A credit card dispute letter is your first line of defense against unauthorized charges on your card. This is a common problem. Almost 50% of American adults have had a fraudulent charge on a card, and a third have had more than one^[1].

Fraud isn’t the only problem. Credit card companies make mistakes, and problems like double-charging (the same charge appearing twice) are common.

You must write a credit card dispute letter when you have unauthorized credit card charges. You can call the credit card company first, but you’ll want to follow up with a written letter. This will give you documentation to back up your claim. The letter can serve as a legal document, so make sure you include vital details that can help you get your refund or account credit. 

When to Use a Credit Card Dispute Letter

Use a credit card dispute letter if you find a mistake or a charge you didn’t incur on your credit card statement.

Always review your statements as soon as you receive them. If you have signed up for online access, check your statements frequently. Errors or fraudulent charges are much easier to resolve if you dispute them immediately.

If you see a charge on your card that you didn’t make, dispute it at once. You should also consider the possibility of identity theft. If your card details have been compromised a fraudulent charge might be only the beginning. You may wish to take steps to respond to identity theft.

Basic Information to Include in a Credit Card Dispute Letter

The letter and the information in it are simple, but you need to get them right. Be meticulous in your attention to detail. Proofread the information to ensure it is completely accurate and that nothing has been left out. 

At a bare minimum, you should include the following: 

1. Your Name

Make sure your name on the letter matches the name on your account exactly. For example, if your middle initial appears on the account, use it in your letter. If your name is misspelled on the account, contact the credit card company and have that corrected before you write your letter.

2. Your Account Number

Include the credit card account number. This is not always the same number as the one on your card, so check your statement. Also, look carefully at letters that may be part of the account number. Pay attention to which ones are capitalized and those that are lower case.

3. The Amount of the Disputed Charge

Don’t round this figure up or down. Credit card companies often look up the exact amount to identify the transaction. If there is more than one charge, include those. Make sure the multiple charges match their transaction dates exactly.

4. The Date of the Charge

Give the date for the charges as shown on your statement. This should be the date as shown on your credit card account, not the date you may have made the purchase. Sometimes companies don’t report the date on the same day you bought something.

Failure to get all this information right can delay your case review. Provide as much of it as possible to make it easier for the credit card company to identify the disputed amount and track the transaction. 

5. The Reason for Disputing the Charge 

Your criteria for challenging the charge must be clear and to the point. Avoid wordy stories and try to limit your explanation to one issue. Consider the reasons below:

• You did not purchase the item.
• You received the wrong item and the seller won’t replace it.
• You returned the item and didn’t get credited for it on your account. (If a company refuses to give you credit for a returned item, quote the company’s policy on refunds).
• You were double-charged.
• You did not subscribe to a service you are being charged for. 

If your reason is different from these, simply explain what happened. These are the most common reasons, but this is not an exhaustive list. Learn about why credit card billing errors happen. 

Make sure you have complied with company policies and that your case fits within the rules.

Attach copies of documents such as receipts, previous letters, and checks to support your claim. Don’t send originals. Keep those filed safely away.

Tip: Explain that you contacted the merchant before disputing the charges. This will show that you tried to resolve the situation and have resorted to the dispute claim as a last resort.

You may refer to phone calls and conversations, even if they are not documented. Provide specific dates, times, and the name of the person you spoke with to add credibility to your description of those communications. 

How to Send the Credit Card Dispute Letter

Your dispute letter carries legal weight, so mail it correctly. 

Make sure you send it to the correct address. Often, the address for disputes differs from the one for sending payments, so check your statement for the correct one. 

Use certified mail and ask for a return receipt. You may need this as proof that your letter arrived at the company. 

What Response to Expect

Many credit card companies will temporarily remove the charge while they investigate it. They may do this when you first call. However, go ahead and send a follow-up letter they can use during the investigation.

Companies must send you a letter saying that they got your dispute notice from you, and they must settle the matter within 90 days. A company can’t start legal action against you during the dispute.

If the dispute involves a service you have been paying for but no longer want to, a representative from the credit card company may contact you to instruct you to discontinue the service with the vendor. Doing so will stop charges going forward, but you won’t get credit for current charges. 

The company may resolve the dispute in your favor, in which case your temporary refund will be made permanent. If the decision is not in your favor, you may be asked to provide more proof that you did not authorize the transaction or that it was made in error. In that case, write a new letter with all the requested information. 

Tip: Continue making your monthly payments while the dispute is in effect.

Credit Card Dispute Letter Template

Here is a template for your letter that includes places for all vital information. Alter it according to your situation.

Tip: Keep a copy of the letter for your records. You must send the original because it has your signature. 

Common Question

Will my letter affect my credit score?
Your score will not change because of a credit card charge dispute. You may see different credit scores with each of the reporting agencies because of the way they calculate, but these will not be because of your letters or calls regarding the matter. You may also see a notice on your report saying there was a dispute, but potential lenders cannot refuse to loan you money because you questioned a charge, whether or not the resolution was in your favor.

More Letter Templates

Our collection of free, fully-customizable letter templates is there to help you write effective letters when you need to set up, cancel or complain about something.

Browse Now

The post Credit Card Dispute Letter appeared first on FinMasters.

If you’re considering taking out a student loan to pay for your college education, you’re far from alone. Current statistics tell us that 43 million U.S. residents carry over $1.760 trillion in student loan debt, with an average amount of student loan debt of slightly over $40,000^[1].  

And if you’re tying yourself in knots trying to decide whether to undertake that much debt for a college degree, well, you’re not alone there, either. Substantial amounts of student loan debt can wreak havoc on fragile finances, especially when the economy is in a state of upheaval and you’re new to your career field. 

Moreover, not everyone is able to make regular student loan payments as called for in their loan servicing documents. For whatever reason—illness, disability, an inability to secure and hang on to a job with a high enough salary to cover those monthly loan payments—you could wind up not being able to make your minimum monthly payments, and there can be serious consequences for that. 

Student loans are often sold to the general public as an investment in your education and in your future. Assuming the truth of that statement, then the responsible thing for any potential lender to do is ask some hard-hitting questions, just like you would for any other investment. What kind of return on that investment can you expect? And what’s the risk of carrying that much debt? 

Here are the critical things to consider before taking out a student loan. 

We often think taking out a student loan is the only way to pay for college, but that isn’t always the case. Read more about college without debt.

Your Actual Need for a Student Loan

Before taking out a student loan or comparing terms from private lenders, figure out if you actually need a loan in the first place. 

First, estimate the costs of your chosen school. Include living expenses, books, supplies, equipment, and activity fees. You’ll also need to have funds sufficient to cover monthly bills that you’d have to pay no matter where you study, such as mobile phone bills, car maintenance, or other transportation expenses. 

Compare the estimated annual total with your non-loan-based financial aid and other resources, including funds your parents or other family members might have paid into over the years and any savings you’ve accumulated. The gap between those two numbers—estimated expenses and non-loan funds—is what you’ll have to borrow. 

If that sum is daunting to you, pay attention to that intuition and consider it a warning bell. Carrying substantial debt right after graduation can be a heavy financial burden. But before you decide either way, first evaluate your school choice. Is there a less expensive institution that can still help you meet your educational and career goals? If so, consider whether you’d be better off there, financially but also mentally and practically. 

Many college students underestimate what they’ll need to spend. Read more about the hidden costs of college.

Consult With Your Financial Aid Advisor 

The greatest asset you have in evaluating your student loan needs may be ready to help you from the moment you’re accepted, possibly even earlier. 

Your college’s financial aid office has a single mission: to help you understand your options for funding your college education and to help you apply for and get the funds you need. A financial aid advisor has the experience and expertise necessary to help guide you through the entire financial aid process. 

When should you first talk to your advisor? The earlier you make contact, the better, as this will help you take advantage of non-loan funding sources such as grants and scholarships. Maximizing the amount of time you have to apply for and secure these funding opportunities will help minimize the amount of any student loan you eventually require. And the lower your loan amount, the better for you when your repayment obligations begin after graduation. 

Make an appointment with your adviser, and then prepare a list of questions. Let your advisor know your goal is to minimize the loan funds you’ll need to pay for your education. Explore all the possible paths to that goal with the adviser. Use your meeting notes to create a checklist of deadlines with advance reminders so you won’t miss out on a potential source of funding. 

Your choice of college can have a significant impact on your costs and the amount of debt you take on. Read more about the impact of where you go to college.

Know About the Different Types of Student Loans

Students can take out loans to cover their educational expenses from several different kinds of lenders. At the broadest level, you can choose between federal and private loans: 

• Federal loans originate with the federal government as the lender. 
• Private loans are issued by non-governmental entities, such as banks, financial institutions, and other private organizations. 

There are also three major types of direct federal student loans you can use to pay for undergraduate or graduate-level educational expenses:

• Direct Subsidized Loan: Available to eligible students at the undergraduate level. Applicants must show financial need to qualify. These loans do not accumulate interest while you’re enrolled in school because the federal government pays the interest during that time. 
• Direct Unsubsidized Loan: Eligible students at the undergraduate, graduate, and professional-degree levels may apply for an unsubsidized loan and do not have to show financial need. Unsubsidized loans begin to accrue interest while you’re still in school. 
• Direct PLUS Loan: Graduate and professional-degree students may apply for the PLUS loan, as may parents of undergraduate students who are listed as dependents on their parents’ tax returns. This loan is designed to help eligible applicants pay for educational expenses that aren’t covered by the student’s other financial aid sources. Applicants are required to submit to a credit check and may have to meet additional criteria if that credit check reveals negative items. Borrowers do not have to show financial need. 

In addition, you can use a Direct Consolidation Loan to consolidate, or combine, all of your existing federal student loans into one loan with an interest rate based on the average of the rates of all your loans. This simplifies repayment and administration and might even reduce your costs. 

Understand The Pros and Cons of Available Loan Types

The terms and conditions of private and federal loans can differ widely. It’s important to make sure you read the fine print for any loan you apply for before you sign those documents and return them. 

For example, federal loans don’t require repayment to begin until after you graduate, leave school for any other reason, or drop to below half-time status. On the other hand, private lenders may require borrowers to begin repayment while they’re still in school, although some may permit borrowers to defer repayment until after graduation. 

Moreover, interest rates for federal student loans are fixed and can be lower than the rates for private loans, which can be either fixed or variable. It might not seem like a huge difference when you’re just beginning to prepare for college life, but even a slight variation in interest rates can cause your monthly payments to change significantly. 

Finally, federal student loans are eligible for federal consolidation loans as well as potential loan forgiveness in exchange for public service commitments. Federal loans also offer several types of repayment programs, including a plan that ties the amount of your repayment obligation to your income. Private lenders may or may not offer similar programs, so be sure to ask. These features may not apply to your situation, but they can provide attractive benefits for some students. 

Explore Federal Loan Options First 

While there are circumstances where private loans are a great solution, it’s generally better for applicants to pursue federal loans first. The interest rates tend to be a bit lower, and you may benefit from income-driven repayment options and public service forgiveness features that private loans typically don’t offer across the board. 

To maximize the funds you can qualify to borrow, it’s important to apply as soon as you can. File early for federal loans by completing and submitting your Free Application for Federal Student Aid (FAFSA) form as soon as possible. Check the deadlines for FAFSA submission and also verify with your chosen college what deadlines it has adopted for FAFSA, which can vary from the federal deadline. 

Shop Around for a Private Loan 

If federal loans aren’t going to get you to your financial aid goals, you may need to consider taking out a student loan from a private lender. Examine your potential lenders and their offers on the basis of these criteria:

• Interest rates: Private lenders can charge a wide range of rates, which can significantly alter your repayment obligations.
• Variable versus fixed-rate structure: Fixed-rate loans are more predictable. If interest rates increase, your variable-rate loan’s interest will also rise and you could wind up with a higher monthly repayment amount. 
• Repayment terms: How soon will you need to begin repaying your private loan? Some lenders require full payments or interest-only payments while the borrower is still enrolled in school, while others require minimum monthly payments and still others defer payments until after graduation. 
• Length of repayment: Also how long will you have to pay back your loans? For example, many lenders offer a choice of terms, from eight to fifteen years. Shorter terms mean your monthly payments will be higher but you’ll pay the loan off more quickly. 
• Customer service and reputation: You’ll be dealing with your lender and loan servicing company for a long time, so take the time to research their reputation for dealing with borrowers and complaints. You can search for independent reviews online and also check the database of complaints maintained by the Consumer Financial Protection Bureau (CFPB), a federal agency. 
• Cosigner requirements: Most lenders will require you to have a cosigner for your student loan application unless you already have a stable income and good credit. If you aren’t able to repay the loan as the terms require, your co-signer would then be legally obligated to make those payments. 

How important each of these factors is to you depends on your circumstances, of course. Don’t forget to also take into consideration your own needs and preferences.

Understand Your Repayment Obligations 

First, it’s important to clarify when your repayment obligation begins. Some private loans may require you to start paying your loan back even before you graduate, while federal loan repayment doesn’t typically kick in until you graduate with your degree or leave school for some other reason, or drop below half-time status at your institution. 

Next, estimate how much you’ll have to pay each month when repayment does kick in. Remember that you’ll end up owing substantially more than you borrow, thanks to accruing interest. 

Keep an eye on the funds you’re borrowing. Estimate interest rates for your loans given current rates. Then use online calculators to estimate your future repayment amount. 

Make sure the amount you’ll have to repay monthly is practical given your anticipated income after graduation. You can research average starting salaries in your chosen profession or field to get an idea now of what you might make in your first post-graduation job. 

Understand the Consequences of Failing to Pay

As we’ve all learned first-hand over the last few years, the unexpected can and does happen, often to a disruptive effect. What happens if you can’t graduate and have to drop out of school? Repayment on your loans will then kick in, and you’ll be obligated to make payments, just as if you’d graduated and found that better job you’re anticipating. 

You may also not be able to find a job with a salary as high as you’re anticipating. If that happens, you may likely struggle to meet the full loan repayment amount each month. 

You may have one or more options for relief available to you in either of these situations. 

• Income-based repayment ties the amount you have to pay each month to how much you’re earning. 
• Deferment is a program that relieves your repayment obligation for up to three years. 
• Forbearance postpones your payments for up to one year, after which you can ask for an extension of the forbearance period. 

These programs are typically associated with federal loans but private lenders may also have options available for borrowers struggling to pay. Find out in advance what policies your potential lenders offer. 

We asked an expert panel for financial tips for college students. Here’s what they said.

Consider Whether a Loan is Worth the Debt You’ll Carry

Finally, now that you know the true total cost of borrowing to finance your college education and have collected all the relevant data, consider whether taking out a student loan is worth it. 

Substantial student loan debt can be a heavy burden, even when everything’s going well. When you’re experiencing financial distress—unemployment or underemployment, for example, or unanticipated medical crises—student loan obligations can be downright catastrophic. 

You may be able to qualify for relief or assistance from your lender, especially with federal loans, but the psychological burden of heavy debt should also be weighed. That much debt—any kind of debt—can limit your choices and options. For example, you might feel forced to take a job you don’t want just to pay those obligations, or to give up living in your preferred city in order to reduce living costs. 

Taking out a student loan can help you reach your goals and make your dreams a reality, but it can also create a financial obstacle to those dreams and goals. Make sure you know what you’re getting into and that you’re getting the best deal you can before you agree to anything. 

The post What to Consider Before Taking Out a Student Loan appeared first on FinMasters.

Many Americans have never experienced serious inflation before. This price surge follows almost 30 years of relatively low inflation, with the last serious spike coming in 1980. That has left many consumers struggling to cope with a new and unfamiliar reality.

We’ve all seen articles advising people on how to cope with inflation, but what are American consumers actually feeling, and what are they actually doing to keep up?

We wanted to know, so we asked.

Survey: The Impact of Rising Prices on Financial Choices and Behaviors

We asked a nationally distributed group of Americans a series of questions designed to assess their perceptions of inflation and what they are doing in response to price increases.

Q: How Worried Are You About Rising Prices?

A huge majority of respondents, 95.67% of them, were either “somewhat worried” or “very worried” about rising prices, with an absolute majority in the “very worried” category.

These proportions held up very consistently across gender, age, and income lines

As you might expect, the highest percentage of “very worried” responses came from the lowest income bracket and the lowest percentage came from the highest income bracket. What’s unexpected is that even in the highest income bracket only 3.85% say they aren’t worried at all.

Takeaway: Low-income Americans are most concerned about rising prices, but concern is present through all income brackets, even the highest ones surveyed.

Q: Have the Rising Prices of Gas and Other Consumer Goods Made You Rethink You Financial Choices or Changed How You Spend Money?

Over 50% indicated that inflation has forced them to reconsider the way they manage their finances, and under 10% replied that they had not found any change to be necessary.

When we look at a detailed breakdown, we see that people from age 30 to age 60 had the highest rate of positive responses, suggesting that people in age brackets likely to have families are feeling substantial stress.

In the income breakdown, we see that – as expected – people with higher incomes are least likely to have had to reassess financial choices, with one anomaly in the $125,000 to $149,000 bracket. 

It may seem initially surprising that fewer people in the $10,000 to $24,000 bracket saw the need to change than in the next higher income bracket, but that may be because people with incomes that low were already doing everything in their power to reduce spending.

Q: The Rise of Prices in What Category Has Had the Most Significant Impact on Your Day-to-Day Life?

Here the leading roles played by gas, food, utilities, and housing are entirely expected, as these are expenses that most people can’t cut out and they are also areas in which price increases have been most pronounced.

Q: Which Of the Following Financial Choices, If Any, Have You Made Because of Rising Prices?

Here, again, we see expected results. Looking for ways to cut costs is a generic statement that includes most of the subsequent options, so it naturally has the highest positive response rate. Delaying buying a car makes sense, given the extraordinary increase in the prices of both new and used cars, and delaying a home purchase is a natural decision with both interest rates and prices rising.

Delaying debt payments and borrowing money are also common, but they are risky options that indicate that substantial numbers of people could find themselves in more trouble in the near future.

The detailed breakdown is, naturally, more revealing, if not always easy to explain. All ages, genders, and income levels saw from 68% to 82% looking for ways to cut costs and save.

Higher-income people were most likely to have delayed buying a car (though it was common at all income levels), presumably because they are more likely to already own serviceable vehicles. People between 18 and 44 were, not surprisingly, more likely to have postponed a wedding.

Some figures are less easy to explain – the $125,000 to $149,000 income group seemed to run up a high rate of responses in an unusual number of categories – and would require more research to explain or dismiss as statistical anomalies.

Q: Which of the Following, If Any, Have You Done to Save Money as Prices Rise?

Here we see a predictable dominance of saving methods that involve reducing or eliminating discretionary expenses and looking for better deals. Those are normally the first steps people take under pricing pressure. 

In the detailed breakdown, we again see remarkable consistency across groups in many areas. All genders, ages, and income groups saw around 50% cutting back on dining out (not good news for restaurants). A large majority of categories saw between 40% and 50% choosing to drive less.

Higher-income Americans reported taking steps to reduce spending at nearly the same – and sometimes greater – rates than groups with lower incomes. We might not expect to see 70% of respondents with incomes between $175,000 and $199,000 shopping around for better prices and almost 60% using coupons and discounts, but that’s what the numbers showed.

What Do The Numbers Reveal?

We won’t pretend that this survey is the last word on the topic. The sample size is limited and there are many more questions that could be asked. At the same time, the figures do point to some conclusions.

The clearest takeaway is that both concern over rising prices and concrete actions based on that concern cut across the full spectrum of respondents. Even respondents in the higher income brackets demonstrated concern over rising prices and indicated that they were making changes in their spending and money management habits to adapt.

Another takeaway is that a significant number of people across all income and age brackets have already taken the most obvious steps toward managing inflation. They are already shopping for bargains and cutting back on discretionary expenses. 

That leaves the question of what comes next if inflation continues. Significant numbers of people are already delaying debt payments, taking on debt, and cutting back on investing. Those numbers are likely to grow. These may be rational or even necessary steps in the short term, but they can have risky long-term implications.

The last conclusion is something most of us already know. Inflation is a serious burden and it’s getting worse. We all have to deal with it in our own way according to our own needs and capacity. We’re all going to be watching carefully to see how long this goes on and whether traditional methods like rising interest rates can stop it.

Understanding inflation can help, but for the average consumer, the focus has to be on coping. We hope this survey will chive some indication of how others are doing that!

The post Survey: What Are Americans Doing to Cope With Inflation? appeared first on FinMasters.

Quick Stock Overview

Ticker: BAYRY

Source: Yahoo Finance

Key Data

Industry	Healthcare/Agriculture
Market Capitalization ($M)	$71,274
Price to sales	1.5
Price to Free Cash Flow	26.2
Dividend yield	3.1%
Sales ($M)	48,715
Free cash flow/share	$0.70
Equity per share	$9.12
P/E	64.9

1. Executive Summary

Bayer is a German juggernaut in life science. Bayer is a very well-established company, operating since 1863. The company operates in the agriculture and pharmaceutical sector. It evolved from producing dyes to other chemicals and then pharmaceuticals.

Since 2000, Bayer has refocused its activities around life sciences, spinning off branches involved with plastics (Lanxess AG) and material sciences (Covestro). The sales and spin-off financed the first acquisition of Schering AG, a pharmaceutical company initially pursued by a hostile acquisition from Merck, for €14.6B.

In 2018, the German company merged with the American Monsanto, another leading agricultural business established in 1901. The deal was enormous, $66B, compared to Bayer’s market cap at the time of $88B.

The merger quickly went wrong, with Monsanto getting sued over allegations that its flagship product, the herbicide Roundup, causes cancer. The following negative press led to a crash in Bayer’s stock price and a November 2020 low of a $46B market cap. Today, the market cap of the merged company has partially recovered to $73B but is still below the pre-acquisition value. This compares to the estimated theoretical value of $177B of the combined companies.

The current stock price is explained by the lingering risk of legal action and settlement costs. In this report, I will argue that the market is likely overestimating this risk, ignoring recent developments, and ignoring the long-term strengths of the company’s products and R&D pipeline.

It also ignores the multiple secular positive trends in Bayer’s markets, as well as the dominant positions (number 1 or in the top 3) it holds in them.

The company’s stock has finally started to wake up in the wake of a growing realization of the vital importance of agriculture and food production due to the Ukraine invasion. With food prices rising, agro-businesses are becoming a trendy sector, with fertilizer companies seeing often stock prices up x2 or x3 in just a few months.

By comparison, Bayer stock has still barely gone up, still below its June 2020 levels. I believe that the combination of the following factors will make Bayer a strong buy-and-hold stock for the decade to come:

• Limited future damage from the already partially settled lawsuits.
• Dominance over the agro sector.
• Strong pharma products and R&D pipeline.
• Durable OTC pharmaceutical catalog.
• Secular trends supporting each of the 3 branches (agriculture, pharmaceuticals, OTC).

This report first appeared on Stock Spotlight, our value investing newsletter. Subscribe now to get research, insight, and valuation of some of the most interesting and least-known companies on the market.

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2. Extended Summary: Why Bayer?

The Monsanto Acquisiton

By acquiring Monsanto in 2018, Bayer became by far the largest agribusiness firm in the world, dominating the sale of herbicides, pesticides, seeds, and other agricultural products. It also inherited a wave of lawsuits accusing Monsanto’s flagship product of causing cancer. After a stock crash and $16B in provision for damage later, the company is finally seeing the end of the tunnel, with 80% of cases already settled.

The Business Behind the Controversy 

Bayer is a global leader in crop sciences. It is also a profitable and steady pharmaceutical company. It is also the home of OTC pharmaceutical brands like Aspirin, Alka-Seltzer, Bepanthen, and Claritin.

It should become even more dominant in agriculture and keep growing in pharmaceutics from its massive R&D and investment program. Synergies from the Monsanto acquisition are still ignored by markets.

Bayer’s Financials and Valuation

Bayer’s profits are yet to fully recover from the Roundup crisis. Nevertheless, the company is now priced lower than before the $66B acquisition, despite the legal costs being mostly already paid. It is also in a perfect position to respond to the increasing demand for more food production, as well as the ongoing food crisis developing from the Ukraine war.

3. Roundup Of Legal Issues

A Brief History of Monsanto

I must warn you, Monsanto, and by extension now Bayer, is (was?) something of a caricature of the “evil” corporations as imagined if you are leaning left politically. I will refrain from giving my personal opinion about Monsanto and simply declare that indeed, some of Monsanto’s past actions are dubious. It was involved with various toxic (or used in overseas wars) and now banned products, like DDT, PCB, white phosphorus, and Agent Orange.

In more recent years, the company refocused its chemical expertise toward agricultural products like herbicides and pesticides, as well as GMOs (Monsanto was the first to create a GMO plant in 1983). For some people, this might make Monsanto extra evil. As a former plant biochemist before I studied financial analysis, I am rather favorable to GMOs as long as the right precautions are taken. They can drastically reduce the use of dangerous chemicals, and the gene modifications are not so different from other ways to create new varieties. But again, I can understand the discomfort that many people have with the topic.

Many investors might feel that Bayer is not an ethical investment. Still, I would like to play the devil’s advocate, and discuss the benefits of modern agriculture. The last decades have seen the world population exploding. Despite that, hunger and starvation have generally receded, even if not fully eliminated yet. This was largely due to steady growth in crop yield for staples like potatoes, maize, rice, wheat, soybeans, etc…

Contrary to common misunderstanding, such progress was not easy or just the result of fertilizer application. The Green Revolution is the only reason why the apocalyptic predictions of the 60s and 70s happened to be wrong. Notably, Paul R. Ehrlich, in his 1968 book The Population Bomb, said that “India couldn’t possibly feed two hundred million more people by 1980“.

Between 1975 and 2010, the population of India doubled to 1.2 billion, reaching the billion mark in 1998. The 1,352,642,280 Indians alive today have companies like Bayer and Monsanto to thank for proving Ehrlich wrong.

Many agricultural chemicals are inherently somewhat toxic. This is true for herbicides and pesticides. But I would argue that the chemicals which powered the Green Revolution have saved a lot more lives than they killed. And if properly used, their dangers can be managed.

Glyphosate’s Magic and Dangers

The Magic Crop Yield Booster

If you know something about farming or gardening, you know that keeping a crop alive and optimally growing is a constant war against weeds. Other plants would like to use the soil and sunshine and replace our corn, bean, or wheat crops. Applying herbicide is always somewhat tricky as you want to kill the weed, but not the crop one centimeter away, and chemical molecules generally don’t care about the difference.

This is why glyphosate and GMO glyphosate-resistant plants were such a game-changer. Monsanto discovered glyphosate in 1970 and started commercializing it in 1974. It was a powerful herbicide that quickly became one of the most used herbicides in the US and the world. Commercialized under the Roundup brand, it produced a significant portion of Monsanto’s revenues.

This is when plant genetic modification came into play. By inserting a gene in a plant, making it resistant to glyphosate, Monsanto created corn, maize, cotton, and other crops that are insensitive to the herbicide. This allowed the free use of the herbicide in the field during the growing season, keeping the land fully utilized by the crop and not the weeds. Overall, GMO crops, glyphosate-resistant, and other GMOs created a jump in yield from 6%-25% depending on the country.

The Dangers

The problem with glyphosate was not its efficiency, but its toxicity. While toxic in high concentrations, glyphosate had been deemed safe for use in fields by regulatory agencies. Most notably, it was declared “not likely to be carcinogenic to humans.” by the EPA.

Nevertheless, doubts remained about the link between cancer and the controversial herbicide. Virulent opposition to the type of intensive farming it empowered made the debate extra partisan, as GMO plants and herbicides are viewed by many as evil in themselves.

Nevertheless, upon further investigation, significant doubts persisted and it is now admitted that at least some level of exposure is likely to increase the risk of cancers. You can learn more about it from Bayer here.

Court Cases & Consequences

Just when the acquisition by Bayer was closing, Monsanto lost a lawsuit in June 2018. A 42-years old had got himself covered in Roundup after a malfunction of his sprayer. He later developed non-Hodgkin’s lymphoma. The courts considered Roundup was a likely cause and awarded the plaintiff $289M. This was followed by quite a few other lost trials.

Quickly after, the number of plaintiffs swelled dramatically, reaching up to 125,000 people. Obviously, if each of these cases was awarded tens or hundreds of millions in damages, this would be much more than Monsanto-Bayer could ever pay. So instead of valuing the merger’s synergies, markets started to value the company as a dead man walking.

4 years later, the situation and risks are a bit clearer. 100,000 lawsuits have been settled, for a total of $11B. This leaves roughly 25,000-30,000 lawsuits left. The court case is now likely to involve the Supreme Court. Bayer has already put aside $16B to cover the claim.

Will $16B be enough? I consider it nearly impossible to put certain probability or cost on the leftover cases. Previous settlements put the average lawsuit cost at $110,000, so leftover claims would be $3.3B. Bayer provides its side of the trial and its plan to end all future litigation here.

And I am not a legal expert, so I will not venture into judging the fairness of these court cases. I however believe a historic parallel in financial history can be illuminating: the history of cancer trials against tobacco companies.

“The first big win for plaintiffs in a tobacco lawsuit occurred in February 2000, when a California jury ordered Philip Morris to pay $51.5 million to a California smoker with inoperable lung cancer.”

Nolo.com

The situation was similar, with an initial big win by the first successful plaintiff seemingly indicating a cost so high it would for sure destroy all tobacco companies. Similar claims of manipulation of sciences, willful misinformation, and failure to warn the public were made as well.

In that situation, you could expect tobacco companies to have been terrible investments in the last 2 decades, right? So why is Altria, one of the largest tobacco companies, #24 in the rank of the “best 30 stock in the past 30 years“?

The fact is that the cost of the trial was grossly overestimated and the persistent demand for tobacco products was grossly underestimated. This resulted in tobacco companies being consistently one of the best possible investments for the last decades, sitting neatly together with Apple, Alibaba, Berkshire Hathaway, and Tesla.

I suspect the situation is similar for Bayer when it comes to litigation costs. The company has settled 80% of the cases for $11B. I imagine the $5B leftovers in provision should be approximately enough to cover the rest.

Don’t get me wrong, I think the company should pay up if it did wrong and caused cancer. But contrary to tobacco companies, it did not provide a toxic, addictive drug and hide the risk. It provided a very useful product key in keeping worldwide famine at bay, that after review by the EPA was considered to be not carcinogenic. Bayer’s main products, seeds, pharmaceutical treatment, and aspirin also do not cause cancer. So the business model as a whole was never in danger, contrary to that of tobacco companies.

Overall, I think most of the damages by the Glyphosate/Roundup trials are already done. Former shareholders of Bayer have paid for it. Newcomer investors will just get a great company at a discount if they are ready to brave the incertitude of the last 20% of cases not settled yet. So how strong is the rest of the company? This is the topic of the next chapter.

4. The Business Beyond the Roundup Controversy

Bayer’s Agricultural Dominance

Growing food is a complex business. It requires the right seeds, pesticide, herbicide, insecticides, fertilizers, irrigation, tractors, soil, rainfall, etc. Currently, the crop sciences department is roughly 45% of Bayer’s sales and EBITDA.

The company is also the uncontested leader in this sector. Margins are solids and also the highest among the other industry leaders.

It is #1 in market position for corn and soybean seeds, #1 for herbicides, #2 for vegetable seeds and pesticides, and #3 for insecticides. The business is truly global, with an equal split between EMEA, Asia, North America, and South America.

Most farmers of key crops trust and rely on Bayer products for their next harvest. In a business vulnerable to drought, flood, storm, machinery breakdown and market fluctuation is it very important to know that at least risks from seed quality, pest control, and weed control are predictable. This means that farmers will not easily change suppliers or try other products, and will instead stick to what worked so far.

While Roundup does not make up the totality of the Bayer herbicide line, it is a large part of it. So it is important to check if the worst-case scenario of a ban on the product could lead to problems. Herbicides are a large segment of the crop science division, but still only 25% of the whole (and so 10% of the company’s total sales only). Overall, Bayer could take a hit up to 5% of total revenues from a total, worldwide Roundup ban, but it would not be dramatic.

Following the FAO projections for 2050, in 30 years we will need 50% more agricultural production (food, animal feed, and biofuels) while compensating for a 20% reduction of arable land by capita and 17% harvest loss from climate change. This leads to a 100% jump in crop demands at least. And this was before geopolitics threw a wrench in the world’s food supply. We can look at the recent response to the Ukraine war from wheat prices vertically rising to see how unstable it could be during worsening shortages:

The last time food prices spiked up this much, they triggered the Arab Spring revolutions, destabilizing the entire region. Bayer expects consistent sales growth at 3-7% until 2024 depending on the product categories. And again, this forecast was before the current looming food shortage from war and embargo.

Another factor that is still developing is the synergy between Bayer and Monsanto. Bayer used to be most dominant in Europe, while Monsanto was dominant in the USA. They also had no large overlap in crop type (Bayer with a focus on cereals, Monsanto on corn). By leveraging each other’s sales and distribution networks, it is likely that both Monsanto and Bayer products will achieve higher market penetration in both USA and Europe.

The growth will be driven by both the general market growth and new product lines, notably insect and herbicide-resistant soybean, short-stem corn, RNAi insect-resistant corn, etc. Overall, Bayer has 500 new varieties of corn, soybean, cotton, and vegetables in preparation. Of which 5 new traits (like new resistance to specific insect species for example). On the chemical side, 300 new crop protection registrations are awaiting approval.

The superior market position and margin have allowed Bayer to outspend its rivals on R&D, with a total investment as high as its next 2 largest competitors. The flood of new seed, resistance, and crop protection products is evidence of that R&D dominance.

The Pharma Business

With all the talk of Roundup trials, seeds, and pesticides, the crop science division takes the spotlight away from the equally large pharmaceutical component of Bayer. The company has a diversified portfolio, with a focus on cardiovascular and women’s health.

The sector is attractive, with high margins and long-term positive trends. The aging population, rising access to healthcare in the developing world, and digitalization are all trends supporting the pharmaceutical business.

The near-term future of the company will be affected by the loss of exclusivity (patent expiring) of its flagship product, the anti-blood clot drug Xarelto. The company is forecasting a decline in sales during that period before the new product lines arrive in the market and restart growth.

Xarelto’s decline might even be less dramatic. Finding new use cases or getting approval for a new type of patient is a classic way for pharmaceutical companies to extend the value of expiring patents. New applications extending the exclusivity might still increase Xarelto’s residual value, like the recent US approval for the treatment of children and the 2 years extra of patent protection by the EU for the 1/day formulation.

Around 5 products (2 cancer drugs, 2 cardio, and 1 women’s health) are expected to come into the Bayer treatment portfolio, with an average Peak Sale Potential (PSP) of $1B on average. PSP represents the estimated peak maximum annual sale for a product (most pharmaceutical products will be covered by a patent exclusivity for 10 years or so). Interestingly, Nubequa’s PSP has recently tripled to $3B. You can see more about the approval of these new drugs on the news section of the Bayer website, notably Vitraki in China, Kerendia in Japan, and the EU.

The company is also investing heavily in long-term R&D and technology able to create new classes of treatments, like RNAi, RNA-SMOLs, PROTACs, AI, gene therapy, and cell therapy.

The pharma division is likely to somewhat stagnate for the few years ahead, but should not experience negative impacts either. It is likely to bring value only from the 2026 period onward when the most innovative treatments like gene therapy and RNAi enter more advanced stages of clinical trials for yet incurable diseases.

Over-The-Counter (OTC)

Bayer’s pharma division covers patented drugs used under medical supervision. The OTC or Consumer Health division produces drugs you can buy without a prescription, very often older with a patent that expired a long time ago. This means that any pharmaceutical company can manufacture the active molecule and sell it. This does not mean that branding and marketing cannot help the legacy products to continue dominating the market once the patent is expired.

The OTC department, or Consumer Health, is managing the sales of such products. You are actually likely to know some of Bayer’s products and have them in your medicine cabinet. Many are old drugs with a stable market and faithful customers. The staying value of OTC brands is best illustrated by Aspirin, around since 1898. There are plenty of functionally equivalent pills of acetylsalicylic acid, but only one Aspirin. Most people are fine paying $0.3 extra more for the “real one”.

Here too, Bayer is among the top players worldwide, notably #1 in Cardiovascular OTC products (likely building on the expertise and reputation of its pharma department) and #2 in Nutritionals and Dermatology. Allergy, digestion, and pain raking are pretty good too.

To keep growing the OTC segment, Bayer is looking to boost the higher margin e-commerce sales from 7% in 2020 to 15% and more by 2024. It was just 3% in 2018, so the growth target feels reasonable, especially with the pandemic having boosted online adoption.

Consumer health is a slowly growing business, at 3-5% per year. Additional growth might come from new markets like China, India, and SE-Asia, as Asia represent only 13% of OTC sales at the moment.

Inter-Division Synergies

At first glance, it can feel that Bayer is 3 different companies grouped together without much coherence. But this is ignoring that biology & medicine are not separate fields. When Bayer develops new technology or insight about RNA, it can be used to create RNAi maize, resistant to a specific type of fungus. Or it can work on new RNA-SMOLs technology to develop a whole new drug category. More importantly, the ideas and challenges of the plant team might help the progress of the pharma team.

At this level of technicity/abstraction, the best researchers for both agro and pharma divisions have similar profiles. An expert on organic chemistry can work in both fields. So a strong HR department able to find/poach them for both divisions at once will come in handy.

Similarly, producing a massive amount of a specific chemical, be it aspirin or Roundup, require strong in-house technical skill. The scale of operation also helps with cheap and efficient procurement of the required pipes, curves, bioreactors, and other advanced pieces of equipment needed to run chemical plants.

And last but not least, the merging of the different branches allows sharing of the corporate overhead costs. For a life science company, this is not only the offices, the headquarters, and the accounting department. The sector is highly regulated and requires a lot of legal expertise. So these synergies also cover the legal teams, lobbyists, regulatory affairs, medical marketing department, medical representatives, pharma representatives, clinical trials, toxicology, etc.

There have been calls by investors to split the company into its parts for years. That might create value for shareholders in the short term but I suspect that as a long-term shareholder, you might be better off if they stay together.

Partnerships & Venture Capital

Digitalization is the last aspect where Bayer divisions work well together. I mentioned personalized medicine, and access to medical data will be an important aspect of consumer health in the future.

This is equally true in agriculture. With the Bayer-Microsoft partnership that just got signed, Bayer will leverage Microsoft Azure cloud technology to power their agricultural technology revolution and provide a framework for companies working with agricultural data. This includes data on crop yield, satellite imagery, carbon emissions, farm supply chain, and much more.

Another partnership with a tech giant was the collaboration with Alibaba on the use of blockchain in agriculture.

Another project is the first digital agricultural marketplace, in partnership with Bravium, a Brazilian marketing agency. These are still in the early stages, but they are examples of the potential Bayer’s scale can create.

Bayer’s investment in innovative solutions for agriculture and health does not stop there either. The Leaps by Bayer program invests in a multitude of startup and tech companies in these fields.

You can see the full portfolio here, including drone cop spraying, vertical farms seeds, soil mapping, carbon capture, mental health AI, stem cells therapies, machine learning drug discovery, AI-assisted diagnostic, or a biotech startup incubator in Israel.

Studying the venture investment portfolio of Bayer could probably be a full report in itself. For now, let’s consider it as a cherry on the cake on top of the core businesses.

5. Financials

Balance Sheet

Considering how troubled the Monsanto acquisition was, this feels like a good start for studying Bayer’s financials. The acquisition increased the company’s net debt drastically, from almost zero to €35B. Considering it also came with almost €20B worth of litigation costs, this was a very expensive acquisition.

This increased the leverage of the company, in a similar way to what previous successful acquisitions did, like Schering in 2006 and Merck OTC product line in 2014. What changed this time is that Bayer failed to quickly work on reducing its leverage right after.

The tens of billions of euros put aside for litigation were presumably money initially intended for reducing debt. Now that only 20% of lawsuits are left and a large cash allocation is in place to cover them, the threat of excessive debt can be reasonably treated as minimal.

2022 Outlook

After an okay 2021 year, 2022 is expected to bring growing earnings per share and free cash flow. This would bring the free cash flow toward a more normal, pre-crisis level, even if there is still a long way to go.

On a side note, Bayer just announced it will also get extra cash from selling its non-crop business, like forestry, for $2.6B. This should reduce the net debt by 10% and help focus the company’s agro division on farming only.

Valuation

With a current price to free cash flow ratio of 26, Bayer seems fairly valued, but not cheap. Of course, if its free cash flow would return to just 2019 levels, this would more than halve this ratio and make it very cheap for a growing company of this size. But this is hope and hardly constitutes a margin of safety. The current 3% dividend yield is equally nice to have, but not enough by itself. The extra costs from the Roundup trials are obscuring what real profitability might be.

I think where the company shines in the value of its assets. Remember, both pre-crisis Monsanto and Bayer itself were worth as much as Bayer’s market cap today. Essentially, markets are valuing the new Bayer as if the Monsanto division was entirely worthless.

We are slowly sliding into a global food crisis while I am writing this report. Grain and oil exports from breadbaskets of Russia and Ukraine threaten to be poor to non-existent. But you also have Serbia, Bulgaria, and Hungary banning grain exports. Argentina is limiting exports of soy. Indonesia, producing 1/3 of the global cooking oil supply, just banned all palm oil exports as well.

Considering the broader context, I think Bayer agribusiness is undervalued. Especially considering that governments all over the world are likely to start subsidizing fertilizer/pesticide/herbicide/seed purchases to keep yield up and social order stable. The combination of Monsanto and Bayer’s pre-existing crop business will be at the forefront to keep yields up and starvation at bay.

I expect this change of context to also change Bayer’s perception by the public, politics, and investors. We observe a similar phenomenon with fossil fuels. In October 2021 at the Cop26 conference, they were evil and “with no future“. Only 6 months later, Western leaders are making desperate pleas for OPEC to increase production. Shortages of vital commodities have a way to make everyone a hardened realist quickly.

Besides the agro-business, Bayer pharmaceutical sales, OTC sales, and venture investment all have significant upside potential. R&D spending and startup investing have stayed steady and created a massive pipeline of new products in both medicine and agriculture.

At the current price, you get a growing blue-chip company at a reasonable valuation. Any extra upside or positive surprise comes “for free”:

• Smaller costs than expected for leftover RoundUp cases.
• Synergy from fusing together of Monsanto & Bayer sales network.
• R&D success from Monsanto & Bayer research projects merging.
• Larger than expected addressable market from drugs in development.
• Prolongation of existing drug patents through new applications.

6. Conclusion

Bayer is a complex case study. The Roundup trials make it looks, on a surface level, like a tobacco company. This actually would make a good case for investing in it considering the tobacco sector’s track record, but might still scare off most investors. It is also a successful pharmaceutical company solving life-threatening ailments. And it is a household brand of consumer products, holding onto century-old brands like Aspirin.

I think the company’s scope and complexity are what lead investors to reduce it to a simpler, but inaccurate narrative. “Bayer the pharmaceutical company” became overnight the “Roundup/cancer trial company“. I would not be surprised in 2022-2025 to see Bayer becoming the “food growing/crop yield company” while the shocks of the Ukraine war still echo. And maybe, later on, the “growing pharmaceutical company” back again, going full circle in narrative over a decade.

After the lows of the last 2 years, Bayer stock has started to rebound. The fading away of out-of-control trial settlement risks is the first catalyzer for a re-pricing. The food crisis and a global realization of the importance of basics (food energy, defense) over the superficial (software, media, etc.) is the extra catalyst to power this turnaround.

In previous reports, companies have been presented as belonging to a firm investing category and strategy. But Bayer resists this categorization.

• It is a growth company, compounding steadily through R&D and acquisition for over a century.
• It is a defensive stock, a pharmaceutical blue-chip with high-quality patents and century-old OTC brands.
• It is a deep value asset play, with unloved, ignored valuable assets.
• It is a turnaround story, emerging from the Roundup crisis not nearly as damaged as everyone assumed.
• And it is a macro/geopolitical play, capitalizing on worldwide dire demand for higher and reliable crop yields.
• It is a leading AgriTech and MedTech incubator for groundbreaking technologies.

I think this has left many investors confused and not daring to try to understand such a complex situation.

As I see it, a company that is simultaneously undervalued, turning around, growing, and carried by geopolitical tailwinds seems like an interesting bet on the future.

Even if some of these angles about Bayer turn out wrong, we just need a few to be right at current prices. Of course, only time will tell.

The post Bayer Aktiengesellschaft (BAYRY) Stock Analysis appeared first on FinMasters.

Developing a stock trading strategy is both exciting and scary. You’ll be confident in your own work and also worried that you missed something. Diving straight in with your hard-earned money is risky. Stock backtesting gives you a way to assess your strategy without risk.

What Is Stock Backtesting?

The term “backtesting” describes any process designed to evaluate how a strategy would have performed in the past. Stock backtesting uses historical data and technology to evaluate how a strategy would have performed if you had adopted it at some previous point.

The assumption is that strategies that were effective in the past will be effective in the future and vice versa.

Pros and Cons of Backtesting

Backtesting a trading strategy can tell you a lot about how it has performed in the past and may perform in the future. While we can be fairly certain the future will be different, knowing a strategy’s strengths and weaknesses can be invaluable. If a strategy didn’t perform well in the past, it’s unlikely to perform well in the future. However, it’s worth keeping the benefits and drawbacks of backtesting in mind.

Pros of Backtesting:

• Backtesting tools show you whether a strategy was profitable in the past.
• You will know what sort of drawdowns were experienced.
• Using backtesting tools is a very efficient (time-saving) way to test a strategy with hundreds or thousands of trades.
• You may be able to see what market conditions led to underperformance, and you may be able to apply filters to avoid trading when those conditions arise.
• You can optimize parameters to improve risk-adjusted performance.
• You can remove indicators or rules that don’t add value.

Cons of Backtesting:

• In practice, real-world results are almost always worse than the results of backtests.
• There is a temptation to over-optimize a strategy so that it performs very well over a specific period of historical data. This is known as curve fitting or overfitting.
• A trading strategy will still need to be tested live to determine slippage and trading costs.
• You may become overconfident based on the results of an initial backtest. This often results in rushing to begin live trading without exhaustive testing on a stock market simulator.
• There is an inherent bias toward creating strategies using patterns that you know have worked in the past.
• In short time frames, like day trading, execution plays an enormous role in performance. Backtesting can still be a starting point for day traders, but paper trading is more important.

Effective backtesting has some basic requirements:

• The strategy must be based on very specific, measurable, consistent criteria. A strategy even partly based on subjective evaluations or gut feel cannot be effectively backtested.
• The sample time period must be representative. For example, if your backtesting time sample is from 2010-2020, your test is entirely in bull market conditions. Your results will be skewed and will not predict performance in less favorable markets.

Like all trading methods, backtesting has limitations. You can use it most effectively if you are aware of those limitations.

Choosing Backtesting Tools and Software

There is a wide variety of platforms available for backtesting. These are some of the considerations to look out for when choosing a platform to evaluate your strategy:

• Market coverage. Different platforms cover different markets. Typically a platform will include one or more of the following groups of stocks: US-listed, Canada, US OTC, European, and other international.
• Time period. If you are developing long-term or timeless strategies, you should be able to test them over longer periods of time. Some platforms have data going back decades, while others only have 5 to 10 years of historical data.
• Price action data, fundamental data, or both? You may be building trading strategies based on technical analysis/price action or you may be building investment strategies based on fundamental data. You may also be using a combination of both. This is an area where trading and backtesting tools vary a lot. Some only use price and volume data, while others have a focus on filters like growth and valuation metrics. You will need to find out exactly which data the platform includes, and which of these filters can be used in a backtest.
• How sophisticated can a strategy be? Following on from the previous point, there is also a considerable difference between different platforms when it comes to building a strategy. Some stock screeners allow you to evaluate the profitability of a set of filters, while others allow for full strategy creation. Backtesting a set of filters can be informative for long-term investors but has its limitations. To evaluate a proper trading strategy, you need full control of entry and exit criteria. Each platform differs with regards to how sophisticated a strategy can be, and it really depends on how simple or complex you want the system to be.

Choosing the right platform for your needs is an important first step toward an effective backtesting experience.

Best Backtesting Tools and Software

Some of the backtesting platforms we like include:

1. TrendSpider
2. TradingView
3. Trade Ideas
4. FinViz
5. QuantConnect

Some more general analytical platforms, like TD Ameritrade and NinjaTrader  include backtesting tools, but here we’ll focus on tools primarily designed for backtesting.

1. TrendSpider

TrendSpider is one of the newer technical analysis platforms and offers some innovative tools that aren’t available elsewhere. The platform has also built a loyal community of users. The platform includes powerful backtesting capabilities along with its stock scanner.

When it comes to backtesting tools, TrendSpider offers two major advantages. Firstly, most of the platform’s unique tools, including automated pattern recognition, can be incorporated into the strategies you evaluate. And secondly, creating strategies is easy and intuitive and does not require you to write code – though you can do that as well.

TrendSpider is primarily focused on price action rather than fundamental analysis. However, it is still very popular amongst investors who focus on momentum and growth stocks. TrendSpider’s pricing ranges from $33 to $97 a month. The backtesting feature is included in the Elite plan with a $65 monthly fee.

Visit TrendSpider

2. TradingView

TradingView is another popular technical analysis platform with a large community of traders and investors who share their ideas and strategies on the platform. The platform is cloud-based and includes all of the technical analysis features you would expect to find on a TA platform. One of the major advantages of TradingView is that most global stocks and other assets are covered.

TradingView’s backtesting is not the most advanced around, but it is easy to use. It also displays results in an easy-to-understand visual format. Creating strategies on TradingView requires coding in the native programming language, Pine Script. This may sound complicated, but it’s actually quite easy to copy and adapt strategies shared by other traders. TradingView pricing ranges from free to $59.95 a month. The backtesting tool is available on the free tier, so you can try it out for free.

Visit TradingView

3. Trade Ideas

Trade ideas is an advanced market intelligence platform that leans heavily on artificial intelligence. The platform includes numerous AI-powered algorithms that generate trade ideas and can be incorporated into a strategy. Trade Ideas also includes social data that is built into the algorithms.

The backtesting tools module is very intuitive and does not require coding knowledge. It also provides a very informative analysis of results and suggestions for optimizing a strategy. Trade Ideas has two subscription tiers of $118/month and $228/month. The backtesting tools module is included in the more expensive tier.

Visit Trade Ideas

4. FinViz

FinViz is primarily a stock scanner to filter stocks using a combination of descriptive, technical, and fundamental criteria. In total there are 70 criteria you can use to narrow the market down to a more manageable watchlist. FinViz is also packed with other useful tools to help you keep on top of the stock market.

The FinViz backtesting tools module is fairly basic and only includes price action indicators, rather than the fundamental and descriptive filters. However, it can be a useful tool to develop trading strategies for stocks you find using the screener. FinViz offers a good balance between being straightforward to use and still being very informative and useful. The backtesting module is included in FinViz Elite which is available for $39.50/month. You can learn more in our extensive FinViz review.

Visit FinViz

5. QuantConnect

QuantConnect is one of a new breed of platforms for quantitative and algorithmic traders. It is cloud-based and open source with an emphasis on collaboration. This platform includes fundamental data as well as price and volume data. The platform can also be used to trade automatically.

Building strategies, backtesting, and trading with QuantConnect require you to write code in Python or C++. The learning curve is steep and requires commitment. However, if you want to develop and assess strategies based on both fundamental and price data, QuantConnect is the way to go. Pricing starts at $8 for individual users – however, some data feeds incur additional charges.

Visit QuantConnect

How to Get the Most Out of Backtesting Tools

Backtesting should always be done on separate data samples. This is known as in-sample and out-of-sample testing. Initial tests are done on the first sample, and then the strategy is evaluated on the next sample. For results to be valid, there should be consistency between the in-sample and out-of-sample results. When results are consistent and indicate an edge, the strategy is then evaluated with paper trading and finally with live trading.

As much as possible, choose your sample periods so that both the in-sample and out-of-sample data cover a variety of market conditions. Most backtests have an element of survivorship bias built into them because delisted and suspended stocks are not included in the test data. Wherever possible you should try to include these stocks when using backtesting tools.

A good trading strategy is as much about risk management as it is about profits. It’s important to learn about the various risk management metrics. Strategies that tend to be robust and endure over time are often quite volatile. By contrast, strategies that have low volatility often break down when traded live. You should be prepared to accept some volatility if you want a strategy that continues to be profitable.

The post 5 Best Stock Backtesting Platforms of 2022 appeared first on FinMasters.

Introduction

The cost of a four-year college continues to skyrocket, leaving many saddled with debt well into their careers. But alternative educational avenues can help you get started in many professions. You might consider an associate degree. This degree is a two-year program that costs much less than a four-year college. It can get you into the workforce quickly without the debt associated with university degrees. 

Before pursuing an associate degree, look at the types of jobs you can get.

Associate Degree Jobs in the Medical/Dental Field

You can work in the medical arena with an associate degree. Focus on a program that prepares you for the job you want. 

Dental Hygienist

An associate degree in dental hygiene can get you started in a career as an assistant who cleans dental patients’ teeth. Though the dentist does the major dental work, the hygienist does the cleaning.

This position requires an associate degree in dental hygiene. Check with Commission on Dental Accreditation for accredited programs in your area. You will also need a license in your state. 

Pharmacy Technician

A Pharmacy Technician works under the supervision of a licensed pharmacist. Duties include retrieving and bottling medicines for patients, as well as providing information about dosages, warnings, and interactions with other drugs. 

Here are some other opportunities in medicine that you can pursue with an associate degree.

Clinical Laboratory Technician

Cardiovascular Technician

Medical Office Assistant

Certified Nursing Assistant

Pharmacy Technician

Medical Assistant

Veterinary Technician

Phlebotomist

Emergency Medical Technician (EMT)

Paramedic

Licensed Practical Nurse or Registered Nurse

Radiology Technician

Surgical Technician

Nuclear Medicine Technologist

MRI Technologist

Ultrasound Technician

Respiratory Therapist

Tip: You may have to get a specific degree for these positions. 

Associate Degree Jobs in the Legal Field

Paralegal or Legal Assistant

You don’t have to be a lawyer to work in the legal field. Become an assistant to a lawyer with an associate degree. 

An attorney may ask you to prepare legal documents, do research, and organize records. You may even interview prospective clients and go to trials and hearings with an attorney. 

Get started with an associate degree in paralegal studies. Check with the school that offers the degree program to make sure it is approved by the bar association in your area. 

Court Reporter

You can get right in the thick of courtroom action as a court reporter. Expect to create transcriptions of legal proceedings and answer questions about what was said by a witness. You may also provide dialogue for television monitors as the testimony happens. 

You will need an associate degree in court reporting from a school accredited in the region where you plan to work. It is possible you will need to take a test showing you can type at above 225 words per minute. 

Other jobs for associate degrees in legal studies include:

• Law Clerk
• Legal Receptionist
• Research Assistant
• Court Messenger

Tip: Check with your school’s offerings to make sure you will have broad legal training so you can choose the type of job that suits you best. 

Associate Degree Jobs in the Business Field

Your associate degree will help you compete for business-related jobs. Employers often favor candidates who have at least some college, and completing an associate degree is even better. Here are some positions you can pursue with your degree in hand.

Executive Administrative Assistant

This position puts you in the heart of the business world. You will be working for business executives handling administrative and clerical duties. These can range from answering phone calls to scheduling meetings and appointments. You could also be maintaining files, answering emails, and preparing invoices.

Relationship Banker

This is the person that helps customers with issues and tasks that can’t be handled at a teller’s window. You will assist customers in applying for loans and opening personal accounts, as well as establishing trust funds and putting money into investment opportunities. A relationship banker also promotes special offers or bank products and services.

Your associate degree can also help you with a variety of other business opportunities. Here are a few:

• Customer Service Associate
• Assistant Store Manager
• Sales Support Specialist
• Store Manager
• Executive Assistant
• Sales Consultant
• Sales Supervisor

Associate Degree Jobs in Trades

Many trade schools offer two-year degrees to prepare you for specific jobs. Choose the degree that is targeted toward positions you are interested in.

HVAC Technician

You can work as an HVAC technician where your duties include repairing and installing heating and cooling systems. HVA technicians tend to focus on either residential or commercial jobs. 

The job requires an associate degree in HVAC technology, where you will get hands-on training in maintenance, inspection, repair, and installation. 

Electrician

A licensed electrician wires homes and businesses for electrical power. The electrician may also install machinery and lighting. You will read blueprints to learn where to install circuits and breakers.

Here are a few other trades to consider when deciding which degree or certification to pursue.

• Mechanic
• Plumber
• Wind Turbine Technician
• IT Technician
• Ironworker

Warning: In many trades, you will need to join a union and serve a paid apprenticeship. An apprenticeship can last as much as two to five years.

Associate Degree Jobs if You Have a Liberal Arts Degree

If you choose to get an associate degree in liberal arts, there are still many jobs you can consider. Let’s look at a few.

Administrative Assistant

An administrative assistant does not work for an executive like an executive assistant does, but may work for managers. You will schedule appointments, answer phones, enter data, answer emails, and keep files organized. You need basic computer skills, communication ability, and a knack for organizing.  

Police Officer

Law enforcement officers patrol cities and towns. They enforce the law and arrest violators. In some cases, you will testify in court and write reports about incidents. Police officers are often among first responders in emergencies. 

In addition to an associate degree, you will receive training at a police academy. You will also need to pass physical fitness tests and learn lifesaving skills. Training in firearms will familiarize you with weapons you will be using.

There are many other opportunities you can pursue with your liberal arts associate degree. Here is a sampling.

• Receptionist
• Customer Service Representative
• Installation Technician
• Human Resources Assistant
• Office Manager
• Sales Manager

Tip: Even if you want to work in areas a liberal arts degree does not prepare you for, the fact that you have a degree will give you an advantage over those who only have a high school diploma.

Many people who get an associate degree apply their credits to a university so they can pursue a four-year degree. In this way, the associate degree becomes not only a launching point for a job, but also for further education. 

The post Best Jobs You Can Get With an Associate Degree appeared first on FinMasters.

Investing in stocks can be very profitable. It can also be unprofitable, and many people have lost a great deal of money by trading before they are ready. But how do you gain that necessary experience without risking your hard-earned money? Paper trading is one answer to that question.

What is Paper Trading?

Paper trading is the practice of buying and selling stocks with a simulated account. Everything works as it would with a real live brokerage account, except that you don’t actually buy the stocks. Your portfolio is simply a representation of what would have happened if you had bought the stocks.

Stock simulator software is designed to let you practice stock trading and learn by trial and error without excessive risk. You won’t benefit from your good choices, but you won’t pay a price for your bad ones either.

Paper trading has advantages and disadvantages, and it’s important to understand them before you

Choosing a Stock Simulator or Demo Account

If you are choosing a stock market simulator, there are obvious benefits to first choosing a broker you want to trade with, and then using their demo account. This will allow you to get used to the platform while paper trading. You can also use the demo account as a way to evaluate a broker, and then commit capital when you are happy with the platform. Typically you do not need a funded account before you open a demo account. There is also no reason not to try out a few different demo accounts while you are paper trading. When evaluating demo accounts, you may want to consider the following points:

• Does the demo account use real-time data or delayed data feed? To get a realistic real-world experience you should be using real-time data.
• Are realistic trading fees deducted from your P&L. Trading fees are a part of trading and should always be included when paper trading or backtesting.
• If you plan to trade with margin (leverage) you should check that you can do this with a demo account.
• When you are using a demo account, try to cross-reference the prices with a live feed and work out how realistic your execution prices are. 

Remember that the goal is to make the paper trading experience as similar as possible to the actual trading experience.

Best Paper Trading Platforms

As mentioned, most brokers offer demo accounts. The following are a few demo accounts we think stand out from the crowd for one reason or another.

1. TD Ameritrade
2. Interactive Brokers
3. NinjaTrader
4. Webull

1. TD Ameritrade

TD Ameritrade is one of the more established online brokers. The platform offers a wide range of features, tools, and instruments to trade. TD Ameritrade’s stock market simulator, paperMoney, is one of the most advanced available. The demo account falls within the ThinkorSwim platform suite which includes a lot of educational resources to help you learn while you paper trade. While using the demo account, you will also have access to most of TD Ameritrade’s tools, research, and data. You can also experiment with short selling, option strategies, and other asset classes like forex and futures. 

Visit TD Ameritrade

2. Interactive Brokers

Interactive Brokers is another well-established online trading platform that is favored by professional money managers as well as retail traders. The platform is more complex than most, and it will take you longer to get started. However, it also offers more tools than platforms that are built primarily for retail traders. Interactive Brokers will also give you access to more markets and instruments.

IB also offers fractional shares which allow you to allocate specific percentages of a portfolio to each stock. An Interactive Brokers demo account will give you access to almost all the tools you would have for a funded account. You will also have access to extensive research and educational resources.

Visit Interactive Brokers

3. NinjaTrader

NinjaTrader is a trading platform with a focus on futures, options, and forex. The platform is not a broker but provides market access via a choice of brokers, including NinjaTrader’s own brokerage service. NinjaTrader is a popular choice for futures traders and traders who focus on technical analysis rather than fundamental analysis. A NinjaTrader demo account offers simulated trades and backtesting, as well as the ability to replay historical data to paper trade on.

Visit Ninja Trader

4. Webull

Webull is a newer trading platform with a focus on simplicity and mobile trading. The platform only offers stock and options trading but charges no commission on trades. It doesn’t offer nearly as many features as the other platforms we’ve mentioned, but the learning curve isn’t nearly as steep, and you can get started very quickly. It’s also a great choice if you want to trade on a mobile device. Webull’s demo account will give you access to all the desktop and mobile app features.

Visit Webull

Paper Trading and the Psychology of Trading

Trading is not just about managing your financial capital. You also need to manage your psychological capital. Your decision-making will be affected when you make money and when you lose money. This is why fear and greed play such a big role in the market.

Ultimately, to be a successful trader you need to manage your psychological capital so that you can make good trading and investment decisions regardless of what’s happening to your profit and loss. Most people can only learn to do this properly by trading with real money. This means that you shouldn’t expect paper trading success to immediately translate to live trading success.

It also means that when you start live trading, you should start out with the smallest position size possible. Some people even believe that paper trading is so different from live trading that it can have a negative effect on your education as a trader. We feel there is still a lot of value to paper trading, but it’s important to be aware of the drawbacks.

Stock Market Simulators: Demo Accounts vs. Trading Games

In this post, when we refer to stock market simulators, we are talking about demo trading accounts. Stock market games are another type of stock market simulator. These games typically involve a social element where you pick a portfolio of stocks and see how it performs against the portfolios of friends, or contestants in a competition.

These games are fun and a good introduction to the stock market. They can also be educational if you want to focus on long-term investing and stock picking. If you want to develop real trading skills, paper trading stocks is a more valuable exercise.

Pros and Cons of Paper Trading

Like most things related to trading, there are pros and cons to paper trading.

Awareness of the pros and cons can help you get the most out of your paper trading practice.

Paper trading provides practice in trading stocks. If you plan to invest for the long term, it won’t be very helpful unless you intend to use paper trading for an extended period. If you want to introduce a young person to the concepts of trading, setting them up with a paper trading portfolio is a great way to start!

How to Get the Most Out of Paper Trading

The key to getting the most out of trading with a stock market simulator is to take it seriously and make the experience as realistic as possible. There are several ways to do this. When you open a demo brokerage account, you will typically be given $100,000 or even $1 million in virtual currency to trade. Unless you actually plan to trade with an account of this size, try to change the account to a more realistic size. The amount you risk on each trade will then have more meaning to you.

You should also make sure your stock market simulator is including trading costs in the P&L. Always enter trades in real time at a price that you could realistically execute your order at. There is often a temptation to add trades that you missed after the fact. Missing trades is part of the deal, and should be reflected in your paper trading results. Be deliberate. Follow a trading plan and keep a journal with reasons for entering and exiting trades.

One thing you can do in a paper trading account that you wouldn’t do in a live account is to experiment. You can try doing the opposite of what you think you should do or taking the opposite side of a trade. This is fine as long as it’s all part of a deliberate process of learning and experimenting. Focus on your P&L, win rate and win/loss ratio over a series of at least 10, but preferably 50 or more trades. Try to worry less about individual trades and more about the overall returns for a series of trades.

Paper Trading vs Backtesting vs Live Trading

Paper trading and backtesting are two of the most popular ways to test out a trading strategy. Live trading, of course, is the real thing.

• Paper trading provides a real-time simulated trading experience. You’ll experience the uncertainty of trying to pick trades, but your time horizon will be limited by the time you’re willing to devote to the exercise.
• Backtesting tests the past performance of a strategy using historical data. Backtesting offers an effectively unlimited time horizon but requires a fixed set of trading parameters to be effective.
• Live trading is real trading with real money, raising a set of emotional and financial risks and challenges that no simulation can entirely match.

Paper trading and backtesting both have a place. They can help you test and assess a trading strategy and develop a feel for the trading process and for what works and what doesn’t.

Paper trading and backtesting can also be a great way to develop a feel for the stock market before you’re ready to invest, even while you are still a student.

These methods also have limitations, and it’s important to be aware of those limitations as you approach the transition to live trading. When you graduate to live trading you’ll face an entirely new experience, a strong argument for starting your live trading experience with relatively small investments.

There’s no guarantee of success in the markets, and statistics have repeatedly verified that most frequent traders end up losing money. If you are convinced that you want to trade, though, proper use of evaluation methods like paper trading can make the odds more favorable.

The post 4 Best Paper Trading Platforms of 2022 appeared first on FinMasters.

The stock market can be intimidating. You see people making a lot of money and you’d like a piece of the action, but you also see people losing. You have ideas for potential strategies, but using them unproven is a huge risk. Backtesting and paper trading can help clear up some of the uncertainty.

There are two basic ways to test out a trading strategy without risking money.

• Backtesting looks at how a strategy would have performed in the past, using historical data.
• Paper trading is a form of forward testing. You trade with a mock portfolio to see how your strategy plays out in real time.

These methods have limitations, and they are no substitute for actual experience in the market. They can still be useful tools in preparing you for a dive into live trading.

Let’s take a closer look.

Some Terminology

Before we begin, we should outline a few terms related to paper trading and backtesting.

• Paper trading allows you to practice trading without risking real money. You simply log your trades in real time in a journal, spreadsheet, or stock market simulator as if they are real trades. However you choose to do it, you need to make it as realistic as possible. So, you can only use the current market price and you must account for slippage and the commission you would pay if you were trading with real money. Paper trading is sometimes known as demo trading, virtual stock trading, or simulated trading.
• Backtesting is the process of evaluating a trading strategy using historical data. Typically backtesting is done using software, but it can be done manually by logging each individual trade. Backtesting can only be used for rules-based strategies where each trade follows exactly the same set of rules for trade selection, entry, and exit. When you backtest a strategy, you will be looking at the performance over a series of at last 20 trades to see what the overall results will be.
• Live trading is real trading with real money. Obviously, live trading in the real market is the objective for any trader. But live trading with a very small amount of capital can also be part of the practice and testing process, along with paper trading and backtesting.
• Demo accounts, which are also known as stock simulators and virtual trading accounts, are trading accounts that let you trade with virtual money. Most stock brokers offer paper trading with a demo account like this. Not only does this allow you to practice trading and evaluate your strategy, but you can also get to know a trading platform before you put real capital on the line.

Let’s look at some reasons for starting with demo trades before you try live trading.

How to Use Paper Trading and Backtesting

Paper trading and backtesting require sophisticated tools to replicate the experience of trading with a real portfolio (paper trading) or to apply the parameters of a trading strategy to past market conditions.

Luckily we have access to tools developed specifically to make paper trading and backtesting easy.

We’ve published separate articles on the best paper trading tools and how to use them and the best backtesting tools and how to use them.

Why Paper Trade or Backtest Before You Risk Real Money

Trading is a numbers game, and there is a fine line between being profitable and unprofitable as a trader. Backtesting and paper trading help you increase the chances of being on the right side of that line. Not all trading methods can be backtested, but if you can backtest a strategy, you will know what to expect when you go live. By backtesting your trading strategy you can:

• see how the strategy would have performed in the past,
• calculate your win rate and reward-to-risk ratio,
• find out when the strategy might fail, and,
• optimize the parameters of the system to improve performance.

By paper trading your strategy you can:

• evaluate the strategy in real time,
• Compare real-time results to backtest results,
• find out how much slippage you can expect, and,
• see if there are any other issues related to real-time execution.

In addition to testing strategies, paper trading is a useful exercise for traders of all levels:

• Beginners can use paper trade accounts to learn how emotions can affect decision-making. 
• Traders can get to know a new trading platform with a demo account before risking capital.
• You can experiment with different order types and risk management strategies.
• You can build confidence after a difficult period. Even the most experienced traders sometimes revert to trading with a stock market simulator after a string of losing trades.

These strategies allow you to make mistakes and learn from them without risking your hard-earned capital.

Paper Trading vs. Backtesting vs. Live Trading

Ideally, the process of developing a new trading strategy should include the following steps:

• Backtesting and optimization
• Paper trading
• Live trading with minimum possible capital
• Live trading with increasing amounts of capital

Each of these steps can teach you something new about the strategy and minimize the amount you put at risk before you are sure it’s profitable. The reality is that you may not be able to use each step for every approach to trading. There are also a few distinct differences between backtesting, paper trading, and live trading in respect to when and why each is useful.

When to Use Paper Trading and Backtesting

Paper Trading and backtesting can be used by anyone who trades stocks or wants to trade stocks. Even experienced traders use these methods before adopting a new strategy or changing an existing one.

There are still some situations where these methods are particularly useful.

• You want to move from investing to trading. If you’re already holding some stocks long-term and considering trading more actively backtesting and paper trading can help you prepare.
• You’re trying to decide between investing and trading. If you’re ready to dip into the stock market and aren’t sure what approach you want to take, these tools can help you evaluate your trading ideas and compare them to more conservative strategies.
• You’re saving money to invest. If you aren’t ready to invest yet but you’re working toward that goal, backtesting and paper trading are a great way to get familiar with markets and how they work.
• You’re just interested. Even if you’re still in school or beginning to build a career, you can look forward to when you’ll be able to enter the market. The more you learn the better prepared you’ll be.

Both paper trading and backtesting work best when you have a clear strategy to evaluate, but you don’t need just one. You can try out several strategies, compare, and develop as you go along.

Conclusion: Stock Market Simulators and Backtesting Tools

Both paper trading and backtesting are a crucial part of the trading process for beginners and experienced traders alike. In fact, testing your strategy and skill before going live can be the difference between taking educated risks and gambling. By using a stock market simulator and backtesting tools, you can ensure that you really have an edge before you put precious capital on the line. What are your favorite paper trading and backtesting tools?

The post Practice Trading Tools: Backtesting and Paper Trading appeared first on FinMasters.

Searching for work online typically means sifting through site after site. As job opportunities get more competitive and new job sites pop up, it’s becoming harder to identify legit jobs online. That’s why we took it upon ourselves to thoroughly research each opportunity and bring you the ultimate list of places to find online jobs & gigs in 2022.

The post 120+ Places to Find Jobs & Gigs Online appeared first on FinMasters.

Free cash flow or FCF is a useful way of analyzing a company’s investment fundamentals. Let’s look at what it is, how to calculate it, and how to use it.

What Are Cash Flows?

Before discussing “free” cash flow, we need to look quickly at the concept of cash flow. There are two ways to measure a company’s profitability. One is earnings and the other is cash flow.

Earnings are synonymous with after-tax net income. They are the sum of sales, minus all the costs and expenses of the company.

Cash flow is, as the name suggests, the quantity of money entering and leaving the company.

The difference between the two is that earnings take into account ALL expenses, including accounting conventions like depreciation and amortization. In theory, this gives a more accurate view of a company’s profits. But this can also be used by unscrupulous management to temporarily make a picture look better than it really is.

In contrast, cash flow is a lot more straightforward. The money is in the company or not. But this does not always reflect real costs, like the infrequent need to purchase land, offices, or industrial equipment.

This is why Free Cash Flow is preferred when valuing a company.

How to Calculate Free Cash Flow

Free Cash Flow is Cash Flow minus Capital Expenditure (CAPEX).

FCF is especially useful in companies operating capital-intensive industries, like mining, oil & gas, or manufacturing.

A big advantage of free cash flow is that it reflects the company’s ability to distribute profit to the shareholders. Dividends are taken from actual cash, not accounting fictions like earnings or even worse metrics like EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

Another advantage is that a difference between FCF and net income can reveal problems. Management’s calculation of depreciation may not have honestly measured the company’s regular CAPEX spending needs. This can give misleading high earnings for a little while, but the real CAPEX spending will be included in the FCF calculation, and show the true situation.

The Risks Of Using Free Cash Flow

Free Cash Flow is a useful way to evaluate a company. But like with all financial calculations, the devil is in the details.

One of the first things to check is to measure Free Cash Flow per share. If the company constantly issues new shares and dilutes existing shareholders, free cash flow growth will not profit the existing shareholders.

Another thing to pay attention to is CAPEX consistency. If the company spends capital very irregularly, the FCF calculation might be misleading. For example, if the company has paused CAPEX temporarily, this will boost FCF. But this CAPEX level is unlikely to be sustainable and will need to go up at a later date.

Lastly, capital allocation is important. A company can produce a lot of FCF, but squander it on ill-fated acquisitions, inefficient R&D, or unsuccessful expansion. In this case, the free cash flow is useless to shareholders, as it will never be distributed in the shape of dividends or buy-backs, or used to grow the business.

So overall, Free Cash Flow is useful if at least these 3 criteria are met:

1. Relatively stable share count.
2. Accurate estimation of future CAPEX needs and assessment of current CAPEX relative to the historical trend.
3. The company has a history of shareholder-friendly policy and good Return on Invested Capital (ROIC).

Any assessment of FCF has to start with establishing this basis.

Discounted Free Cash Flow

Discounted Free Cash Flow (DFCF) Analysis is a very popular valuation method widely used in value investing. It’s a complicated technique and a full explanation would require a much more detailed article, but we can look at the basic idea.

DFCF analysis uses the current free cash flow plus its expected growth over time and uses that figure to project the value of that cash flow in the future. That cash flow is “discounted”: for each future year, the current value of that future cash flow gets smaller.

The discount is designed to adjust for something called the time value of money. A dollar a year from now is less valuable than a dollar today because the dollar today can be used to earn more money over the course of the year. The discount rate is larger the farther into the future you project.

One of the principles of value investing is that a company’s legitimate value is the value of all its future cash flow, making DFCF analysis a very good way to judge if a stock is undervalued. This is especially useful for a company with plenty of growing FCF.

The limitations of this method fall into 2 categories:

1. Current Free Cash Flow may not reflect the true profitability of the company (see above.
2. Predictions about the future are hard, and the DFCF model can be very wrong if you misjudge the growth rate.
3. Growth rates may depend on external factors that are difficult to predict. Analysis of a company must be matched with an effective analysis of the industry and the wider economic environment.

DFCF analysis can be an effective tool, but to use it effectively you will need to study it at a level much deeper than this introduction. As with all analysis techniques, you’ll need to maintain awareness of its limitations.

This article from the Corporate Finance Institute gives a detailed explanation of how to calculate DFCF. If the calculations are too complex, use our Discounted Free Cash Flow Calculator!

Conclusion

Free Cash Flow (FCF) is a very useful tool to measure the long-term value of a company. Like all other tools, it needs to be used with a touch of common sense and good judgment.

In many circumstances, it is more relevant and gives a more accurate picture of a company’s profit than earnings. This is because earnings are easier to manipulate and are under more scrutiny by analysts. There is simply more incentive to optimize a company’s financials toward showing good earnings.

You will still need to be careful in your assessment of whether current and projected cash flow accurately represents the long-term prospects of the company. That means looking carefully at the company’s quality, its management’s skills and ethics, and the wider industry and economic environment.

Discounted Free Cash Flow models are as well useful, but vulnerable to error. They rely heavily on multiple assumptions about the future; especially growth rate and a stable economic environment. They can be used to evaluate a company’s current valuation, but should not be taken as an absolute truth about the company’s intrinsic value.

The post What Is Free Cash Flow and How to Calculate It appeared first on FinMasters.

What is Patreon?

Patreon offers a new approach to content monetization. Traditional ad-based platforms like YouTube require very large audiences and have ever-changing monetization algorithms. Patreon allows creators to offer ongoing memberships to their audience. Members offer a monthly contribution or a contribution each time the creator releases work. 

Patreon offers Lite, Pro, and premium service tiers, and charges from 5% to 12% commission. The average commission rate is 8.5%.

Patreon allows content creators to bypass the increasingly complex monetization processes of sites like YouTube and deal directly with their audience. This system rewards creators who have relatively small or specialized but highly committed audiences, rather than the mass market favored by many host sites.

Creators say that Patreon allows them to focus on creating, rather than keeping track of policies or popular tastes, and provides more consistent revenue. The system allows the creator to retain ownership of their work and retain control over it through a direct connection to the audience, without publishers, producers, or platforms in the way.

Patreon dominates its business and faces little direct competition. Indirect competition comes from crowdfunding platforms like Kickstarter, which are more oriented toward single-project funding, and traditional platforms like YouTube. Patreon holds 10 patents.

When Will Patreon Hold its IPO

A Patreon IPO was widely discussed during the 2021 IPO boom, but that discussion has now faded.

Patreon announced in October 2021 that an IPO was “on the table”, and some analysts speculated that an IPO could take place by late 2021. That did not happen, presumably because the bottom dropped out of the IPO market, leaving an inhospitable climate for offerings and causing many companies to delay their IPOs.

It is not clear when Patreon will go public, but the large concentration of venture capital funding suggests that an IPO is inevitable: these investors will want an exit strategy eventually, and the Company’s growth rate has remained solid.

With the IPO market currently in a  deep freeze, the market for pre-IPO shares currently favors buyers. If you believe in Patreon’s future, it may be a good time to consider a pre-IPO investment, if you can find shares available.

What Do We Know About Patreon’s Fundamentals?

Patreon is a privately held company and is not required to file audited financial reports. Publicly available sources offer quite a bit of information about Patreon’s business and finances, but detailed information will only be available when Patreon files a registration statement.

As of January 2022, Patreon was serving 216,000 creators with at least one patron. The total number of patrons was 7 million. Creators were earning $100 million per month from 2 million individual pledges, suggesting that the average monthly pledge size is $50.

Patreon’s annual revenue in 2021 was estimated at $160 million. The Company has announced that it plans to double its size in 2022. Patreon is planning to introduce its own native video platform, new options for formatting, data, and analytics, a revamped billing system, and other improvements. To accomplish these goals Patreon is expanding from 400 employees in 2021 to an expected 1000 by the end of 2022.

Patreon’s list of Patrons has grown dramatically, though 2021 figures remain unavailable.

The figures for creators are more complex.

The explanation for this pattern lies in the pattern of “creator churn” – creators that join the platform and then leave – on Patreon.

The creators that are most successful on Patreon join the platform with an existing audience. Most of them achieve a degree of popularity on another platform before moving to Patreon. Creators who join Patreon without an existing audience often leave the platform because they are unable to attract patrons. Creators generating substantial income from Patreon very rarely leave.

At the start of the COVID-19 pandemic, a large number of new creators joined the platform. Many of them did not bring an audience with them, and the decline from June 2020 to September 2020 reflects their departure from the platform. Growth resumed once those non-viable accounts were shaken out.

Who’s On Patreon?

Patreon serves many different kinds of content creators. Here’s a breakdown of the most popular types.

Source: Backlinko

Almost 70% of Patreon’s contributions and revenues involve creators with more than $1000/month in payouts, and the most popular creators account for a large percentage of revenue.

What We Don’t Know

These figures are sourced or deduced from company statements and are not based on audited financials, We can make deductions on revenue based on figures for the amount of the contributions and the average commission, but we have no data on costs, margins, or profitability.

These factors will only be open to assessment when Patreon files a formal registration statement.

Patreon Financing

Patreon has raised $413 million in venture capital funding. The most recent funding round was in April 2021 and raised $155 million, effectively valuing Patreon at $4 billion. The funding round was led by Tiger Capital, with other participants including Woodline Partners and previous investors DFJ Growth, Glade Brook Capital, New Enterprise Associates, and Lone Pine Capital.

Patreon has held 7 venture capital funding rounds with a total of 39 investors..

Source: Crunchbase

This concentration of venture capital funding suggests that an eventual IPO is almost inevitable, as these investors will press for a profitable exit strategy. The timing of this expected IPO remains entirely uncertain and will depend on the recovery of the overall IPO market.

How Can I Buy Patreon Stock

Patreon is a privately held company and its stock does not currently trade on any public exchange. You will not be able to buy Patreon stock through a conventional broker until the Company has its IPO.

It is possible to buy shares in pre-IPO companies through private share marketplaces. These marketplaces acquire shares or broker shares being sold by early investors or by employees who have received shares as part of their compensation. 

This is not a sure thing. Shares in any given company may not be available at any given time, and there may be restrictions on who can buy private company shares. If you’re convinced that a company has a bright future, it’s still worth a try as long as you have fully considered the risks of pre-IPO investing. 

As of June 2022, the pre-IPO market presents a unique opportunity for investors with a long time horizon and cash that they are willing to place in a high-risk investment (all pre-IPO investments have to be considered high risk).

Today’s flat IPO market has led to a radical drop in demand for pre-IPO shares. Investors are reluctant to buy shares that may remain illiquid until the IPO market improves. Significant numbers of employees in companies that have postponed IPOs are looking to offload shares. That increased supply and lack of demand point to increased availability and more accessible pricing for pre-IPO shares. 

Pre-IPO Secondary Markets

These marketplaces often impose investor qualifications, and there is no guarantee or assurance that they will have available shares in any given pre-IPO company.

• Forge Global merged with Sharespost in 2020. The combined company is now the world’s largest marketplace for private company shares. Investors must make a minimum purchase of $100,000 worth of shares. The minimum may be higher for some companies. Investors may need to meet qualification requirements.
• EquityZen acquires shares from early investors or from employees who have received stock as part of their compensation. They work with companies to assure that transactions will be recognized and sell the shares to investors who meet the revised SEC “accredited investor” criteria. There’s a minimum investment of $10,000, which may be higher for some companies.
• Nasdaq Private Market provides access to private-company shares for investors who meet the SEC’s accredited investor criteria.

Most pre-IPO transactions must be approved by the issuing company, Beware of unknown platforms offering shares. They may not be approved or legally tradeable.

There are substantial risks in pre-IPO investing. An IPO may not take place as expected, and if it doesn’t there may be no market for your shares. Learn more about pre-IPO investing.

Review this guide to how to buy pre-IPO stock before you consider a pre-IPO purchase of Impossible Foods stock!

Invest in the IPO

If pre-IPO shares are not available or the requirements are too strict, investing in the IPO may be a better option. Many IPOs allocate limited numbers of shares to major brokers, and if your broker has a share allotment you may be able to buy at the IPO. You may still need to meet qualifying requirements.

You’ll have to tell your broker how many shares you’d like to buy, and there’s no guarantee that you’ll get that number or any allocation at all.

Several major brokers provide IPO investing access for clients. Different brokers have different requirements.

• Charles Schwab requires a history of 36 trades or an account balance of at least $100,000 for IPO participation.
• E*Trade has no account balance or trading history requirements for IPO participation. You may have to pass a questionnaire provided by the IPO underwriters.
• Fidelity allows IPO participation for clients who meet a minimum household asset requirement or are members of their Private and Premium client groups.
• TD Ameritrade allows IPO participation if they are part of the selling group. Participants must have a minimum account balance of $250,000 or have made 30 trades in the last calendar year.

Buying at the IPO has one major advantage over a pre-IPO purchase. At least you know that after the IPO there will be a public market for your shares. You may not be able to take immediate advantage of that market, though. IPO share purchases typically come with a 30 or 60-day lockup period.

Invest After the IPO

If you’re convinced that Patreon will be a good long-term investment, the simplest way to buy the stock is simply to wait until the IPO concludes. You can then buy through your regular broker with no restrictions or requirements. You’ll be able to sell the stock at any time you like.

You will not get the low per-share price that you’d get from a pre-IPO or even IPO investment, but you’ll face substantially less risk. You’ll also get a chance to see how the market responds to the IPO before you pull the trigger.

If the stock rises straight after the IPO your entry price will be substantially inflated, but that is by no means guaranteed. If you intend to hold the stock for an extended period the difference is likely to be minimal.

Are There Any Concerns About Patreon?

Any pre-IPO company is a risky investment, especially if the Company has not filed a registration statement, leaving many unanswered questions. If you buy shares now, you are buying them with no knowledge of the Company’s costs, margins, or profitability.

That concern applies to any pre-IPO company. Here are some risk factors that apply specifically to Patreon.

• Patreon is expanding rapidly. Patreon’s dominance of its core business is unassailable. The Company intends to double in size in 2022, introducing new features and services and expanding from 400 employees to over 1000. This is a capital-intensive effort and it’s not certain that Patreon can effectively integrate the rapid expansion.
• There may be limits to growth. Patreon has gone on a remarkable growth tear as popular creators flocked to the site and brought their audiences with them. A small number of very popular creators still generate a large percentage of revenue. There are a limited number of popular creators and as new ones appear old ones may fade away. The scalability of the model remains to be seen. How long can this growth rate be sustained? We don’t know.
• Potential for competition. Right now Patreon faces no large-scale competition in its primary niche. If a major platform like YouTube decides to embrace a direct contribution model, that could change very quickly.
• Valuation questions.  Assuming a valuation of $4 billion and revenues of $160 million, Patreon would be trading at 25x sales as a public company. That’s not insanely high, but it’s high, and it raises questions about how high the ceiling is for the post-IPO stock price.
• Potential content issues. Like all content monetization platforms, Patreon has to walk a thin line between freedom of speech and the potential negative impact of highly controversial content. This is particularly true of adult content and political extremism. Failure to achieve a viable compromise could affect the Company’s image and value.

These risks are speculative. They may or may not emerge as significant issues. There may also be risks that are currently not known or anticipated.

Conclusion

Patreon isn’t in the upper ranks of the current unicorn list. Compared to ByteDance ($180 billion) or SpaceX ($125 billion) its $4 billion valuation seems minuscule. It is still a bona fide unicorn (a private company valued at $1 billion or above) and a highly visible company.  Its IPO will be closely watched.

Pre-IPO investing is always risky, and in the current environment, both risks and rewards are magnified. Nobody knows when the IPO market will revive, how long Patreon will wait to go public, or even whether it will go public at all. 

That elevated risk also offers an opportunity: private equity demand is flat and sellers outnumber buyers. That means more available shares and lower prices. 

If you have the conviction, the ability to lock up funds for extended periods, and the risk tolerance, this might be the time to move.

An investment in Patreon – or any pre-IPO investment – is not the right move for everyone. You’ll need a healthy appreciation of the risks and the will to take on a highly speculative portfolio allocation. It’s still an open option that some investors will want to consider!

FAQs

The post How to Buy Patreon Stock appeared first on FinMasters.

Is Identity Theft the Same as Identity Fraud?

These two terms are often used synonymously, but there’s a difference. Knowing that distinction can help you report the crime using the correct terminology.

One crime leads to another: identity theft leads to identity fraud. Many people lump the two together under the general label “identity theft”.

How Common Is Identity Theft?

According to the latest identity theft statistics, your odds of being victimized by identity theft are one in 200. In 2021, 1,434,698 people in the US were targets of some type of identity fraud. 

This is a 68% increase in cases over the previous year. The number of incidents is continually growing.

People of age 30 to 39 are the most common victims. Most victims have also been people whose annual income is $75,000 or above. The reported loss has been over $20,000 per household. In the worst-case scenario, identity theft could cost these individuals almost half of their yearly income.

What’s even more concerning is that this crime can occur again if it happens once. So if you’ve been a target once, it doesn’t make you immune to similar incidents in the future. If anything, it means your information is circulating and you are more vulnerable.

Types of Identity Theft

Identity theft comes in many different forms. Common types include:

• Financial identity theft
• Medical identity theft
• Identity cloning
• Child identity theft 
• Business identity theft
• Tax identity theft

The kind you’re dealing with depends on the targeted victim and the motivation of the criminal. All of them can do serious damage to your reputation and finances.

Let’s break down some common types to help you recognize them in a real-life scenario.

Financial

Identity theft is typically financially driven. Thieves target your credit cards, insurance, loans, and even savings accounts with the same goals in mind: to steal your funds or use your identity to borrow money.

For example, someone might be watching over our shoulder when we’re at the ATM and bump into us while simultaneously pickpocketing our credit cards. Alternatively, the ATM could have a skimmer — a reader that collects PINs and credit card numbers – installed.

Another common scenario might be that a leaked Social Security number found on the internet leads to criminals applying for a loan or credit card in your name. 

Criminals are skilled at using public sources to fill out a profile. Once they have one key item, like a Social Security number, they can fill in your address, phone number, or even your place of employment from public sources, social media profiles, etc.

They can use this information to gain access to financial accounts or open new accounts in your name.

Medical

Medical identity theft has been on the rise since the start of the COVID-19 pandemic. This happens when someone uses your data, such as your social security or Medicare number, to receive medical care at your expense.

Medical identity theft can affect your medical care, as a thief’s medical records can get mixed up with yours. It can also affect your credit score and your health insurance costs.

Health insurance information gives thieves access to your sensitive data, which they can use to pretend they’re you in other ways as well.

Identity Cloning

Even though it sounds like something from a science fiction movie, identity cloning is a real and dangerous crime. Instead of using your personal information for a one-time wire transfer or to cover medical expenses, the thief lives as though they’re you.

For instance, the criminal could use your personal information to build an entire identity. They could get a job under your name or even commit crimes while claiming to be you. Essentially, they would take over your identity entirely.

Pro Tip: Social security identity theft is common and can lead to successful identity cloning. Don’t reveal your Social Security number to anyone who doesn’t have a legitimate reason to have it.

Children Can Be Targets

If a thief obtains a child’s Social Security numbers, address, or birth dates, they can open up accounts under the child’s name and even rent an apartment.

Child identity theft is extremely dangerous because it can go on for years without being noticed. Imagine turning 18, applying for your first credit card, and discovering that you have a decade or more of fraudulent accounts in your name!

This often overlooked issue can cost families a fortune — the estimated total is $918 million.

Businesses Suffer Too

Corporate identity theft happens when someone steals the identity of a business. For small businesses, this can threaten their survival, for large ones it can be very expensive. Like other types, the criminal impersonates the victim to damage a company financially.

For example, by informing themselves about the employees and your company, the criminal could contact a member of your team pretending to be a manager or boss. The targeted employee may not think twice or even notice that the email has a different appendix and send them the credentials they’re after.

Once they get into the system, scammers can obtain more information to get credit or withdraw money from the bank in the name of the business. It may take some time before the theft is discovered.

Watch Your Taxes

For tax identity theft, a swindler uses your Social Security number to gain employment masquerading as you or file a tax return in your name. They may also claim your tax refund.

The first sign of tax identity theft often occurs when you submit a tax return and it is rejected because a return has already been filed using your name and Social Security number. The IRS may also notify you that you haven’t paid all of your taxes because someone else has been working using your Social Security number. 

How Does Identity Theft Happen?

Identity theft used to be a physical crime. The scammer would have to steal your wallet or break into your home to get your data. Many thefts still start with a physical theft, though now it’s often through “dumpster diving” – prowling through garbage looking for a discarded credit card or bank statements – or stealing statements from mailboxes.

Identity theft can also be virtual. Online theft has become a silent threat that you can’t see until you suddenly can’t access your credit card, as it leaves the hacker or scammer anonymous.

Most hacking attempts are not as tech-savvy as the movies lead us to believe. It doesn’t begin with writing code incredibly fast on a black screen and opening multiple tabs as you do it.

Instead, hackers start with a Google search. They try to find the information that’s readily available online.

You share your data on social media and when you sign up for many websites and services. Hacking forums, info dumps, and social media can give them enough data to copy your identity and choose you as the next target. 

Once they have enough information, they can use it to log into your private accounts or access applications from your bank. They may also put your information up for sale through “dark web” websites.

How to Know if You’re a Victim

You might not know that you’ve been a victim of identity theft until you receive an alert from your bank regarding the activity on your account, notice strange transactions, or receive a thank you note from your credit card company in your email.

Be alert, and don’t discard suspicious activity. Even small unfamiliar transactions on your credit card or an unrecognized hard inquiry on your credit report can point to criminal activity.

Learn more about the signs of identity theft here.

What to Do If You’re a Victim of Identity Theft

If you think you’ve been a victim of identity theft, don’t wait. If you act quickly there’s a good chance of resolving the situation and recovering your losses. The longer you wait, the harder it gets.

You’ll need to go through a sequence of reports and other steps to resolve and recover from identity theft.

Read about what to do if you’re a victim of identity theft.

What Does the Aftermath of Identity Theft Look Like for Victims?

The exact consequences will differ depending on the type and extent of the identity theft. Recovery can be a long process that includes proving the fraud and possible legal action. It can take up to six months for victims to recover financially.

Damage is, in most cases, financial. Still, bad credit after identity fraud is not necessarily going to happen to you, especially if you prove that you’ve been a victim of identity fraud and get a refund.

Besides suffering financial damage, victims can also experience poor mental health long after the incident. Former victims of identity theft report that this crime has left them with long-lasting psychological consequences.

Identity thieves are rarely caught, and victims don’t have the closure that comes with knowing who committed the crime and why. They also have to deal with the knowledge that their personal information has been compromised and may still be in the hands of other thieves.

Keep Calm and Prevent Identity Theft 

Identity theft is a threat, but that doesn’t mean you should panic. Most people never experience identity theft. The key to controlling your risk is taking active steps to prevent identity theft and make yourself a harder target.

Like most criminals, identity thieves prefer easy targets. Following basic precautions won’t make you immune to identity theft, but it will put the odds in your favor. You’ll be a harder target and you’ll spot the theft fast if it happens.

Final Word

Thinking about identity theft is like a Stephen King horror story unfolding in our minds. Your finances, your mental health, and even the reputation of your business might be at stake.

It’s good to be cautious, but there’s no need to panic. Identity thieves may be unseen and mysterious, but they are not some supernatural threat. You can take preventive measures to protect yourself, and if you stay alert you can stop them before they do serious harm!

The post What is Identity Theft? appeared first on FinMasters.

What Are Bill Negotiation Services and How Do They Work?

Companies that offer bill negotiation services will speak with your providers on your behalf to negotiate lower prices. For instance, they can reduce your cable bill for 1 year by negotiating a promotional price with your cable company. 

They will take a percentage of your savings as their fee when they are successful. They take zero fees when they are unsuccessful.

Some companies can negotiate various bills, while others specialize in specific industries (i.e., medical bills). 

You can negotiate your bills yourself for free, but many people don’t have the time or the negotiating skills. Hiring a bill negotiation company can be a worthwhile option. 

Best Bill Negotiation Services

In this article, we’ll look at 11 different bill negotiation services. Each offers bill negotiation services to individuals, and a few even offer services to businesses and non-profits.

1. Truebill – Cable, cell phone, home security
2. Billshark – Internet, phone, TV, cell phone, home security
3. Trim – Phone, internet, cable, credit card APR, medical bills
4. BillCutterz – Cell phone, TV, internet, phone, home security, satellite radio, electricity (TX only)
5. BillTrim – Cable, internet, home security, electricity, insurance
6. BillFixers – Cell phone, internet, phone, TV, radio, home security, subscriptions
7. Bill Advisor – Cell phone, internet, TV, phone, insurance, utilities (limited), home security, subscriptions
8. Bill Saver – Cell phone, internet, radio, TV
9. Mint – Internet, phone, tv, mobile, home security
10. CoPatient – Medical bills
11. Resolve Medical Bills – Medical bills

We’ll evaluate the pros and cons of the above companies and summarize their services and fees.

1. Truebill

From the RocketMortgage brand comes Truebill, an app that offers a variety of tools and resources for helping customers manage their finances. 

Truebill can negotiate and lower your cell phone, cable, and security bills. And you can request cancellation on various recurring subscriptions. They claim to have saved their customers more than $100 million so far. 

Pro & Cons

Features & Pricing

The Truebill app (available for Apple and Android devices) is free to use and comes with various services, including

• Subscription management
• Credit score tracking 
• Budget analysis
• Savings tools

Truebill does charge for their bill negotiation services, but they allow you to set your own price. When requesting a bill negotiation, you can set a rate between 30% and 60% of your first year’s savings. If the bill negotiation is unsuccessful, you won’t owe anything. 

So, if they save you $20/month on your phone bill and you set a 40% rate, you’ll owe them $96, due immediately as they don’t offer payment plans.  

Visit Truebill

2. Billshark

Billshark offers dedicated bill negotiation and subscription cancellation services to individuals and small businesses. 

They advertise a 90% success rate on their bill negotiation services for internet, phone, tv, mobile, home security services, and more. 

The subscription cancellation service provided by Billshark helps you cancel various unwanted monthly subscriptions and memberships like Hulu, Netflix, etc. 

Pro & Cons

Features & Pricing

Billshark’s negotiation services are charged at 40% of your bill savings for up to two years. So, if they save you $20/month on your cable bill, they’ll invoice you for $192. You can pay the full total or set up an installment plan for a $9 fee. 

Billshark will automatically reevaluate your bill again when your promotion is set to expire and start negotiations again. 

You’ll be charged a flat $9 fee for each subscription you request to be canceled. 

Visit Billshark

3. Trim

Trim is a service that allows you to manage your expenses and debt by helping to negotiate lower bills (i.e., phone and internet), cancel unused subscriptions, negotiate lower APRs (on credit cards), grow your savings, and negotiate medical bills. 

Trim claims that its service is used by 2 million customers and that it saves them an average of $620 a year, for over $70 million in total savings.

Pro & Cons

Features & Pricing

Many of Trim’s core services are free. Their savings account, cancel subscriptions feature, medical bill negotiations, and more are all free. 

Trim can currently negotiate bills for phone, internet, cable, and wireless services. If they successfully lower your bill, they will charge you 15% of your 1st-year savings. So if they save you $20/month on your internet bill, you will owe them $36. 

Unfortunately, Trim’s medical bill and bank APR negotiation services are unavailable in the following states: AK, AR, CT, DC, MA, RI & VT

Trim used to charge for services on a subscription model but has since transitioned to a per bill model. 

Visit Trim

4. BillCutterz

BillCutterz is a service that can help negotiate lower prices on various monthly bills, including utilities. They offer their services to individuals, businesses, and non-profits. 

Their services have been featured on ABC World News. 

Pro & Cons

Features & Pricing

BillCutterz offers bill negotiation services on a variety of bills, including

• Cell Phone
• Cable & Satellite TV
• Internet
• Landline Telephone
• Bundles (Cable / Phone / Internet)
• Alarm & Security
• Satellite Radio
• Electricity (TX only)

For their negotiation service, they will invoice you 50 % of the total savings. So, if they save you $20/month on your electricity bill for 12 months, you owe them $120. You can choose to pay this monthly ($10/month) or upfront for a 10% discount ($108 instead of $120). 

BillCutterz also offers resources for shopping around your auto loan and insurance.

Visit BillCutterz

5. BillTrim

BillTrim is a well-reviewed company that offers bill negotiation services for some of the most common household bills. 

This company claims to have a 93% success rate with lowering bills, and they have excellent reviews from the Better Business Bureau and Trustpilot. 

Pro & Cons

Features & Pricing

BillTrim offers bill negotiation services on cable, internet, home security, electricity, and insurance bill. 

They promise a 24hr turnaround time and only charge you 25% of your total savings as their fee. So, if they managed to save you $20/month on your insurance bill for 1 year, they would invoice you $60. 

Visit BillTrim

6. BillFixers

The services that BillFixers offers are designed to help you find the bills you are overpaying on and negotiate lower rates.

They offer these services to individuals, small businesses, and non-profits. 

Pro & Cons

Features & Pricing

BillFixers works to negotiate some of the most common recurring bills, including cable, phone, and internet services. 

When they are successful, they will charge you 50% of the savings total for your first year. So, if they save you $20/month on your internet bill, they will invoice you for $120. You have the option of paying upfront or monthly. 

If you are a business and use their services, you will be charged for the full length of your savings. So if you save $20/month for 2 years, then you’ll owe them $240. 

The same applies to a non-profit, but you receive a 20% discount. 

Visit BillFixers

7. Bill Advisor

BillAdvisor is a service that can negotiate a lower rate on a wide variety of recurring bills and subscriptions. 

They report that they have saved their average customer $800+ a year. 

Pro & Cons

Features & Pricing

Bill Advisor can negotiate lower prices on a variety of bills, including

• Cell phone
• Internet
• TV (satellite & cable)
• Home phone
• Insurance (life, auto, etc.)
• Utilities (limited)
• Home security
• Subscription services (i.e., gym memberships, magazines, etc.)

BillAdvisor has two methods for charging their services; per negotiation or subscription-based. 

If you opt to go with the per negotiation model, you’ll be charged 50% of your total savings. So, if they save you $20/month on your gym membership, you’ll owe them $120. 

The subscription model costs $12.99/month regardless of savings. You’ll never need to pay them more than $12.99/month. 

Visit Bill Advisor

8. Bill Saver

Bill negotiation services offered by Bill Saver are provided to individuals and businesses. They also offer limited cancellation services. 

They also offer a blog to help customers better understand financial topics. 

Pro & Cons

Features & Pricing

Bill Saver offers negotiation services for some of the most common monthly bills, including wireless, internet, radio, and television. 

For their services, they will charge 35% of your total savings. So, if they save you $20/month on your satellite bill, you will owe them $84. This total is due in full; they do not offer payment plans.

For their cancellation services, they charge a flat $50 fee. If you want them to try and get your provider’s cancellation fees waived or lowered, they will charge 35% on any cancellation fee savings. 

Visit Bill Saver

9. Mint

Mint is a budgeting app operated by Intuit, the company that owns TurboTax and Credit Karma. 

They offer various services for managing your finances, monitoring your credit, and saving money. As part of their money-saving services, they offer subscription cancellations and bill negotiation through Billshark.

Pro & Cons

Features & Pricing

Many of Mint’s services are free, including their budgeting tools and credit monitoring. 

Mint’s bill negotiation services are provided through Billshark, so you’ll need to pay Billshark’s fees. This includes 40% on up to 2 years worth of savings plus a $9 fee if you want to pay in installments. 

If you want to use their subscription cancellation feature, you’ll need to pay $4.99/month for Mint Premium. This package also gets you access to advanced budgeting tools. 

Visit Mint

10. CoPatient

CoPatient offers a service dedicated to helping people lower the price of their medical bills. They primarily partner with employers to allow them to offer these medical bill negotiation services to their employees. 

According to their website, the average savings a customer sees is roughly 20%. 

Pro & Cons

Features & Pricing

Many customers receive services from CoPatient through their employer, often for free. 

But you can independently contact them to review your medical bills. 

Their standard fee is 35%, but they may choose to set a different fee for cases with significant savings. Unfortunately, you won’t know exactly how much it will cost until you upload your bills and request their services. 

This company’s shocking lack of transparency on pricing and nearly complete lack of credible reviews may make it one worth skipping unless your employer provides the service. 

Visit CoPatient

11. Resolve Medical Bills

Resolve is a company specializing in negotiating lower rates on medical bills. 

They offer upfront pricing plans than vary depending on the total value of your medical debt. They also have partnerships with nonprofits to offer alternative debt payment options. 

Resolve’s success rate is pretty high as they quote their customers save on average 60%. 

Pro & Cons

Features & Pricing

How much resolve will charge you depends on the dollar total of your medical bill and the total amount they can save you. Generally, you will owe an upfront fee plus a portion of your savings. 

Price by Amount of Bill

If your savings fall anywhere between $0 and the threshold amount, the minimum fee will be waived, and you will be charged 50% of the value of your savings instead. 

Visit Resolve Medical Bills

What to Look for in a Bill Negotiation Service

When shopping around for bill negotiation services, there are a few questions you need to ask. 

1. What kind of bills do they negotiate?
2. How much do they charge?
3. Do they offer payment plans?
4. Are their services available to you?

To help you sort through the list of best bill negotiation services we’ve presented, we’ve answered the above questions for you. 

Comparison of Bill Negotiation Services

*Example calculated as a savings of $20/month for 3 years ($720).
**Example calculated on $10,000 worth of medical debt with $4000 saved.

How To Negotiate Bills Yourself

You can negotiate recurring monthly bills yourself; it just takes time. You’ll need to do your research first to see what promotions the company might be offering and what other customers are paying. 

When you contact your provider, you’ll need to be firm, and you might need to avoid “upgrade” options that promise extra services but don’t actually lower your bills. You’ll likely need to make several calls and/or speak to multiple individuals before getting results. 

You can also go the route of threatening to cancel your services, but be careful. While many companies employ a customer retention department that can extend you special offers, there are no guarantees that they will work with you. So you’ll need to be prepared to follow up on your cancelation threat. 

Are Bill Negotiation Services Worth It?

You can negotiate your bills yourself, but the process can be difficult, and you might not be able to get the best result. 

Companies that offer bill negotiation services can help lower your bills quicker and with more savings, but they charge a fee. Some companies charge as much as 50% for multiple years worth of savings. And not all companies offer payment plans. 

So, if they save you thousands, you find yourself stuck with a hefty bill even though you won’t see those savings for several months, if not years. 

Considering this, it would be wise to try to negotiate yourself first, especially if you have just one or two bills you think are negotiable.  

If you have a stubborn company that refuses to negotiate with you, then hiring a bill negotiation company will be worthwhile; just make sure you take the time to choose the best bill negotiation service for your bill(s). 

The post 11 Best Bill Negotiation Services of 2022 appeared first on FinMasters.

Cost Of Owning A Dog Vs Cat

U.S. pet owners reportedly spend on average $1480 every single year on their dogs and $902 a year on their cats.^[1] On average, this comes out at around $50/month per dog and $30/month per cat.

The total amount includes items and services ranging from food and treats to vet visits and grooming.

Money Spent On Gifts For Pets

When it comes to toys and treats, dog owners spend $137 a year on gifts for their four-legged friends, while cat owners spend $113 a year on their cat companions.^[1]

The post Pet Spending Statistics (2022): How Much Do Americans Spend On Pets? appeared first on FinMasters.

US gas prices have soared to historic highs, putting a large burden on consumers and driving high inflation. Gas prices have become a political football and arguments over who is responsible are raging.

We understand the impulse to look for someone to blame, but the reality behind commodity prices is often complex and simple answers are often incomplete or just wrong.

Let’s take a closer look at gas prices and why they are high.

1

Where does the money we spend on gas go?

On average, the cost of gasoline breaks down like this.

• Cost of crude oil: 54%
• Refining costs and profit: 14%
• Distribution and marketing: 15%
• Federal and state taxes: 17%

This breakdown may change at any given time, but the differences are usually minor. Sometimes one or more elements of the price will surge and drive higher prices.

3

Why are gas prices different in different states?

The single biggest difference in gas prices from state to state is taxes.

Some states also require specific fuel blends to control emissions, which may be more expensive.

Transport costs also vary. The farther a state is from major refineries, the higher these costs will be. The high cost of piping fuel over the Rocky Mountains adds an additional cost for gas on the west coast.

4

Why is gas more expensive in summer?

Gas is usually more expensive in the summer. There are three reasons for that.

• People drive more in the warm months, creating additional demand for gas.
• The US requires the use of a different fuel blend in the summer to reduce emissions and air pollution. Summer-blend fuel is more expensive.
• The US hurricane season starts in June. Gulf Coast refineries are vulnerable to hurricane damage, which may cause supply interruptions.

The difference between summer blend and winter blend prices is usually three to six cents a gallon, though it may be increased by supply issues or unusually high demand.

5

How are oil prices set?

Oil prices are set in the global market by the global supply/demand equation. Oil prices are based on bids made by traders who buy and sell contracts for future delivery. These traders are constantly trying to anticipate supply and demand when the contracts mature.

There are two basic types of oil prices.

• The spot price is the price that you would pay to buy oil right now, for immediate delivery.
• The futures price is the price you would pay for a contract for delivery in the future. This price may vary with the delivery date: a three month contract might be different from a six month contract.

If a trader buys a contract for a future date and the contract price is lower than the spot price on that date, the trader has made money. If the spot price is lower than the contract price, the trader loses.

Oil traders bid based on the expected spot price when the contracts mature. They look at expected conditions in the future, but not very far in the future. Most contracts are for delivery in three to six months, and that’s the forward horizon traders consider. They are not concerned with conditions years down the line.

7

Why do oil prices change so much?

Oil is a very important commodity and relatively small changes in supply or demand, or even threats to supply and demand, can move prices dramatically.

Oil prices are extremely volatile, ranging from under $20/bbl to almost $140/bbl over the last 25 years.

Oil prices move in cycles. When supply is plentiful prices drop. That encourages oil use, and demand grows. Producers with high production costs stop pumping, cutting supply. Those trends increase demand and decrease supply, and prices rise.

When oil is expensive, users cut back and use less. Producers pump more to take advantage of the high price. That leads to lower demand and higher supply, and prices fall.

Outside of those broad cycles, many factors can affect prices. Political instability or war in producing countries can drive traders to rush to lock in supply, pushing prices up fast. Rapid economic growth can push demand up. Recessions push demand down, as we can see from the dramatic price drop in 2008.

The abbreviation BBL refers to a single barrel of crude oil. One oil barrel is 42 US gallons, approximately 159 liters or 35 imperial gallons.

You may come across these measures as well:

• kbbl or Mbbl – one thousand barrels
• MMbbl – one million barrels
• Gbbl – one billion barrels
• mbpd – million barrels per day

8

Do OPEC or oil companies control oil prices?

The Organization of Petroleum Exporting Countries (OPEC) does not directly set oil prices. They can influence supply by reducing or increasing output, which affects prices.

OPEC assigns production quotas to member countries. When oil prices are low they reduce these quotas to push prices back up. When prices are high they increase the quotas.

Members do not always follow these quotas if they feel that the quota conflicts with their national interests. Some members are unable to pump enough to fill their quotas.

What Is OPEC?

OPEC is an acronym for the Organization of Petroleum Exporting Countries. OPEC was formed in 1960 by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela as an intergovernmental organization with an aim to regulate the worldwide supply of oil and its price. Many economists have cited OPEC as a textbook example of a powerful anti-competitive cartel.

Today OPEC has 13 member countries which in 2020 accounted for 37.13% percent of global crude oil production and 79.87% of the world’s “proven” oil reserves. Saudi Arabia is the biggest producer of all OPEC members, accounting for 9.5 million barrels per day.

A group called OPEC+ was formed in 2016 bringing together OPEC members and 10 non-OPEC oil-producing countries.

Oil companies earn high profits when oil prices surge, and some have accused them of price gouging. It’s true that companies could sell gas for less and still earn a profit. It’s also true that many companies have chosen to put money into share buybacks and dividends rather than expanding production capacity.

At the same time, the oil company business model is built around volatile oil prices. They lose money when prices drop and make up for it when prices are high. Oil companies would say that we have to look at profits averaged over both high and low periods to get a real picture of their operations.

9

Why do we have to worry about OPEC? Can’t we produce our own oil?

Oil prices are set in the global market, and the US price tracks the world price closely. Even if the US doesn’t use any OPEC oil, changes in OPEC production will still move the global price and the US price.

For example, the United Arab Emirates (UAE) produces around 3 mbpd of oil. Almost all of this is sold to Asian buyers. If the UAE stopped producing, the refiners that are now buying oil from there would look for other suppliers. Demand would rise and the price would go up for everyone, even countries that don’t use any UAE oil.

10

Why are oil prices so high right now?

Oil prices were in a cyclic high period from 2010 to 2014, with prices continuously between $80 and $110 per barrel.

Prices crashed in 2014 and stayed in a low band (with a brief spike in 2018) until 2020 when the COVID-19 pandemic drove prices to extreme lows. This extended period of low prices drove many producers to reduce both production and investment in new production.

As demand recovered after the pandemic many producers were unable to increase production. Demand soared and supply couldn’t match it. OPEC in particular is pumping roughly 6 million barrels per day (mbpd) less than they were before the pandemic.

This supply shortfall was magnified by sanctions on Venezuela and Iran (which have the world’s largest and 4th largest reserves), export cuts due to political instability in Libya, and Russia’s war on Ukraine.

The US gasoline supply is also being hit by a lack of refining capacity. A large refinery in Louisiana shut down in 2021 after flood damage, and another refinery in Philadelphia closed after a serious fire. US refining capacity is down 1 mbpd from 2019. Refiners are also rushing to produce more profitable jet fuel as air travel ramps up again post-COVID.

12

Why does the US both export and import oil?

The US government does not control the sale and purchase of oil. US producers can sell to any buyer, foreign or domestic. US refiners can buy from any supplier, foreign or domestic. Aside from sanctions on some sellers and buyers, the government has little control.

Different refineries are designed to use different types of crude oil. Many refiners buy different grades of crude oil and blend them to get the ideal mix for their refineries. Some of these grades are not available from domestic producers.

Some refiners also have long-running supply relationships with foreign suppliers that they don’t want to disrupt. In some cases, the links are very close. One of the largest refineries in the US, in Port Arthur, Texas, is owned by Saudi Aramco, the Saudi Arabian state oil company. If they buy from Saudi Arabia they are buying from their own company.

14

Why do US Presidents always ask the Saudis to pump more oil when prices are high?

Whenever prices are high, US presidents ask the Saudis to pump more oil. There are several reasons for that.

• Reserve capacity. The Saudis are one of the only producers with a large reserve capacity. They are now pumping under 10 mbpd. Their official capacity is 12 mbpd. That may not be realistic, but they can certainly pump more than they are pumping.
• Central control. The Saudi government owns the oil industry and can change production levels with a single instruction. The US government can’t tell its producers how much to pump. The Saudi government can.
• Leverage. The Saudis rely on the US for military equipment and defense assistance in a potential conflict with Iran. In theory, this gives the US some leverage over the Saudis. In practice it doesn’t always work: the Saudis don’t always follow US requests.

When the US asks the Saudis to pump more oil, they are not asking the Saudis to send more oil to the US. It doesn’t matter who buys it. If more oil goes into the world market there is downward pressure on prices.

16

Has the cancellation of the Keystone XL pipeline affected US gas prices?

Shortly after taking office, President Biden canceled Keystone XL, a proposed branch of the existing Keystone pipeline. Some say this decision increased gasoline prices. Is it true?

The US currently imports near-record levels of oil from Canada, over 4 mbpd. Much of this oil is heavy, sour (high sulfur) tar sands oil. 

Some of this oil is used by US Gulf Coast refineries that used to use Venezuelan oil, which is very similar to tar sands oil. The rest is exported directly from US ports.

Canada is currently at near-record production levels and its oil is coming to market. Upgrades currently in progress to the existing Keystone and Trans-Mountain pipelines will carry more oil than Keystone XL would have.

Oil prices (again) are set in the global market, and in global terms, the impact of Keystone XL is a small drop in a large bucket, with minimal impact on prices.

18

What could the US do to make gas cheaper?

The US government actually does not have much power to reduce gas prices. The government does not control the oil industry (we’re not Saudi Arabia) and can’t order companies to increase output or open new refineries. Even if US output rose 1 mbpd to match peak levels the impact on global prices would not be large.

The government could reduce taxes, but as we saw above, state taxes are larger than federal taxes.

Dropping sanctions on Iran and Venezuela could increase supply and push prices down but it will take years for these countries to ramp up production. It wouldn’t be a quick fix.

So there’s not much government can do. If there’s one consolation, it is that oil price spikes do pass. High prices encourage producers to ramp up production and provide capital to expand. They also encourage users to cut back and use fuel more efficiently.

If history is any guide, prices will fall, not because of anything government does, but because that’s the way oil markets work.

The post Why Are Gas Prices so High? 18 Questions Answered! appeared first on FinMasters.

Tomo Credit Card Review & Rating

What is the Tomo Credit Card?

The Tomo credit card’s primary selling point is that you don’t need to clear a credit check to get it. Tomo doesn’t initiate a hard or soft inquiry when you apply for one of their accounts. That means your credit score won’t affect your chances of qualifying, and applying won’t hurt your score.

Typically, you have to undergo a hard credit check whenever you apply for a new credit account. In these cases, the lender or credit card issuer pulls your credit report and uses it to calculate your credit score. The results are one of the most significant factors determining whether you qualify.

Unfortunately, that leads to the classic credit conundrum. You need credit accounts to build good credit, but you need good credit to get credit accounts. As a result, people with no credit or bad credit often struggle to even begin improving their scores.

The solution for these consumers is to focus on acquiring accounts designed to help people build credit. These typically come with fewer cash back rewards, but they also have less strict qualification requirements, like the Tomo credit card.

How Does the Tomo Credit Card Work?

Tomo currently offers only one type of credit card. Here’s what you should know about who’s eligible for an account, how to apply for one, and how to use it to improve your credit score.

Tomo Credit Card Qualification Requirements

Tomo accepts applications from anyone with a Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) and a government-issued ID. As a result, you can apply for their card even if you’re not a citizen of the United States.

In addition, the Tomo credit card is unsecured, which is unusual for an account open to people with bad credit. Typically, cards like these require that borrowers provide a cash deposit equal to their credit limit.

When you apply, Tomo uses alternative underwriting methods to determine your creditworthiness. Instead of checking your FICO score or VantageScore, they focus primarily on your bank and investment accounts.

More specifically, they consider factors like the following:

• Average account balances
• Wages and other sources of income
• Fixed expenses and discretionary spending habits

Tomo claims that their goal is to make a holistic assessment of each borrower’s creditworthiness. However, their underwriters just look at your cash flow trends, the amount of money you usually have on hand, and any assets that could help cover your debts.

How to Apply for the Tomo Credit Card

To apply for the Tomo credit card, you’ll need to go through their preapproval process. That involves filling out forms that ask you for standard identification information like your name, date of birth, SSN or ITIN, and government ID.

You’ll also need to link at least one of your bank accounts to your Tomo profile. That sounds concerning, but you’re only giving them read-only access like you would with Mint or Personal Capital. Tomo uses services like Plaid to handle the integration and protect your data, so they can’t see or retain any of your login details.

Note that you’re not limited to linking a single account. In fact, linking more of them is likely to benefit your application. The stronger your financial position, the more likely Tomo will offer you a credit card and a higher credit limit.

Remember, Tomo considers your investments in addition to your bank account activities, such as your stock portfolio or cryptocurrency holdings.

For example, a strong applicant might link a savings account with a solid emergency fund, a checking account with a healthy average balance and direct deposit, and investment accounts with the beginnings of their retirement portfolio.

If you only connect your checking account, it may be hard to qualify for a Tomo credit card. At the very least, your potential credit limit will be lower. Unfortunately, if you request a Tomo credit card and they reject your application, you can’t try again.

Tomo is a relatively new credit card, and multiple users report difficulties linking their bank and investment accounts to it. Check out their up-to-date list of problematic institutions: Tomo Credit Card – Application Troubleshooting.

How the Tomo Credit Card Works

If Tomo approves your application, they’ll assign you a credit limit of up to $10,000. They state that you may qualify for an increase after making your first few months of payments on time.

Unfortunately, Tomo follows a strict, weekly payment schedule. Every Monday, they automatically use the funds in your primary bank account to pay off your balance, even if you only incurred the charges the day before.

Tomo claims they’ll eventually let you switch to a more traditional monthly payment schedule after you demonstrate good behavior for a few months, but customer reviews say otherwise.

Tomo also implies that their weekly payment schedule will improve your credit score faster, but that’s not the case. No matter how many payments you make during a billing period, they only report your activities to the credit bureaus once a month. That means your payment history still only improves a month at a time.

Learn More: A similar misconception led to the popularization of the 15/3 credit card payment hack. Find out what the tactic actually does for you: The 15/3 Credit Card Payment Hack: How, Why, and When It Works.

However, automatic payments mean you’ll never carry a balance or pay interest, and your credit utilization ratio will always be low.

But if Tomo can’t pay off your balance with the funds in your bank accounts, they’ll freeze your card until you pay off the balance. Once you do, they’ll likely cancel your account.

Unlike many starter credit cards, the Tomo card has a reward program. As of June 2022, you’ll get 1% cash back on all your purchases. You get an extra 1% cash back for three months for each friend you refer, but Tomo caps you at 20.

Tomo Credit Card Key Features

The Tomo credit card has some attractive fundamental features. Here are some that you should know at a glance:

• Interest Rate: 0%
• Annual Fee: $0
• Cash Advances: None
• Security Deposit: None
• Credit Check: None
• Cash Back Rate: 1% on all purchases
• Payment Schedule: Automatically charged for full balance every Monday
• Credit Limit: $100 to $10,000
• Credit Bureau Reporting: Experian, Equifax, and TransUnion

Tomo promises that they’ll never charge you any fees or interest for any reason. They’re able to say that primarily because they don’t let you carry a balance from one period to the next.

How Does Tomo Make Money?

Tomo addresses this directly on their Frequently Asked Questions page, giving the following response: “Tomo doesn’t charge you any interest or fees. Instead, we receive a small fee from the merchant for every purchase made with your Tomo card.”

These are commonly known as interchange fees. They’re usually around 3% of each transaction, and they come out of the merchant’s pocket, not the card owner’s.

Is Tomo Legit?

Tomo is a legitimate unsecured credit card with no credit check or fees. You can use it to build your credit score, even if you have no prior credit history, you have damaged your credit score, or are a citizen of a different country.

Unfortunately, many customers report encountering significant issues while applying for and using the card. Let’s explore what they have to say.

Tomo Card Customer Reviews

Tomo makes big promises, but they fall flat. The startup receives mostly negative reviews on crowdsourced review platforms, including a 1.7 out of 5 stars from 21 people on Trustpilot, 2.8 out of 5 stars from 98 people on the App Store, and 1.3 out of 5 stars from 40 people on the Better Business Bureau (BBB).

Most of the negative comments tell a similar story. First, the users report that Tomo froze their accounts. Some acknowledge that it happened after they missed a payment, but others claim they had never been delinquent. That’s almost always followed by account closure, often with no explanation.

When the customers try to contact someone for help, they struggle to get assistance. Tomo’s support staff is often unavailable during alleged work hours, and people wait for weeks to get responses to emails.

In addition, people report issues with Tomo’s automatic payment system. Sometimes the charges happen ahead of schedule, and other times they take the money out of their bank account twice for the same week’s balance.

There are also claims that Tomo doesn’t accurately underwrite consumer applications. People with allegedly healthy financial positions expect to qualify for much higher credit limits than they actually receive.

Finally, multiple users report that the account never showed up in one or more of their credit reports, even after waiting for several months. That would prevent your credit score from receiving any benefits, even if you paid on time each week.

Tomo Credit Card Alternatives

Fortunately, the Tomo credit card is far from the only option available to people who lack good credit and want to improve it with a revolving account. Here are some other cards you should consider that can help you improve a poor or nonexistent credit score:

• Chime Visa Credit Builder: This is another credit card with no credit check, interest, or fees. However, you need to have a Chime spending account and fund it with a cash deposit before you can use the credit card.
• Self Visa Credit Card: You need a current Self credit builder loan with three months of timely payments and $100 in savings to open this card. However, there’s no credit check or security deposit if you meet those requirements. 
• Grow Credit Mastercard: This is a virtual credit card you can use to pay for your monthly subscriptions. Anyone can qualify for their secured account, which only costs you a refundable $17 deposit and a $2 monthly fee.

Depending on what attracts you to the Tomo credit card, there are many different options you can substitute for it. If you only want a credit card you can use to build credit that’s accessible with bad credit, any secured credit card might be a viable alternative.

Learn More: If you’re open to building credit with an installment account instead of a credit card, you may be interested in a credit builder loan. Check out our explanation of these accounts: Credit Builder Loan: What Is It and How It Works.

Is the Tomo Credit Card Worth It?

The Tomo credit card is a great idea, but as of now, it doesn’t deliver on its promises. Tomo is a relatively new startup, and its customers are reporting issues every step of the way. The chances are high that you’ll run into problems when applying for or using the card, and their customer support doesn’t do a good job of helping with them.

This may change, and the company may iron out its problems as it matures.

For now, though, there are too many reliable alternatives to risk using the Tomo credit card, especially since its weekly payment schedule lowers its utility compared to others. If you’re looking to build or repair your credit, I’d recommend using a different account.

The post Tomo Credit Card Review (2022): Unsecured Card With No Credit Check appeared first on FinMasters.

Rental Kharma Review & Ratings

What Is Rental Kharma?

Rental Kharma is a rent reporting service. It can place rental payments on two of your three credit reports and help you build a credit record without having to take on new credit.

If you have no credit score or a thin credit file, or your credit score is lower than you want it to be, adding a new account with a strong record of on-time payments can provide a boost. A rent reporting service like Rental Kharma can help you use rental payments to build credit.

How Does Rental Kharma Work?

There’s a widespread misconception is that rent payments are automatically included in your credit record. This is almost never the case. Landlords do not want to pay the credit bureaus or face the regulatory requirements of the Fair Credit Reporting Act.

Rental Kharma reports payments to credit bureaus to help its customers build their credit records. The process is simple and the requirements are straightforward.

You can use Rental Kharma  if you:

• Pay your rent to a property management company
• Pay your rent to a landlord (as long as they own the property)
• Pay your rent to a family member (as long as they own the property)

First, you need to choose the services you want and sign up for them. Then Rental Kharma touches base with your landlord to verify your payment history. Rental Kharma continues to report your rental payment status for as long as you continue with your subscription.

Rental Kharma draws its information from your landlord, which is both a plus and a minus. You will have to inform your landlord, and you may not want to deal with that. On the positive side, Rental Kharma can report cash payments. Many rent reporting services use bank records to confirm your payments, which only works if you pay rent through an automatic bank transfer.

Your rental payments are then added to your Equifax and TransUnion credit reports. As a result, your credit score gets an instant boost from your history of payments and period of credit transactions. You will also receive an ongoing benefit from your on-time rental payments.

Will Late Payments Be Reported?

A payment is not considered late by credit bureaus if it is made within 30 days of its due date. So rent payments made within this 30-day grace period get reported as being paid on time.

A rent payment over 30 days after its due date gets reported as a late payment. This can have a negative impact on your credit score.

How Much Will Your Score Increase?

It is extremely difficult to accurately predict how much you can improve your credit score by using Rental Kharma or any other rent reporting service.

Like all credit-building methods, results depend on various factors, such as the length of your credit history, the presence of negative events on your credit report, and the duration of your rent history. Rental Kharma claims an average boost of 40 points to your credit score by reporting your past rental history.

Using Rental Kharma will add a tradeline of payment history up to 24 months on your credit record. This will have positive results, but its ultimate impact depends on your unique situation.

You will see the largest increase in your credit score if you have:

• Two years of on-time rent history
• 0-3 open accounts on your credit report
• Negatives on your credit report are at least two years old

If you have a credit history without sufficient dates to generate your credit score, or perhaps no credit history at all, signing up for Rental Kharma could make the difference between having a credit score or not.

Like all rent reporting services, Rental Kharma will be most effective for people with limited credit history.

Rental Kharma Pricing

Rental Kharma starts at $8.95 monthly and includes a one-time registration fee of $50. This works out to be $157.40 per year. This is just for basic services.

Here is a list of Rental Kharma fees:

• $50 Registration Fee
• $8.95 Monthly Subscription
• $60 per rental property for unlimited payment history reporting
• $25 per add-on tenant (roommate or spouse) to the existing account
• $5 per month additional fee for spouse or roommate
• $25 fee for a new lease

Your fees may vary based on the services you select.

Rental Kharma Customer Reviews

Rental Kharma is a financial institution based in Cookeville, Tennessee. It’s been in business since 2012, so it has an extensive operating history with reviews available from many past and current clients.

There are over 1000 reviews of Rental Kharma on TrustPilot, with an average rating of 4.7 stars. Many reviews are a perfect five-star and highlight the benefits of their services.

Some of the negative reviews center around disappointing results in their credit scores after using Rental Kharma. For example:

Rental Kharma has similar reviews on Facebook – 4.7/5 stars. Positive reviews highlight satisfaction with their services, while negative reviews often mention disappointing results with boosting their credit scores.

Disappointment with the impact of credit reporting may result from excessive expectations. A rent reporting service does not determine the impact of an account on your credit score. The credit scoring algorithm does that.

If you have an extensive credit file with a large number of negative records, the impact of any rent reporting service will be minimal.

Rental Kharma Alternatives

There are many rent reporting companies to choose from. You can see what we think are the best alternatives to Rental Kharma in our article on the best rent reporting companies.

Companies report to different numbers of credit bureaus. Some, such as Rent Reporters, report to only one credit bureau. Other companies, such as Boom, report to all three credit bureaus. Reporting to all three credit bureaus provides wider positive effects on your credit scores.

If you often pay your rent in cash, a company like Rental Kharma, which gets its information from your landlord, could be the only choice. Companies that rely on bank account information will not be able to confirm or report your payments.

Here’s the price comparison between Rental Kharma and 6 alternatives for the best rent reporting companies:

Be sure to consider your options before choosing a financial services company. Review your needs and the available companies and choose one that fits you.

Other Ways to Build Credit

If you are new to building credit you have many options available. One of your options is rent reporting, which is helpful in capitalizing on an ongoing expense to help your credit score.

But there are other ways as well. For example:

• Use secured credit cards. These credit cards are readily available and have the same advantages as other credit cards. Many have no annual fee.
• Use credit-building debit cards. Many companies like Sequin, Sesame Cash, and Extra provide debit cards that can help your credit standing.
• Be an authorized user. Having a relative or friend with good credit add you as an authorized user on their existing credit card is an easy and free way to build your credit.
• Use credit-builder loans. This option allows you to obtain an affordable loan that can help build your credit file.
• Use bill payments. You can have companies like eCredable Lift or Experian Boost add your bill payments to credit reports.

Many of these services charge fees, but it is entirely possible to build credit for free.

Is Rental Kharma Worth It?

Rental Kharma is an effective option for building credit for people who are just beginning their credit journey. It allows just about any rental arrangement to help build your credit by using ongoing expenses you’re already paying.

But it is more expensive than some other options. Boom provides the same services at a fraction of the cost of Rental Kharma, and Boom reports to all three credit bureaus.

The biggest argument we see for selecting Rental Kharma would be a need to make rental payments in cash, rather than by bank transfer. If you’re in that position you need a rent reporting company that confirms your payments with your landlord, and Rental Kharma fills that need.

Conclusion

This review aims to help you decide whether Rental Kharma is right for you. There is no universal right answer. Your decision depends on your goals and unique situation.

If you are looking to build your credit, consider the various options at your disposal. If rent reporting is part of your solution, consider Rental Kharma and its competitors carefully.

The post Rental Kharma Review (2022): Boost Your Credit With Rent Payments appeared first on FinMasters.

Jesse Felder is paradoxically both a famous and an obscure investor.

If you follow investing podcast (including Jesse’s “Superinvestors and the Art of Worldly Wisdom“) or you are active on FinTwit (Financial Twitter), you might see his Twitter profile pop up often.

At the same time, many investors have never heard of his work, and he is not as widely covered by the financial press as many other prominent investors, for example, Michael Burry of “The Big Short” fame.

Who Is Jesse Felder?

Jesse Felder is an American investment manager and market analyst. He started his career at Bear Stearns and later co-founded Aletheia, a multi-billion dollar hedge fund. He then became an independent researcher and money manager for a family office serving a small number of selected clients.

He has written his own publication, the Felder Report, since 2005. In 2017 he started a podcast called “Superinvestors and the Art of Worldly Wisdom“, which focuses on interviewing other investors and money managers and understanding their investing methods and experience.

I think it is fair to portray Mr. Felder as an experienced insider of the investing industry. That did not stop him from developing an original viewpoint and a highly contrarian approach.

Since 2000 he has lived and worked in Oregon, and he has often mentioned how being away from Wall Street and California has helped him stay away from the groupthink in the industry. This sounds similar to what Warren Buffett has said about operating Berkshire Hathaway from Omaha.

One thing I noticed in Felder’s background is his education. His LinkedIn profile lists only a Bachelor of Arts degree in literature. This reminds me of Peter Lynch, whose book we covered recently here, praising non-business education as a road to investing success.

Jesse Felder’s Investing Strategy

Jesse Felder’s method can be described as contrarian. For example, he did a great market call in favor of the energy sector in September 2020. This was in the middle of a seemingly endless pandemic, just a few months after oil prices went negative for the first time in history and right after Exxon was kicked out of the Dow Jones index.

His method is essentially value investing (“I am a diehard value investor to my core“) with a top-down approach of finding first an undervalued sector and then narrowing down on specific companies. Over the years, he has learned to let his winning investments run instead of taking profit early. He also recommends the selective use of hedging instruments to improve risk management.

There is another pattern I noticed while reading some of his older material. Jesse Felder can sometimes be quite a bear, and call out too early for an end to the bull market (for example here in 2019 and here in 2020). I would nevertheless remark that his rather cautious approach, cautious hedging, and a healthy caution toward shorting have kept him from getting into trouble from such timing issues.

He seems also skeptical of the passive investing trend and suggests that value investors should look for opportunities out of the beaten paths. His description of his money management business gives us a good overview of this mix of “traditional” value investing combined with more “hedge fund-style” macro and technical analysis:

Felder & Company, LLC was founded by Jesse Felder in 2000 with a clear vision of creating an ‘extended family office,’ an exclusive client base whose best interests are of paramount importance to the firm. At Felder & Company we understand that our overriding purpose is to manage the portfolios in our care with two prerogatives: protection of principal and long-term growth. Our investment philosophy is firmly grounded in traditional “value investing,” derived from the school of Benjamin Graham and Warren Buffett. However, we marry this fundamental approach with technical analysis, sentiment research and macro-economic analysis to improve our performance results. This proprietary, holistic approach is precisely what we believe to be the key to successful, long-term investing.

I have followed Jesse Felder for quite a few years now, with his podcast one of my favorites in the investing category. I like the podcast for the diversity of profiles and opinions appearing in it. Jesse makes his guests comfortable and gets clear, constructive responses from them. The diversity of sometimes contradictory opinions challenges assumptions and makes for a great source of ideas. These interviews convey a blend of intellectual curiosity and open-mindedness.

Opinions on Current Markets

As I mentioned before, Jesse Felder feels that markets have been overpriced since at least 2019. The runup of the last 3 years has reinforced this conviction. In his opinion, the largest excesses are to be found in tech and growth stocks as well as the private equity/VC markets.

At a macro level, I feel Jesse Felder’s opinions about the current market are:

Stock Picks

I have noticed that Jesse Felder does not usually comment about individual stocks. I think this is fair as he keeps his recommendations behind the paywall, for Felder Report subscribers.

The exception is maybe the gold miners in the link above. Felder’s BANG acronym (Barrick, Agnico Eagle, and Newmont/Goldcorp), is a reference to the infamous FAANG (Facebook, Apple, Amazon, Netflix, Google) stocks that dominated the last 10-year market cycle.

The argument for gold is a macro perspective forecasting the high risk of stagflation, similar to the 70s. By including all the world’s largest gold miners, the “BANG” portfolio would benefit from institutional and individual investors returning to the gold sector as a hedge against inflation.

In the energy sector, Felder has also noted record positive cash flows from shale oil companies. His argument for energy, and commodities in general, is a very low ratio of commodities compared to the S&P500.

If this ratio goes back to its historical average due to crashing US stocks or rising commodities, or a mix of both is rather irrelevant. If this ratio repeats its rise in the 2000s, commodities would provide both a safe haven and outstanding profit for investors compared to US stocks.

The post Investor Profile: Jesse Felder appeared first on FinMasters.

SaverLife Review & Ratings

What is SaverLife?

SaverLife is a qualified 501(c)3 non-profit organization whose primary purpose is to encourage consumers to save money. They specialize in helping lower-income households develop an initial emergency fund to escape the grind of the paycheck-to-paycheck lifestyle.

Unfortunately, American savings rates have been low for many years, leaving many to conclude that we’re bad at saving money. The average personal savings rate has consistently fallen short of the 15% to 20% minimum that most of us need to retire at a reasonable age.

As a result, a significant minority of Americans have less than $400 in cash savings. Though the latest data shows that minority is at a record low, it’s still a whopping 32% of Americans. That means roughly one in three adults can’t afford a $400 emergency.

SaverLife has acknowledged the seriousness of these problems and taken on the mission of combatting them with savings programs and educational resources.

How Does SaverLife Work?

SaverLife’s primary offering is a six-month program that gives you $10 for every month you successfully save $20. At the end of the term, you should have $180 in cash savings while having only contributed $120.

To earn the reward, you have to give SaverLife the ability to view your bank account activities. Every Monday, they’ll verify that your linked account balance increased by at least $5 during the prior week.

Each time you meet the requirements, you’ll earn $2.50 toward the maximum $60 available. However, they prevent you from accessing your reward until the end of the program to keep you motivated.

In addition to the six-month program, SaverLife lets you earn points that you can redeem for chances to win even more cash. You earn points through various good behaviors, including the following:

• Saving $5 in your linked account
• Reading their financial article of the day
• Recording your weekly budget
• Taking surveys
• Logging into SaverLife once per week

Once you accumulate enough points, you can trade them in for a “Scratch & Save” card, each of which gives you a chance to win $5. Currently, you can collect up to three of these cards per week.

SaverLife also offers one-off savings challenges that you can complete for a chance to win larger cash prizes. For example, they often sponsor Race to 100 challenges. That gives everyone who increases their linked account balance by $100 before the deadline a chance to win another $100.

Finally, SaverLife occasionally distributes lump-sum cash payments to random members in times of hardship. For example, they gifted a limited number of $500 and $1,000 payments during the height of the COVID-19 pandemic.

How Does SaverLife Make Money?

SaverLife is a non-profit organization, not a business, so making money isn’t its primary purpose. In fact, you don’t have to pay any sign-up or monthly subscription fees to access their services. They’re entirely free to use.

Instead, SaverLife survives off of donations. They receive grants from the other foundations they partner with, corporations who want to associate themselves with the brand, and individual consumers who believe in their cause. 

I was concerned that SaverLife might be profiting by selling the financial data they glean by monitoring your linked bank account activity, but that doesn’t seem to be the case. At least, SaverLife claims that they don’t share your data with advertisers or any other third parties.

Eligibility Criteria

Fortunately, SaverLife accounts are available to virtually everyone. To sign up, earn points, and claim cash rewards, you only need to meet the following criteria:

• Have a valid email address
• Be a resident living in the United States or the District of Columbia
• Be 18 years or older (19 in Alabama and Nebraska, 21 in Mississippi)

The same eligibility rules apply to SaverLife’s six-month reward program. In addition, you can’t have participated in the program or any other EARN or SaverLife program since June 2016. It’s worth noting that participation in this program may affect your ability to participate in any of SaverLife’s future offerings.

Is SaverLife Legit?

SaverLife is a legitimate 501(c)3 charitable organization. That means they meet the rigorous Internal Revenue Service (IRS) requirements designed to confirm that their motivations are philanthropic and have nothing to do with financial gain.

As far as I can tell, they genuinely exist to promote better savings rates among consumers, not to line their own pockets. Let’s look at some reviews from SaverLife users to give you a better idea of what you can expect if you sign up.

Customer Reviews

While you should always take online reviews with a grain of salt, SaverLife receives positive scores and consistent praise on all the review sites I could find. That includes 4.7 out of 5 stars on Facebook from 93 people and 4.7 out of 5 stars on Google from 27 people.

Most of the comments people make on both pages praise SaverLife for the effectiveness and generosity of their programs. They usually express gratitude to the organization for the cash rewards they’ve received and compliment the utility of the educational resources.

There are also some complaints, but most seem to be about glitches and misunderstandings. For example, some people claim that SaverLife promised them a $25 sign-up bonus that they never received. However, other comments explain there’s a two-week waiting period for the bonus that may be causing the issue.

The most concerning problem I noticed is that there are multiple reports of SaverLife failing to respond to people’s emails on time. You may struggle to reach someone for help if you ever have issues while using their services.

When in doubt, I like to check Reddit for more in-depth discussions on providers like these, and I found the same general opinions there. There are multiple threads with people confirming that they completed the six-month program, received their $60 reward, and won an extra $5 here and there through raffles.

Finally, SaverLife receives a 96.30 out of 100 on Charity Navigator. That’s not a user review website, but it does speak to the organization’s legitimacy as a non-profit with your best interest at heart.

SaverLife Alternatives

SaverLife is a pretty unique organization. For obvious reasons, there aren’t many businesses out there looking to give money away to people just for saving some of their own cash. That said, there are other ways you can get rewarded for saving money.

Here are a few options you may be interested in pursuing:

• LOQBOX: When you sign up for LOQBOX, you make an annual savings goal that they deposit into a locked bank account. Next, you make monthly payments toward the amount that LOQBOX reports to the major credit bureaus, helping you build credit and save money simultaneously.
• Credit builder loans: These accounts function just like LOQBOX, helping you save money while you build credit. However, credit builder loans cost you some amount of interest and fees, either upfront or during the payment term.
• Saver’s tax credit: This is a tax credit that rewards you for putting money into your retirement accounts. It’s most beneficial for lower-income households. For example, if you’re married with an adjusted gross income below $68,000, you can claim a tax credit for 50% of your contributions.

If all else fails, you can design a program for yourself that incentivizes responsible financial behaviors and helps you build better savings habits. For example, you could make an agreement with a close friend to treat yourselves each month you reach a savings goal and hold each other accountable.

Is SaverLife Worth It?

I’m as cynical as anyone when I hear somebody claiming to give away free money. After all, many of today’s most popular scams begin with the promise of a quick and easy buck. Fortunately, SaverLife is the real deal. They might not be perfect, but they are a legitimate organization that pays you to save money.

Even if their program only helps you build your first $200 in savings, that’s a significant step in the direction. It can mean the difference between affording your bills and resorting to a predatory payday loan.

Ultimately, there are few things more empowering than a healthy cash cushion, and I’m a fan of anything that helps people build one. As a result, I’d recommend SaverLife to anyone who struggles with saving or needs help creating an emergency fund.

Learn More: Saving money is essential for your short-term financial health and your eventual retirement. Learn why it’s so important and get our favorite tips for reaching your savings goals: Saving Money 101: The Road to Financial Independence.

The post SaverLife Review (2022): Cash Rewards for Saving Money appeared first on FinMasters.

Like any sophisticated area of study, the field of personal finance has evolved over the years. Innovative technologies have developed, new investment vehicles have emerged, and consumer attitudes have shifted significantly.

As a result, many modern best practices in personal finance are different from those proposed in previous decades. Analyzing the evolution of personal finance can help you learn some valuable lessons, as can finding the ideas that have stood the test of time.

To that end, I’m going to compare and contrast today’s financial wisdom with the ideas of Sylvia Porter, one of the original finance gurus, in Sylvia Porter’s Money Book: How to Earn It, Spend It, Save It, Invest It, Borrow It – And Use It To Better Your Life.

I know the title is a bit wordy, but the book was one of the most prominent personal finance books in the 70s, and it gives us a convenient framework. Let’s go through her recommendations on those five fundamental skills.

How to Earn

The section in Sylvia’s book that focuses on earning money revolves entirely around optimizing your career path. She spends an entire chapter on how to choose a lucrative, fast-growing occupation, finding job leads, writing cover letters, and nailing interviews.

Sylvia also acknowledges the benefits of a college degree but emphasizes that they’re not necessary for everyone. In fact, she’s quite firm on the stance that you can have a thriving career without higher education, even though credentialism was already on the rise in the 70s.

In some ways, her ideas are familiar. People still love to read about the best career tracks and imagine the possibilities. Modern best job lists focus on the same criteria Sylvia discussed, like potential salaries and the projected growth rate of the market.

Learn More: Incidentally, we have some great occupation suggestions for you. Check out some of our favorite job lists: 10 Best Trade Jobs: Earn a Great Living Without a Degree + 15+ Part-Time, Work From Home Jobs That Pay Well.

However, one difference that jumped out at me was the noticeable absence of side hustle mania that’s rampant today. Sylvia warned readers about going into business for themselves, while modern personal finance is more about building additional income streams than optimizing your primary one.

Side hustling has become mainstream thanks to the invention of rideshare apps, home and auto-sharing platforms, and freelancing websites. More people are branching off on their own than ever before, with roughly 45% of Americans reporting a side hustle in 2021.

Fun Fact: Sylvia also claimed that Americans were shifting toward a four-day workweek and that unions were pushing for 1,600-hour work years. She said, “This is a trend virtually sure to prevail in the years directly ahead.” Whoops.

What’s the Takeaway?

The increased accessibility of side hustles has been a boon for many Americans. It’s never been easier to supplement your income by moonlighting after finishing your nine-to-five job responsibilities.

However, it’s possible we’ve gone a bit too far. Nowadays, people often waste time on income streams that are unscalable at best and outright scams at worst. For example, it’s a tragedy that anyone tries to make money by taking surveys online.

Many of us could benefit from refocusing on optimizing our careers, just as Sylvia suggests. For example, you’d probably be better off fixing up your resume, switching to a new job, and negotiating a $10,000 raise than trying to build a furniture-flipping business in your free time.

There’s another reason why side hustles have become so prominent. Wages have stagnated for many Americans.

Stagnant wages combined with the prevalence of student debt and the high costs of healthcare, housing, and other essentials led to the creation of an environment where many people simply can’t survive on their salaries.

How to Spend

Spending the right amount of money on worthwhile expenses is an underappreciated skill in the United States. It’s not as glamorous as hustling for a higher income, but the ability to live happily with less is one of the best financial superpowers that you can have.

Unfortunately, much of today’s personal finance wisdom takes it for granted that Americans are bad at saving money. Our annual savings rates have been dismal for decades, usually tracking well below the 15% to 20% that most experts agree is the minimum necessary to retire on time2.

Learn More: Raising your savings rate is the key to shortening your time to retirement. Find out our favorite tips and tricks for retiring earlier: How to Retire Early: The Shockingly Simple Path to Freedom.

As a result, most modern budgeting advice comes across as a desperate plea for people to get their spending habits under control. People like me create budget methods, frugality hacks, and temptation avoidance strategies to help trick people themselves into spending less.

While Sylvia spends some time on these ideas, she also emphasizes the importance of addressing the mindset behind your spending habits. In one of my favorite sections of her book, Sylvia suggests: 

“Start from the premise that no income you will earn will ever be large enough to cover all your wants. Accept the theory that the more income you have, the greater will be your desires. Make up your mind that if you want something badly enough, you will sacrifice other things for it.

Take the trouble to think out your own philosophy of living and your ambitions for the future. Develop a plan of control over your spending. Then you will make progress toward the kind of living which means most to you.”

What’s the Takeaway?

It’s possible some people fail to stick to their budget because they’re using the wrong system. However, I find it more likely that most people who struggle with their budget would do so no matter what template they follow. In reality, all budgets work. You just need the discipline to stick to them.

Instead of trying for the umpteenth time to find the perfect tool or trick to get you to stick to a spending plan, you may benefit more from revisiting your needs, motivations, and ambitions. Ask yourself questions like:

• What lifestyle can you realistically afford that would make you happy?
• Which expenses are non-negotiable, and which ones are you willing to sacrifice?
• What goals are dearest to you, and how much do you need to save to reach them?

With these answers in mind, you’ll have a much easier time creating a budget that meets your needs without sacrificing your happiness. Understand yourself and define your goals as Sylvia suggests, and then budgeting becomes easy.

How to Save

Saving money is closely related to spending it. However, there’s enough separation between the two that they deserve their own sections. Sylvia spends a significant amount of time in her book getting into the weeds of saving, including:

• How much you should have saved in cash
• What types of accounts are best for storing cash
• How to shop for a bank or credit union

Some of Sylvia’s ideas are less relevant in the modern world, where you can peruse savings account options online alongside scores from other users and interest rates. However, there’s still a lot of discussion today around optimizing your approach to savings.

For example, the debate around the proper emergency fund size is as contentious as ever. In addition, many are scrambling to find places to store cash that will generate a high enough yield to protect them against inflation without undue risk.

Though Sylvia bases her emergency fund calculations on monthly income instead of using the modern expense approach and recommends banking products that are outdated, the concepts behind her advice are consistent with modern ideas.

In essence, you should keep enough cash on hand to weather emergencies. Store those funds somewhere you can access them quickly and without market risk, but try to minimize your exposure to inflation as much as possible.

Quick Insight: I-Bonds are an attractive option in today’s high-inflationary environment. If you buy before October 22, 2022, you’ll receive a guaranteed yield of 9.62% for the first six months. You can buy up to $10,000 per calendar year online: Individual – Buying Series I Savings Bonds.

What’s the Takeaway?

Though the specifics of Sylvia’s recommendations differ slightly from some of today’s saving wisdom, the principles are the same. My key takeaway is that you can’t overstate the importance of maintaining a healthy emergency fund.

When you live paycheck-to-paycheck, you’re incredibly vulnerable. A single unexpected expense could force you into debt, which can be the beginning of a spiral that’s often very difficult to rectify.

So don’t take that risk. Make it a priority to keep enough cash on hand to cover at least a few months of your expenses. If you ever have to dip into your emergency fund, rebuild it as soon as possible to minimize your exposure.

How to Invest

Investing is arguably the most expansive area of study in personal finance. There are so many different investment accounts, vehicles, and strategies that it’s tough to compare specific best practices. Instead, I’ll focus on higher-level concepts, which are easier to identify.

For example, Sylvia emphasizes the idea that everyone should begin investing for retirement as soon as possible. Compound interest is one of the most powerful forces in existence, and everyone should learn to harness it. This investing concept is still fundamental today.

Sylvia also recommends dollar-cost averaging, which involves purchasing investments regularly over long periods to avoid the chances that you’ll enter markets at unfavorable moments. That’s still the most popular approach to acquiring securities among personal finance experts. 

Beyond these high-level concepts, Sylvia’s suggestions differ from much of today’s leading investment advice. There’s good reason for that, though. Namely, Sylvia wrote for an audience of active investors because that was the only option in the 70s.

In modern times, much of the personal-finance gospel on investing promotes passive investing in index funds instead. Studies have repeatedly shown that active investors struggle to beat market returns and most stock traders lose money. 71% of U.S. investors now say index funds work better than stock picking.

As a result, passive investing in the United States’ domestic equity-fund market overtook active investing in 2018 and accounted for approximately 54% of the market share by 2021. If trends continue, passive investing, in general, is likely to overtake all active investing by 2026.

What’s the Takeaway?

If there’s a lesson to learn from the evolution of investing since the 70s, it’s that you should pay particularly close attention to this aspect of your personal finances. It’s the most complex and the fastest-changing. Market conditions, tax laws, and your risk tolerance will change significantly over time, and you have to adjust.

It’s also breathtakingly easy to lose your hard-earned savings by investing in the wrong assets without sufficient education, so don’t take anybody’s word for granted. Spend the time to do your own due diligence and optimize your investing approach, as it can make or break your finances.

How to Borrow

Last but not least, let’s look at the evolution of the best practices around borrowing money and managing credit. I was pleasantly surprised by Sylvia’s take on the subject, as she approaches it from a noticeably different angle than most modern advice.

Nowadays, there’s a general assumption that most people carry significant amounts of debt. We take student loans, auto loans, and credit card debt as a given, and a lot of personal finance wisdom assumes you have them as a starting point.

As a result, most content on the subject focuses on paydown strategies, relief options, and ways to rebuild your credit or finances in the wake of debt. However, there’s a refreshing absence of this attitude in Sylvia’s book.

Instead, she emphasizes the importance of understanding the following:

• The right and wrong reasons to borrow money
• How to recognize when you’re nearing unmanageable debt levels
• The significance of borrowing costs and the value of paying with cash

If you must take on debt to finance an expensive but meaningful purchase like a home, Sylvia also preaches the importance of minimizing its burden on your finances. As she says, there’s always a cost to borrowing money, but you can reduce it significantly by paying more upfront and pursuing shorter repayment terms.

What’s the Takeaway?

Debt is one of the primary reasons people in the U.S. struggle financially despite having a stable income. Too often, we assume that the burden of debt is unavoidable or acceptable, then do our best to dig ourselves out on the back end.

While it’s unrealistic to expect everyone to get through life debt-free, many of us could benefit from working harder to avoid borrowing in the first place. Think twice before you take out a loan or charge something to your credit card.

When possible, try to save up cash and pay for things outright. If you don’t have time to wait, try to look for an alternative good or service that can get you what you need without forcing you to go into debt. If there’s no other option, calculate the price of your purchases after financing costs and ask yourself if it’s still worth it.

Learn More: People assume they have to take on student loans to get an education, but that’s not necessarily the case. You can find other ways to pay your college tuition or attend trade school instead. Check out our guides to both subjects: College Without Debt: Where to Get Help Paying for College + Trade School or College? What’s the Difference? Pros and Cons of Each.

Reality check: One of the most effective ways of wrapping your head around the true price of a purchase is to consider the number of working hours a purchase is worth. Try our price to hours worked calculator to see just how much time you’d have to work in order to pay off a purchase. And then ask yourself if it’s really worth it.

What’s Different?

Sylvia Porter’s Money Book was the personal finance gospel of the 1970s. How well does it hold up today?

Some Things Change

Obviously, some things have changed. For example, modern personal finance discourse revolves heavily around credit scores and how to understand them, improve them, and protect them.

Sylvia doesn’t mention credit scores because they didn’t exist in any organized fashion when she wrote her book: the first FICO score wasn’t introduced until 1989.

Modern personal finance offers many tools that were unknown in the 1970s. You couldn’t prequalify for credit online or open an account with an online discount broker. Today’s methods are very different, even when the goals are similar.

Some of the prevailing assumptions have changed, as have many costs. Housing, health insurance, and student loan payments take up much bigger chunks of the average budget today than they did in the 1970s. We can no longer assume that an average household can survive on one salary, or even two.

Some Things Don’t

Despite the many changes, the core principles of personal finance in the 1970s are in many ways very similar to the core principles today. Budgeting, saving, managing your spending and separating wants from needs are all just as important today as they were in the 1970s.

Investing early is still good advice. Keeping debt to manageable levels and using credit only when you really need it is still a very sound policy. “Spend less than you earn” has been a good idea for centuries.

Overall, while the methods and the environment have changed, the core principles have remained very consistent.

Further Your Education

There’s a lot to learn in the personal finance world, and the landscape is forever changing. However, the American education system doesn’t do the best job of teaching you how to manage your money. That means it’s on you to find and fill the holes in your knowledge.

Fortunately, you don’t have to do it alone. Whether you need to learn how to earn, spend, save, invest, or borrow, FinMasters is here to help. Take a look at our library of resources below, and if you still have a question you’d like us to answer, contact us!

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