positions they could have easily gotten without the four years of effort (and associated debt). I wasn’t able to afford a four-year degree when I was 18. And today I’m glad I couldn’t. I don’t think I was ready. I didn’t know enough about myself or about the world, not to mention the value of education itself. Even though I’m not planning on it, in many ways I think school would be more valuable for me now, now that I’m mature enough to take advantage of it.

A lot of people feel this way. And it begs the question, “Should I go back to school at this point in my life?” In 2013, 40.5 percent of higher education enrollees were age 25 to 39. Clearly, many people are taking this step. But should you? And what if you’re older than that? I’ve thought about this a lot, and I have a few requirements that I think everybody should demand of their education, especially if you are taking it on as an adult.

1. How fast will your education pay for itself? My “back of the napkin” equation for determining the value of adult higher education is: it’s got to pay for itself within two years. If I’m going to get a degree and enter a new field, I want a job as soon as a graduate. And I want the extra income I earn as a result of this education I’ve received to pay off that education within two years. In order to do this, I’ve got to pick out the right degree in the right field, one which has a reliable job available to me when I complete my program. Some degrees will accomplish this and others won’t. So whatever you do, be realistic about the money it’s going to add to your bottom line. Unless this new career path is extremely fulfilling, it’s not worth the effort if it’s not going to pay for itself quickly.

2. Is this program a realistic time commitment? Grown up people are busy. You might have kids. You might have any number of demands upon your time. Many adults begin schooling programs that they ultimately can’t complete. They may learn some good things in the meantime, but unless they’re able to transfer this learning into a job, this is time and money that is largely wasted. So you’ve got to spend some time to figure out if you can handle all aspects of your school or degree program: the commute, the homework, the change to your schedule and the demands of your family and outside work. Don’t let this stuff surprise you. You need to anticipate time demands well in advance.

3. Is this the best program for you? If you can afford it and handle the time demands, have you chosen the most beneficial program for your needs? What is your most important priority? Pursuing a field that you enjoy? Finding a job that pays the most money? Getting a career that gives you more time with your family? Identify the most important outcome of your new school or degree program and make sure you pick a program that maximizes the payoff in that specific area. The best choice may be a program that surprises you.

I think going back to school can be appropriate for people of all ages. But because of the economics involved, it is important to make careful considerations before signing on the dotted line. This can be the difference in a degree that pays for itself and a degree that weighs you down.

Can Closing a Credit Card Damage Your Credit Score?

Cutting a Card
NEW YORK — Managing a credit card and your credit score at the same time is no easy task — although that’s exactly what consumers have to do on a regular basis, with no shortage of risk to their financial health involved.

“Credit cards are a convenient way for consumers to purchase items now and pay them off over time,” said Charles Chung, vice president of consulting and analytics for Experian. “However, if mismanaged, credit cards can get consumers into an unmanageable financial situation that can have a negative effect on their credit rating and as a result, future credit will come at a higher price or they may even be denied credit.”

It’s a common fallacy that closing credit cards will always help your credit rating.

One area — call it a “myth,” Chung says — is when consumers close a credit card, and expect that to mean a subsequent hike in their credit score. “It’s a common fallacy that closing credit cards will always help your credit rating,” Experian says in a recent study. “Focus more on the amount of available credit being utilized, making sure you are not over extending your debt beyond levels you can manage. Closing good accounts could actually hurt your credit rating.”

Of course, where there’s a will, there’s a way — and that goes double for consumers looking to close down a card and protect their credit score. First up, know what’s at stake when you cut that piece of plastic in half. “Closing a credit card affects two factors used to calculate credit score — length of credit history, which accounts for 15 percent of your score, and balances — also known as debt to available credit ratio — which accounts for 30 percent,” says John Janney, past president of the National Financial Awareness Network.

If you need to close a credit card, it’s best to close the youngest account with the smallest credit limit to minimize the damage, Janney adds.

“Closing older accounts or accounts with larger credit limits may lower your score, because it makes you look, at least on paper, as if you’re new to the credit game and have less credit to work with,” Janney says. “My recommendation for someone wanting to close a credit card to is shift balances from the youngest card to the oldest card and close the younger account once its balance reaches zero — not before. The credit effects may be less harmful, but they will also be temporary.”

Also, consider your options — there is no shortage when it comes to closing a credit card account, experts say.

There may be many reasons why you want to close a credit card, and understanding why will help you make the right decision and avoid hurting your credit, says Alex Matjanec, chief executive officer of MyBankTracker.

“For example, if the issue is your APR is too high, negotiate with your card issuer,” he says. “In many cases, they would prefer to lower it and keep you than have to spend money acquiring a new customer. On the other hand, if you have multiple cards and some are costing you money, you may want to consolidate as the hit to your credit score may outweigh the money you are wasting on fees.”

The ‘Split’ Approach

Of course, you could opt for the “split” approach, and cut your card in half but keep the account open. “Closing a credit card could hurt you because it eliminates your payment history,” notes William Matthews, a self-described millennial finance adviser located in Houston. “For example, if you have a Visa card for three years and kept a low balance, paid on time, closing that account will wipe out the good payment history which helps give you a higher credit rating.”

It’s better, Matthews says, to cut the card with scissors but leave the account open. “This gets tricky when you have to pay a membership fee for a card you no longer use,” he adds. “[Alternatively] keep the card but only use it once a quarter for groceries or gas just to show activity on the card.”

John Schmoll, who runs the personal finance website Frugal Rules, says he has canceled numerous credit cards himself, with minimal to no impact on his credit.

“Both my wife and I have 810-plus scores,” Schmoll says, adding that if you have two or more cards from the same issuing bank, ask to transfer the limit you have on the card you’ll be canceling to another card. “This is important, as it won’t impact your credit utilization ratio,” he says. “I’ve done this every time I’ve canceled a card and in most instances the entire amount is transferred.”

Also, if you want to cancel a card, consider calling your other card issuers and asking them to increase your limit. “If you’ve been a good customer it’s possible they will and thus potentially replace what you’re losing and mitigate the impact on your credit,” Schmoll adds.

If you’re mulling over the notion of closing down a credit card, count to ten first, and consider the right way — and the wrong way — to peel away from your plastic. Your credit score will be all the better for it.

Your Long-Term Financial Plans Are Absolutely Frightening

Couple Talking About Bills
NEW YORK — Well, U.S. workers, feel better: you aren’t the only ones failing to make long-term financial plans.

The deVere Group, a U.K.-based financial advisory group recently surveyed 650 people around the world who aren’t using a financial adviser. They asked simply, “Do you plan your finances a year ahead, one to three years ahead, or three years or more ahead?” Of that group, 71 percent chose the first option.

Many people believe the myth that planning for the longer-term is more difficult than planning for the short term — this is not true.

Granted, that’s an improvement from 2013, when the same poll had 82 percent of respondents provided that answer. However, when nearly three-quarters of a group from the U.S., U.K., Spain, Australia, France, South Africa and the United Arab Emirates gives that answer, it makes the financial advisers a little nervous.

“It’s troubling how many Americans aren’t thinking about long-term planning or retirement, with little to nothing stashed away in a savings account,” said Casey Bond, editor-in-chief of GOBankingRates. “Saving money is an uphill battle for many, but there are a number of simple ways people can consistently grow their nest egg over time, such as automating their savings. Even a small contribution is better than nothing at all.”

Savings Delayed

Procrastination is something U.S. workers excel at, and the financial straits of the recent economic crisis haven’t helped matters. According to a survey earlier this year by financial firm Edward Jones, 45 percent of non-retired U.S. workers aren’t saving for retirement. We put it off by age (90 percent of young workers say they’ll start saving in their 30s or earlier, but only 64 percent of folks ages 35 to 44 follow through), we put it off until the kids get older (39 percent of singles aren’t saving, compared to 51 percent those in a household of three or more) and, according to a survey by financial services firm Franklin Templeton, we put it off altogether (30 percent of those 18 to 24 say they’ll never retire).

But why is the rest of the world suddenly in the same year-to-year financial scenario. Well, there was a reason why it was a global economic crisis. Thanks to austerity measures implemented by countries around the world, some of the more socialized benefits offered to retirees just aren’t available anymore.

“Long-term financial planning has never been more important because governments are being forced to cut age-related benefits, meaning that in the future most people will not be able to rely on governmental support to the same extent they have done in the past, so we have to be more financially self-reliant in retirement,” Green says. “Plus, as we’re all living longer, and as such the money we accumulate throughout our lives has to go further than it ever has done before.”

Also, much of the joblessness that swept Western nations over the duration of the crisis affected the youngest workers. The Principal found that 63 percent of workers ages 23 to 35 began saving before they turned 25, but fewer than a third saved 10 percent of their salary. With cash tight thanks to either joblessness or settling for low-wage employment until better positions opened up, long-term saving for retirement competed with rent (65 percent), food (38 percent) transportation (30 percent), student loans (20 percent) and credit card debt (16 percent) for their dollars.

Obstacles to Saving

“Many millennials may see these large expenses — especially student loans and other debt — as primary obstacles to saving anything for retirement,” says Jerry Patterson, senior vice president of retirement and investor services at The Principal. “But in most situations, it’s possible and necessary to both save for retirement and pay down debt by creating a plan and sticking to it.”

According to Voya Financial, nearly 6 in 10 (59 percent) working Americans say they are very or extremely concerned about outliving their savings in retirement and 74 percent have never calculated their monthly retirement income needs. However, if they just think ahead a bit, they can start making sound savings decisions now. A diverse and somewhat non-conservative portfolio helps.

“Generally, people should have at least 70 percent of their annual income in order to have a secure retirement with a similar lifestyle,” says James Nichols, head of retirement income and advice strategy and Voya Financial. “Of course, some people will need more than that and some will need less depending of their lifestyle desires, health expenses, retirement plans and other factors. You may have 30 years or more of retirement, so your money needs to continue to grow during that time.”

Sometimes, that saving means sacrificing in the short-term in favor of your long-term goals. Joe Boyle, a retirement coach with Voya in Beverly Hills who specializes in helping Millennial clients, notes that some of his younger clients with good jobs, who can afford to live on their own, make the choice (in concert with their parents) to live at home so that they can save money towards buying their first home. In one case, a younger client who is an attorney had no student loans or credit card debt lived at home for three years to save a 20 percent down payment on a home near her office.

“She said that ‘there were some small sacrifices’ to her social life that came with living with her folks, but that it allowed her to buy her first home and it was definitely worth it,” Boyle says. “The trade-off for many millennials living at home is giving up some of their independence today for greater financial freedom tomorrow.”

With The Principal’s survey noting that, though 84 percent of millennials believe that they should be independent by age 25, many still rely on parents for help with their cellphone bill (12 percent), car insurance (8 percent), health insurance (7 percent) and rent (7 percent). However, deVere’s Green warns that current conditions shouldn’t always put a damper on future plans.

“If you’re serious about reaching your big, life-enhancing financial objectives,” he says, “you must think and plan with a perspective that’s longer than 12 months.”

Why Millennials Are Having a Tough Time Buying a Home

Boyfriend watching frustrated girlfriend on sofa
NEW YORK — Here’s a conundrum: younger U.S. adults want to buy a house, but barriers keep getting in the way of them actually buying a new home.

Data that comScore (SCOR) and Realtor.com shared shows that 64 percent of Americans 21 to 34 years of age visited real estate websites and mobile apps in August. That should be encouraging in a nationwide real estate market that is up 9 percent so far in 2015. And to some extent it is — and it isn’t.

“People who believe that millennials are disinterested in homeownership are grossly mistaken,” says Jonathan Smoke, chief economist at Realtor.com. “This generation hit the job market during one of the largest recessions of all time, and they’ve had to work hard to establish credit and save for a downpayment. With the older segment just beginning to enjoy the life events that drive homeownership — marriage and children — now is the most appropriate time for them to consider homeownership, and that’s what we’re seeing.”

Despite the increased role of millennials in the housing market, setbacks still exist and are preventing first timers from making even more of an impact.

Smoke also points to some “top impediments” that “signify significant barriers of entry” for younger homebuyers, although he thinks the younger can set can overcome those challenges.

Not helping matters are toughermortgage rules from the U.S. Federal Housing Administration, which will factor in student loan debt when considering home mortgage applicants. With an average student loan balance of $27,000 for Americans 40-and-younger, that’s a problem for many millennial homebuyers.

One additional issue confronting younger homebuyers is their apparently strong desire to live in hip, urban areas, where homes are more costly.

“Many first time homebuyers are having issues but there are two categories of these homebuyers,” says Ian Serota, a sales representative at Toronto, California-based Right At Home Realty. “The ones who are single are finding it hard to find a place to move to that isn’t too small for them in a location where they would like. Most don’t have vehicles and the lack of public transit outside of the core of the city makes it impossible for them to be outside the city.”

The other category includes couples, Serota says, who are looking to start a family or who have kids. “They want to be in good areas with good schools but in most cases those homes can cost 20 to 40 percent more than the less desirable areas,” Serota said. “Therefore many are moving to the east end of Toronto and are sacrificing quality of life with terrible commutes in order to get the home they want. Plus, the price of homes in the major cities keep going up, and many younger people do not wish to move to smaller towns as they are accustomed to the big city lifestyle.”

Another school of thought from real estate professionals — millennials have long-since been taught to view the act of buying a house as an investment, and they tend to turn to family to afford that investment, leading to further debt problems on top of student loans.

“Millennial homebuyers should be wary not to ‘jump the gun’ before they’re ready, as homeownership can be financially taxing for first-timers of any age,” says Ray Brousseau, executive vice president at Carrington Mortgage Services in South Hadley, Massachusetts. “Millennials should spend three to six months researching their options and talking to a variety of real estate agents, lenders and other homeowners. Ask these resources about how the home buying process works, and what they’d do differently their ‘first time.’‚ÄČ”

“Additionally, millennial homebuyers should not feel be afraid to disclose personal financial information to a licensed loan officer,” he adds. “This will help you gain an idea of how a lender reviews your information. Find out if you can prequalify for a specific loan amount, it can tell you more about what you can afford long term.”

Then there’s the issue of wanderlust, where this generation of younger adults seems especially reluctant to lay down some strong roots with a new home purchase. “I’m a millennial who recently purchased a home, but I do see my peers being impeded in buying new home,” says Scott Trench, director of operations at BiggerPockets a Denver-based wealth management blog. “For example, transience is a problem. Many of my friends and peers seem to be moving all over the country and to new cities year after year. A home purchase signals a commitment to a particular location, and that seems to be a decision that my generation is not interested in making yet.”

A lack of financial literacy might also be holding young homebuyers back, adds Trench. “Paying rent is by far the most expensive way to live in most situations,” he says. “It takes at least a basic financial background to understand that paying down a mortgage, benefitting from price appreciation, and the myriad of tax advantages available to the owners of real estate make ownership far more powerful financially than renting. Many of my peers haven’t even thought about those things, and thus build no home equity.”

This isn’t to say that younger Americans don’t want to buy a new home — it’s just that the problems they have to overcome to buy that home are formidable, and not going away anytime soon.

4 Tips for Saving for Retirement at Your First Job

businesswoman with glasses and team on the back
As you start your first job, retirement can seem very far away. You may have 30 or more years in the working world ahead of you, but if you are financially able,now is the time to start saving. Establishing good financial habits now will benefit you throughout your career and into your retirement.

There’s a lot for young savers to be optimistic about. According to a recent MOOD of America survey commissioned on behalf of Lincoln Financial Group, 78 percent of millennials say they feel in control of their financial future, and 85 percent say planning for their financial future is empowering. However, 79 percent say understanding their options for retirement planning can be overwhelming.

One of the most important things you can do is to start saving now. Bycommitting to saving from the very beginning of your career, you can take advantage of the power of compounding interest — which ultimately amounts to earning interest, on interest.

Saving is personal, and every person has different financial pressures, whether it’s student loan debt, car payments or rent and living expenses. But developing a budget and starting to save now can help you take charge of your financial future.

Here are some key tips to keep in mind as you kick off your career and your retirement savings.

See the big picture. It’s easy to spend every dollar you earn at first, without putting any money away. The good news is that, according to the MOOD survey, 83 percent of millennials report saving some money from every paycheck, even if it isn’t a lot. As you save, look at your overall financial picture and create a budget that includes not only your immediate needs like rent, living expenses and student loans, but also short-term and retirement savings. Taking a holistic view will help you create a realistic budget and savings plan that you can stick to.

Leverage retirement savings plans. You may have the opportunity to enroll in your employer’s 401(k) or 403(b) retirement savings plan. They may also match a portion of the savings that you put into the plan, as an incentive for you to save. If you don’t take full advantage of the match, you are turning down free money. If you are able, try to contribute at least up to the amount that the company will match. By utilizing your employer-sponsored plan, you are also reducing your taxable income, so you’ll owe less on April 15. If your company doesn’t offer an employer-sponsored retirement plan, consider putting your savings into an individual retirement account.

Seek education and expert advice. Your employer may work with a retirement provider that offers financial education, through one-on-one meetings with a retirement consultant, or have educational materials available online or in print. These tools can help you understand your investment options. Some plans offer automatic enrollment, deferral and contribution increases, as a way to enhance retirement outcomes for savers.

A financial professional can help you understand the different investment options available to you, and help you understand any fees that may be associated with the offerings. Consider scheduling an initial meeting with a financial adviser to get you started. Then try to commit to at least one annual checkup to assess the health of your savings and make sure you’re on the right track. The MOOD survey shows that 71 percent of millennials feel empowered when they talk to a financial professional about planning for the future.

Think of your future first. When a big expense comes up, whether it’s a down payment on a house, a new car or something else, it’s tempting to borrow from your retirement savings, withdraw funds or stop saving altogether. By borrowing from your plan you could incur taxes and penalties related to not paying the loan back, and also lose out on market gains. At times like these, stay focused on your long-term goals and put your future first. Starting to save early is one of the best things you can do to improve your retirement readiness. Steady savings can help you feel confident that you can live the life you envision, through your career and into retirement.

Results for the 2015 MOOD (Measuring Optimism, Outlook and Direction) of America poll are based on a national survey conducted by Whitman Insight Strategies on behalf of Lincoln Financial Group from March 31 to April 9, 2015 among 2,273 adults 18 years and older across the United States. The sample was weighted to reflect the proportion of adults 18 years of age or older by gender, age, region, race and Hispanic ethnicity based on data from the U.S. Census Bureau. The margin of error is plus or minus 1.9 percent at the 95 percent confidence interval for the entire sample.

Jamie Ohl is president of Retirement Plan Services for Lincoln Financial Group. She is responsible for the overall strategy, growth and profitability of Lincoln’s Retirement Plans Services business, which is committed to partnering with intermediaries and plan sponsors to provide solutions, services and education to help plan participants retire successfully.

Is Your Credit Score Ready for Mortgage Shopping?

Credit Card Score

Ah, the credit score. This almost-mythical three-digit manifestation of financial responsibility is among the most important numbers in a person’s life. Unfortunately, many of us are confused about how credit scores are formulated, what they affect and where we stand. That’s a big problem, especially for potential home buyers.

Both consumer credit scores and the real estate market have improved in recent years from the doldrums of the housing collapse and ensuing recession. Not only are there fewer distressed homeowners these days, but we’re also on pace for a 9 percent increase in annual home sales during 2014 as well as an until-further-notice continuation of Federal Reserve policies designed to keep interest rates low and stimulate economic growth.

“Current mortgage rates remain very attractive by historical standards, though they have climbed just over half a percent from the levels in 2012,” Michael L. Bognanno, chairman of the economics department at Temple University, told WalletHub in a recent interview. “Because current inflation and expected future inflation are at low levels and unemployment, while gradually falling, remains high, I expect the Federal Reserve to continue the course of depressing interest to promote growth, employment and the recovery of the housing market.”

In other words, even though home prices are on track to rise 11 to 12 percent in 2014, the current landscape is very appealing for consumers who have solid credit and the ability to place a sizable down payment on a home. Why are those factors so important? Because the higher your credit standing and down payment are, the better your odds of mortgage approval will be and the less you will pay when all is said and done.

For starters, people with good credit are in a position to save more than $2,000 per year on mortgage-related finance charges relative to those with bad credit.
Good credit will also help you save on mortgage insurance if you don’t have the recommended 20 percent for a down payment. According to a recent WalletHub Study, low-down-payment applicants can save roughly $3,500 to $13,000 in just five years by opting for private mortgage insurance instead of a Federal Housing Administration loan, with the upper bounds for people with strong credit.

The question, therefore, is how to make sure your credit standing is ready for prime time. While much depends on your purchase timeline, there are a few steps that all potential homebuyers should take to prepare their finances for the big day.

  • Determine where you stand. There are a number of free ways to estimate your credit standing, and doing so will enable you to evaluate your starting point as well as develop a plan to improve your applicant profile if necessary.
  • Check your credit reports for errors and fraud. The National Consumer Law Center reports that research by consumer groups shows that up to 25 percent of consumer credit reports contain errors significant enough to cause a denial of credit. Finding unauthorized financial accounts listed on your credit report is also one of the easiest ways to spot fraud. And since we are all entitled to a free copy of each of our major credit reports once every 12 months, there’s no reason not to make sure everything is in order before getting too deep into the home buying process.
  • Pay bills on time and minimize credit utilization. Payment history and amounts owed together account for roughly 65 percent of your credit score. Given that potential lenders are likely to be most concerned about recent performance, it’s important that you pay all credit card and loan bills by the due date and use only a fraction of the credit made available to you in the months leading up to a home purchase.
  • Maximize savings. The bigger your down payment, the more you will save on a home purchase. That’s obvious, since you’ll be borrowing less, paying less in interest over the life of your mortgage and assuming full ownership of your home sooner. Making a budget that eliminates unnecessary expenses and maximizes savings should therefore be a no-brainer for anyone seriously contemplating buying a home, especially considering the added cost of moving and furnishing a new home.
  • Be strategic about opening a new credit card. Credit cards are the most efficient credit building tools available to consumers, as they report account information to the major credit bureaus monthly without necessitating that you get into debt (unlike a loan). As long as this information reflects timely payments and low credit utilization, it will lead to credit score improvement over time. But opening a new credit card account can diminish your credit score for a few months. That means it’s wise to get a new card only when you have the better part of a year before your planned home purchase.

A home is one of the most important purchases that anyone will make in their lives. And much like you can’t expect to do well on a big test without studying, you can’t expect to buy your dream house and minimize the cost of the transaction without first making sure your financial house is in order. So give some love to those credit scores, squirrel away some savings and you’ll take down that for sale sign in no time.

6 Tidbits of Financial Advice You Should Ignore

Make me sick if I think about money problems
At some point, we’ve all been given financial advice that later left us scratching our heads in disappointment or confusion.

Unfortunately, it’s tough to weed out all the bad information that can be found in books or on the Internet, especially because so many self-proclaimed financial experts abound.

But there is help to figure this out. For instance, CreditCards.com says bad financial advice usually has at least one of the following qualities:

  • Confusing.
  • Comes from someone with a vested interest.
  • Unsolicited.
  • One size fits all.
  • Framed as the only option.
  • Promises quick and easy results.

Here are six common tidbits of financial advice you may want to ignore:

1. Credit cards are evil. Credit cards do not have any inherent qualities, good or bad. It is human behavior that determines whether they are beneficial or problematic.

If you are unable to resist swiping the magic plastic for an extended period of time or if you use it to fund outrageous shopping sprees, your issues go way deeper than a credit card.

Used responsibly, credit cards offer great rewards and eliminate the need to have a wad of cash in tow. They also provide buyer protections. You just need to be disciplined enough to pay off the balance each month.

Besides, you will want to keep one around for travel arrangements and online purchases. For both, they are a better choice than using a debit card, because they offer more protections.

For more on the advantages of plastic, see “10 Hidden Benefits of Credit Cards.”

2. Following a militant spending plan will set you free. Well, not really. What happens to avid dieters who have cravings but continue to suppress the urges until they can’t take it anymore? They give up and resort to comfort foods. Lots of them.

Incorporating mad money into your spending plan is OK. On the other hand, deprivation is not a good idea and will usually backfire.

If you are trying to curb purchases, be realistic. Take small steps and modestly reward yourself from time to time. Also, begin with the end in mind and incorporate plenty of visual reminders so you will focus on the financial goal you are working toward.

Need help getting started? Check out “How to Develop an Effortless Budget You’ll Stick To.”

3. Sign up for life insurance — or else. If you are 25 with no dependents and minimal assets, how much life insurance do you really need? The answer: none.

Money Talks News finance expert Stacy Johnson says:

You need life insurance if those depending on your income would suffer financially from your death. The most obvious example is when you have kids, debt and a one-earner household, because the death of the breadwinner would be financially tragic.

When you’ve paid off the house, the kids are gone, the savings account is topped off, and your death is just an excuse for your remaining friends to get together and have a drink, your need for life insurance is over.

When it is time to buy, do your wallet a favor and go for a term policy.

4. 10 percent is the sweet spot for retirement contributions. Saving 10 percent of your income used to be the standard advice, but not anymore — particularly if you didn’t start setting aside money early in your working years.

If you didn’t get an early start, you will need to save a higher percentage of your income to reach retirement goals.

For example, people in their 40s who have not saved much for their golden years likely will find that 10 percent is not nearly enough.

How much will you need? Figure out what you will spend on health care, food, shelter and other necessities. Now consider what you will get from Social Security and other sources. Filling in the gap will be your responsibility.

5. You should buy a house because it is a good investment. Were you around for the last housing crisis? Being a homeowner for several years, I can definitely attest to the fact that homes do lose value and do not always appreciate as rapidly as you would like them to.

That doesn’t mean buying a home is a bad idea. One of the beauties of owning a home is that a fixed-rate mortgage locks you into a set cost each month. You will make the same monthly payment for years while the price of rent goes up.

Eventually you will own that home free and clear. That is an investment in your future financial security.

But remember that buying a home is not a surefire path to riches. Take it from me, being underwater — where your outstanding mortgage exceeds the value of your house — is not a pleasant place to be.

6. Home equity loans are a great way to get out of a hole. Under a mountain of credit card debt and looking for a way out? Home equity loans may seem like the perfect solution because of the competitive interest rate.

But if you fall on hard times and default on the loan, everything goes downhill from there. In a worst-case scenario, an inability to pay back the loan could end up with you losing your home.

Have you received other questionable advice that I didn’t mention here? Sound off in our Forums. It’s the place where you can speak your mind, explore topics in-depth, and post questions and get answers.