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Late on Dec. 29, the IRS announced that the second stimulus checks were already on their way. Compared to the first coronavirus check, they’re a lot leaner, but they’re also going out faster. In some cases, you may qualify for one payment and not the other. Here are eight key differences to know.
First, a few things that haven’t changed: You don’t need to take action to get your check. You don’t have to worry about owing taxes on your stimulus payment. And anyone who’s eligible for either payment who doesn’t (or didn’t) get it will still be able to claim their money by filing a 2020 tax return.
OK, now let’s break down the differences.
This one’s glaringly obvious: Instead of the $1,200 payments most adults received mid-2020, the second stimulus check is just $600. Although President Trump has pushed for a $2,000 check and the Democrat-led House of Representatives passed a bill increasing the checks to $2,000, Senate Majority Leader Mitch McConnell blocked a vote on the measure. As of Dec. 30, 2020, the only checks that have been approved are for $600, but the IRS says it will top off any payments already made if a higher amount is approved.
In the first round, the child coronavirus tax credits were $500. This time, parents will receive $600 for dependent children 16 and younger, the same amount adults get. In the first round, a married couple with two kids under age 17 would have received $3,400. Now the same family will get $2,400.
Anyone 17 or older who’s claimed as a dependent on someone else’s tax return still won’t qualify for a payment this round. That means many college students and disabled people will be left out again.
For both the first and second stimulus check, payments phase out at a rate of 5 cents for every $1 you earn above these thresholds:
Because the payments are lower this time, the payments will be phased out at lower income levels compared to the first time. For example, the first round didn’t completely phase out for someone single until their income reached $99,000. This time, that same person wouldn’t get a check if they earned more than $87,000.
Payments will be based on your 2019 tax return only for the second stimulus check. For the first check, the IRS used your 2019 return if it was available. But it used 2018 returns for some people who hadn’t yet filed because the tax deadline was extended or their returns hadn’t been processed yet.
If you get Social Security, SSI, SSDI, Railroad Retirement System or VA Benefits, the IRS will get the information it needs to make your payment, just as it did last time. If you used the non-filer tool, the IRS also has the information it needs to get you your check.
One thing that gets tricky, though, is that both checks are an advance on a special 2020 tax credit. You won’t owe taxes on your stimulus checks, and you won’t have to repay them even if you didn’t qualify based on your 2020 income. But if your 2020 return qualifies you for stimulus money because your income fell or you had a child, you can get your stimulus money as a rebate recovery credit when you file your 2020 tax return.
People who owe child support will get a $600 stimulus check. The first stimulus check excluded people whose tax refunds are seized through the Treasury Offset program due to unpaid child support.
If you’re married and file a joint return with someone who doesn’t have a Social Security number, you’ll qualify for a $600 payment. You’ll also receive a payment for dependent children 16 and younger. Mixed-status families weren’t allowed to claim payments under the CARES Act, but the new relief bill also allows them to retroactively apply for payments from the first round for anyone in the household who has a Social Security number.
The IRS started sending out the second stimulus check to people with direct deposit on Dec. 29, just two days after President Trump signed the relief bill into law. Paper checks were set to start going out Wednesday, Dec. 30. By comparison, the first round of payments didn’t start arriving until just over two weeks after the CARES Act became law.
The initial IRS timeline for the first round of payments stretched all the way into September for the highest-earning paper check recipients, though the overwhelming majority of people got them much sooner. But this time around, the IRS deadline for making payments is Jan. 15, 2021. If you haven’t gotten your payment at that point, you’ll still get one, but you’ll need to file a 2020 tax return and apply for a recovery rebate credit.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].
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A second stimulus check is OFFICIALLY on its way after President Trump signed a $900 billion COVID-19 relief bill into law Sunday night after initially refusing. The relief bill will deliver a second stimulus check of $600 to most adults who can’t be claimed as dependents, as well as $600 for children 16 and younger.
Now the wait begins — but fortunately, it should be shorter than the first time around. Here’s when you can expect your second stimulus check.
It took just over two weeks for the first round of stimulus checks provided by the CARES Act to start hitting bank accounts for people who had direct deposit information on file with the IRS. Those who received payments by mail via paper check or prepaid debit cards had to wait several extra weeks — or longer, in some cases.
Treasury Secretary Steven Mnuchin has indicated that this round of checks could start going out even sooner. On Dec. 21, Mnuchin told CNBC host Jim Cramer: “People are going to see this money at the beginning of next week.”
Of course, at that point, President Trump was expected to quickly sign the relief bill. It’s unclear how the timeframe will be affected since Trump didn’t sign the bill into law until Dec. 27. Assuming that the IRS processes payments at the speed Mnuchin suggested, checks could start arriving in bank accounts during the first week of January.
Mnuchin expressed confidence in the same timeline earlier this year during stimulus bill discussions that ended in stalemate. In August, he said: “If I could get it passed tomorrow, I could start printing them the following week. I could get out 50 million payments really quickly.”
The faster timeline seems likely, given that the IRS established the infrastructure and got the information it needed to deliver stimulus checks to most Americans through the CARES Act.
Plus, the new bill establishes a Jan. 15 deadline for the IRS to send out payments. If your payment hasn’t been made by then, you’ll have to file a 2020 tax return and get your stimulus check as a refund.
Sorry, but there isn’t much you can do right now. If you filed a 2019 tax return or used the non-filer tool to get your first payment, the IRS has the information it needs to determine your eligibility. Same goes if you receive benefits from Social Security, the Railroad Retirement System, SSI, SSDI or the VA.
But if you don’t have direct deposit information on file with the IRS — or your bank account has changed — there’s no way to update it at this time. You’ll probably have to wait and receive your payment by mail.
As of Dec. 28, the “Get My Payment” tracking system on IRS.gov was offline, which means you can’t yet find your payment status. We’ll update you if that changes.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].
Dear Readers,
Two weeks ago, I answered a question from a woman who wanted to know if she needed her ex-husband’s permission to claim his Social Security benefits. (In case you missed it, the answer is no.) Nearly 300 of you emailed me with follow-up questions about exes and Social Security. So today, let’s tackle a few more together … with the caveat that for the trickiest questions, the answer is “Call the Social Security office.”
-Penny
So are you telling me my husband’s ex-wife can actually get my husband’s Social Security benefits while I'm still married to him? Do I have to fight her for this Social Security? He makes more than I do, and if he passed, I’d need that money to live on.
There’s no need to fight over this man or his Social Security. While your husband is alive, all three of you can claim based on his work record. If he dies, both you and his ex-wife can collect. Her Social Security decisions have absolutely no impact on your benefits or your husband’s.
I’ve been married three times. All three marriages lasted 10 years or longer. Would I qualify for all three benefits, or would I choose the one that would benefit me the best?
You can only claim one person’s benefit, but you don’t have to do the guesswork to make this decision. Simply call Social Security and ask them whose record will give you the best benefit. If you’d qualify for money based on your own record, that’s what you’ll get. Of course, I’m assuming that when you say you’ve been married three times that you’ve also been divorced three times. If you’re still married, you can’t claim on an ex’s record.
When I turn 60, I can claim my deceased husband's Social Security. As his widow, will I get the full amount or 50%?
First, an FYI for those reading: Unlike regular Social Security benefits, which require you to wait until you’re 62, you can start survivor benefits at 60, or age 50 if you’re disabled. But as with regular benefits, you’ll get more if you wait. You’ll receive 71.5% of his full retirement benefit if you start at 60. Wait until your full retirement age, which is 67 if you were born in 1960 or later, and you’ll get 100% of his benefit.
I’m 65 and was married to a man for 40 years. We divorced nine years ago. I’ve been drawing my Social Security and a portion of his Social Security. He remarried six years ago. When he dies, will I receive more Social Security if I’m still alive?
Most likely. The maximum you can collect from a living current or ex-spouse is 50% of their full benefit. (As you describe, Social Security gives you whatever you qualify for based on your own record and then uses the ex-spouse’s record to get to the 50% maximum.) But as long as you’re eligible for divorce benefits now, you should qualify for survivor benefits if he dies before you. Like widowed spouses, surviving ex-spouse’s can get anywhere from 71.5% to 100% of the deceased spouse’s full retirement benefit, depending on when they claim.
My sister’s husband died suddenly a little over a month ago. She is 65. Since she paid into her county pension plan most of her adult life, she only gets a very small Social Security benefit from jobs she worked prior to her career. However, her husband did pay into Social Security his entire life, so his benefit is higher. She called Social Security and was told she’s not eligible for survivor benefits because of her pension. I’m concerned that she may not have understood correctly since she’s in so much grief.
I’m so sorry for your family’s loss. For people like your sister who have pensions and didn’t pay into Social Security, a rule called the Government Pension Offset applies. When you claim Social Security spousal or survivor benefits, two-thirds of your monthly pension payment will be deducted from the Social Security payment. So if your sister receives $3,000 a month from her pension, $2,000 would be deducted from her survivor benefit. If she would normally have qualified for a $2,500 survivor benefit, she’d get $500 a month from Social Security. But if the survivor benefit is less than $2,000, unfortunately, she wouldn’t qualify for anything because her pension would completely offset the benefit.
I’ve been married since 1992. We never divorced, and I have never remarried... well, because I never was divorced. People tell me to stay married to him so I can draw his Social Security when and if he passes before I do, but he really never worked much anyway. I guess I want to know if I should just divorce him?
I can’t tell you whether you should divorce this man. What I can say is that whether you stay or you go, it won’t make a difference to your survivor benefits.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to [email protected].
We’re almost there, folks. Only three more years until the end of 2020.
At least it feels that way. The pandemic upended many areas of the economy, forcing millions of people out of work and into a scramble to fill the income void.
We’re looking back at the side hustles that helped many of us pull through the year. Each gig below held up surprisingly well — even as traditional jobs plummeted. Some even sprouted up because of the pandemic.
These gigs not only did well this year, but many have good moneymaking prospects in 2021 as well.
Whatever you want to deliver — pizza, packages or produce — there are ample opportunities. Delivery-related companies are among the clear winners of the coronavirus economy. App-based delivery services like Amazon Flex, Uber Eats and Instacart have been onboarding new workers by the hundreds of thousands throughout the pandemic.
Requirements are overall very low. In many cases, all you need to start earning are a valid driver’s license and a functioning car with proper auto insurance. Practically speaking though, the work can be tough, and you’ll need to be able to lift and carry heavy items.
You can expect to net about $15 an hour through delivery apps.
Get Started: Learn from a delivery driver who made $8,000 in one month. When you’re ready, sign up for a delivery gig of your choice.
Long before coronavirus, older and younger folks alike grappled with a different problem — what Andrew Parker, the CEO of Papa, calls “the loneliness epidemic.”
Gen Z and seniors are the two loneliest age groups. By pairing older adults with “Papa Pals,” who are typically tech-savvy college students, the company is attacking the issue from both sides.
As a Papa Pal, you might provide contactless deliveries, make companionship calls, help older folks set up telemedicine visits, or help someone troubleshoot their new smart TV.
The pandemic heightened the need for this service manyfold. This year, Parker expanded many of the services offered by Papa nationwide through remote work, like phone check-ins and video conferencing. In-person services are still needed in about two dozen states.
The positions are part-time and pay up to $15 an hour.
Get Started: See what it takes to become a Papa Pal, and start assisting older folks.
Contact tracers play an important role in the economy reopening fully. Health experts estimate that hundreds of thousands are needed to do so safely.
Tracers interview people who have tested positive for COVID-19, typically over the phone. They gather contact information of people who the patient potentially crossed paths with, likely state-wide but possibly county-wide. Then they call all of those people to establish who may have been infected and refer them for testing and/or self-isolation.
These positions typically have flexible schedules, can be done remotely and can earn you upwards of $30 an hour.
Get Started: First, take a free online contact tracing course from Johns Hopkins University, then find contact tracing jobs at private or public employers.
Despite the pandemic vaporizing some freelance work that’s contingent on big crowds or in-person events, the overall freelance economy soared to $1.2 trillion in 2020, according to a study commissioned by Upwork.
Since many freelance gigs can be done remotely, it’s as good a time as any to jump on board the $1.2 trillion train. If you have specialized skills and want to make some side money using them, join a freelance network. Marketplaces like Fiverr and Upwork are a good way to test the freelancing waters. The websites help you find gigs and connect with clients.
The most common types of freelance services offered via online marketplaces include marketing, web and software development, customer service, administrative support and writing.
Starting out, these types of services are likely to net you around $20 an hour.
Get Started: Join one (or all) of the top freelancing websites.
The mom-and-pop flower shop down the road may not be hiring the usual handful of seasonal workers, but the big guys — the Amazons, Targets and UPSes — of the world are doing pretty well this year. In some cases, even better than last year.
The type of work has changed a bit. Instead of a need for the usual sales associates at retail stores, the demand has shifted to e-commerce-related work like order fulfillment, curb-side pickup prep and warehouse labor.
The good news is that many major seasonal employers have $15 minimum wages this year.
Get Started: Choose from more than 750,000 seasonal job openings at major companies.
New to the side-gig scene: online learning assistants.
Parents, likely out of sheer frustration at having to juggle remote work with the added responsibilities of helping their child(ren) with distance learning, created a grassroots education movement. Parental demand is driving the trend of pandemic pods, which are small groups of students who come together throughout the week to complete their online course work and socialize — all according to CDC guidance.
These homeschool pods may be led by one of the students’ parents, a tutor, a retired educator or a recent college grad who’s good with kids. Parents may pool their resources together to pay the pod leader based on their qualifications.
Get Started: Learn more about how pandemic pods work and score the newest online-learning side gig.
A forecasted shortage of poll workers sent many polling locations into crisis mode earlier this year. Under normal circumstances, poll workers skew older. Increased voter turnout and social distancing measures didn’t mesh well, and many older folks decided to play it safe and stay home.
Younger, healthy folks were needed en masse to ensure voting locations were properly staffed. Thanks in part to a major recruitment campaign by the nonprofit Fair Elections Center, a widespread shortage was largely avoided.
And in case you didn’t realize: Poll workers get paid (in addition to that dizzying sense of pride and patriotism, real money). A day of poll work can typically earn you between $50 to $300 depending on the area.
It’s true there won’t be a shortage every year, but what this near-crisis highlighted is that poll workers can be decent paying gigs. Beside presidential elections, poll workers are needed during midterm elections and local off-year elections as well.
Get Started: Use Work Elections’ database for more information about becoming a poll worker during your area’s next election.
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Adam Hardy is a staff writer at The Penny Hoarder. He covers the gig economy, remote work and other unique ways to make money. Read his latest articles here, or say hi on Twitter @hardyjournalism.
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Many Americans will soon have an extra $600 in their pockets, after President Trump signed a $900 billion stimulus bill into law Sunday night. Trump signed the bill six days after Congress rushed to approve the package. Initially, he held off on signing and demanded $2,000 stimulus checks instead of the $600 payments in the bill.
The relief package includes $600 stimulus checks for most adults who aren’t claimed as dependents, plus $600 for children 16 and younger. The bill will also provide a $300 supplement to unemployment benefits for 11 weeks, an additional $284 billion of Paycheck Protection Program (PPP) funds and $25 billion in emergency rental assistance.
Here’s what we know so far about the second stimulus check. We’ll update this post as we learn more.
Individuals making up to $75,000 per year will get $600, and couples making up to $150,000 will get $1,200. People who earn up to $112,500 and file as head of household will also receive the full $600. That’s half the amount of the first round of checks. For each child 16 or younger in the household, you’ll also get the full $600. That means a couple with two children who got $3,400 with the first round will now get $2,400.
For every $1 you earn above the limits, the payments will be reduced by 5 cents until they disappear altogether. Because checks are smaller this time, they’ll phase out at lower levels. For example:
They’re based on 2019 tax returns, even though they’re technically an advance on a 2020 credit. (No, that doesn’t mean you’ll owe more on your 2020 return, as we’ll discuss in question 8.) If your income dropped in 2020 and made you eligible for a payment or you had a child in 2020, you’ll get your payment as a rebate in 2021 when you file your 2020 tax return.
The rules are the same as they were for the first round: If they’re 17 or older, they won’t qualify. They may be eligible for both the first and second payments (a total of $1,800) if they file their own tax returns for 2020 and they aren’t claimed as a dependent.
Again, if they’re 17 or older, they’re not eligible. They’ll also probably qualify for both payments if they file their own returns and no one claims them as a dependent for 2020.
Yes, as long as your income is below the thresholds listed above and no one claims you as a dependent. The same applies to people who receive Railroad Retirement, SSI, SSDI and VA benefits. The IRS will receive your information from Social Security or whatever agency that provides your benefits, so you don’t need to take action.
You won’t get a stimulus check, but if you’re married to someone who has a Social Security number, they’ll still get a $600 check. This is a change from the first round of checks. Under the CARES Act, if one spouse had a Social Security number and the other didn’t, both spouses were ineligible.
Treasury Secretary Steven Mnuchin told CNBC on Monday that the first payments could go out early next week. People who have up-to-date direct deposit information on file with the IRS or who receive government benefits, like Social Security, through direct deposit will get their checks fastest.
No, you won’t owe taxes on stimulus payments because the checks are a special 2020 tax credit that you’re getting early — though they’ve sometimes been described incorrectly as an advance on your 2020 refund. A tax credit reduces your tax liability dollar for dollar. So if you’d normally owe nothing and you got a special $600 credit, you’d get a $600 refund. You’re simply getting that $600 credit that you wouldn’t normally get a couple months early.
Yes, as long as your 2020 income falls within the limits specified in Question 1, but you’ll have to wait until you file a 2020 tax return. You can receive both the $1,200 and the $600 payments if you’re eligible for the maximum benefit.
You won’t get the $600 credit for your new addition at the same time you get your stimulus payment, but when you file your 2020 tax return, you’ll get $600 on your child’s behalf as a rebate.
Yes. Your check won’t be garnished or reduced if you owe federal or state taxes, or if you’re delinquent on federal student loans.
The rules for unpaid child support and stimulus checks are different this time around. People who owe child support will still receive stimulus payments. Under the first round of checks, anyone whose tax refund could be seized by the Treasury Offset program due to unpaid child support had their stimulus checks garnished as well.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].
Data breaches that give hackers access to our personal information happen all too often. The more we depend on digital passwords, the more Bad Guys want to steal them. Millions of people end up changing their passwords, disputing fraudulent charges and arguing with the IRS every year due to identity theft.
And while data breaches are down in 2020, identity theft through other methods is up. There are scams happening around stimulus checks, Amazon and Apple purchases and fake IRS calls.
A report from Wallethub found that Floridians are the most likely to be targeted for identity theft and fraud, while people in Wyoming are the least. But we’re all at risk of getting a scam call, so it’s important to be vigilant and protect yourself.
When someone steals your identity or targets you for fraud, it’s more than just an unauthorized credit card purchase that you’ll be dealing with. They can wreak havoc on your finances for a long time — they can steal your tax refund, open credit cards in your name and file for unemployment benefits. Your credit score could be damaged, making it difficult for you to get a mortgage, lease a car or open a credit card for years to come.
Don’t open emails you don’t recognize, don’t download something from an unrecognized source and never send your password or Social Security number to someone over phone, email or a messenger app. It’s always best to verify it directly from the source it’s coming from.
And remember, the federal government won’t demand payment over the phone via gift cards or wire transfers, and they can’t threaten to call police or immigration if you defy them — these are all marks of a scammer.
You should also choose passwords that are difficult to guess and change them for each website log-in you use. This way, if one website has a data breach, it won’t risk your accounts on other websites.
It may not always be obvious that you’ve been scammed or had your information stolen. There can be small charges on your credit card, or it may be a year before you realize as you’re trying to do your taxes. That’s why it’s important to stay vigilant.
Sign up for account alerts for suspicious activity and check in on your credit score often — you’ll be able to see if someone was trying to open any accounts in your name. Try using a website like Credit Sesame.
Within 90 seconds, you’ll get access to your credit score, any debt-carrying accounts and a handful of personalized tips to improve your score. You’ll be able to spot any errors holding you back (one in five reports have one) and if there’s any suspicious activity.
Want to check for yourself? It’s free and only takes about 90 seconds to sign up.
While some crimes are impossible to prevent on your own, you can still make smart choices online to prevent further attacks and stop new ones from getting worse. Be smart and stay safe!
Investing is a super important part of your financial health, since it can help you grow your money significantly more than the average savings account. It’s literally what makes it possible for normal people to retire with a million dollars.
But for the average person, learning how to invest can be overwhelming. We all know we should be contributing to our 401(k)-type retirement accounts (yes, that’s investing!), but what else can you do to grow your money? There are so many different options that it can feel like we’re gambling.
And to some extent, it is a gamble. Investing comes with varying levels of risk; it just depends on how much you’re willing to lose. So we rounded up some of the most fun-sounding investments that can be too high risk, plus one safe — but consistently rewarding — option for you to consider.
There’s no doubt that bitcoin is exciting. A lot of rich tech entrepreneurs are big fans, and the secrecy behind where it came from creates an undeniable allure. The promise of a decentralized way to pay for things? Such a cool concept.
But for now, bitcoin remains a speculative investment. Certified Financial Planner Robin Hartill says “People invest in it because they think other investors will continue to drive up the price, not because they see value in it.”
That means the price can fluctuate like crazy. It’s peaked at $20,000 and plummeted to below $4,000. It’s incredibly voltalite for no rhyme or reason, making it a very risky investment, so unless you can afford to lose a big chunk of money, it’s best to be avoided.
There’s a reason why the phrase “the gold standard” exists — gold (and silver) are often thought of as hedges against a bear market because they’ve held their value throughout history, says Hartill.
She actually says gold and silver can be a good way to diversify your portfolio, “but anything above 5% to 10% is risky.”
Because of how rare they are (gold especially), they are super volatile. If a new gold mine is found, the price can suddenly drop. Plus, both metals have tended to underperform compared to the S&P 500 in the long term.
And then there’s the whole other risk of storing a bar of gold in your underwear drawer…
Do you collect stamps, vintage Coca-Cola signage or shot glasses? A lot of people collect things as a hobby — it’s when they bet on their collections becoming a profitable investment that things turn risky.
Hartill says it’s OK to spend a reasonable amount of money curating a collection if it’s something that brings you joy. “But if your plans are contingent on selling the collection for a profit someday, you’re taking a big risk.”
Why? Well, for one, those assets aren’t liquid. You can’t just bring them to a bank and exchange them for cash. They can be really hard to sell, leaving you with a big investment but no way out.
There’s also no set price for a collectible, since it’s only worth as much as someone wants to pay for it. That means you may have to sell your collection for a steeper discount than you planned, plus you’ll pay 28% in capital gains tax on the profits. To put that in perspective, it’s almost twice the tax a middle-income earner would pay for long-held stocks.
It’s no secret the market has its fair shares of ups and downs, especially this past year, but you shouldn’t assume that means it’s a massive risk. While there will always be a risk associated with investment, the stock market historically has about a 7% return year-over-year.
So while the markets are unpredictable, they still tend to go up over time. It’s a long-term strategy to grow your wealth, without buying Beanie Babies and crossing your fingers for someone to pay $5,000 for Patti the Platypus.
If you haven’t started investing and have some money to spare, you can start small. Investing doesn’t require you throwing thousands of dollars at full shares of stocks. In fact, you can get started with as little as $1.*
We like Stash, because it lets you choose from hundreds of stocks and funds to build your own investment portfolio. But it makes it simple by breaking them down into categories based on your personal goals. Want to invest conservatively right now? Totally get it! Want to dip in with moderate or aggressive risk? Do what you feel.
Plus, with Stash, you’re able to invest in fractions of shares, which means you can invest in funds you wouldn’t normally be able to afford.
If you sign up now (it takes two minutes), Stash will give you $5 after you add $5 to your invest account. Subscription plans start at $1 a month.**
*For Securities priced over $1,000, purchase of fractional shares starts at $0.05.
**You’ll also bear the standard fees and expenses reflected in the pricing of the ETFs in your account, plus fees for various ancillary services charged by Stash and the custodian.
The Penny Hoarder is a Paid Affiliate/partner of Stash. Investment advisory services offered by Stash Investments LLC, an SEC registered investment adviser. This material has been distributed for informational and educational purposes only, and is not intended as investment, legal, accounting, or tax advice. Investing involves risk.
If you have a retirement account, you probably just became a Tesla investor.
No, Elon Musk didn’t gift you shares of the electric carmaker. And you aren’t going to suddenly see Tesla stock — which was up more than 600% year to date during the third week of December — pop up in your portfolio.
So how did you become a Tesla investor without even noticing?
On Monday, Dec. 21, Tesla joined the S&P 500 index, which tracks the performance of 500 of the largest companies in the U.S. S&P 500 index funds, which mirror the makeup and performance of the S&P 500 index, are the most popular mutual funds and exchange-traded funds (ETFs) for retirement accounts.
They’re passively managed, which means the fund manager doesn’t decide what to invest in. They buy and sell shares so that the fund’s makeup and performance reflects the index. The bottom line is that if you own an S&P 500 fund, the person who manages it had no other choice but to invest your money in Tesla.
A notoriously secretive investment committee decides what companies are included on the S&P 500. Like any company, Tesla had to meet stringent criteria to be considered, including:
Tesla was rejected by the S&P 500 committee in September before getting the thumbs-up in November. We don’t know the “why” behind either decision, given how tight-lipped that committee is. But it’s likely that the stock’s reputation for volatility had something to do with its initial rejection.
The S&P 500 is market cap-weighted, which basically means the larger the company, the more heavily it’s weighted. The carmaker is the largest company to join the S&P 500 in the index’s 90-plus-year history.
The committee considered adding Tesla in two phases because of all the buying and selling that has to happen for fund managers to make room for a $600 billion company. The stock Tesla is replacing, Apartment Investment and Management, had a market cap of just $6 billion before it announced plans to split into two companies in mid-December.
Probably not. Sure, Tesla’s stock has a reputation for being volatile. But it still will only account for about 1.5% of the value of your S&P 500 funds for now. That means if Tesla shares lost a third of their value, your fund would be worth 1% less. The flip side, of course, is that if they double, your fund’s value only goes up by 1.5%.
But the beauty of the diversified portfolio you get with S&P 500 funds is that you don’t have to lose sleep over how any single company performs. Tesla may get a lot of hype. But how the other 499 stocks in the index perform matters way more to you.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected].
Dear Prepping,
The fact that you’re a 28-year-old homeowner with $100,000 in retirement savings tells me you’ve made smart decisions with your money. But even smart people have bad ideas on occasion. This is one of those times.
You’re right that the stock market is going to crash again because crashes are completely normal. The stock market undergoes a correction — meaning it drops by 10% or more — a little less than once every two years. A bear market, defined as a 20% decline, happens roughly once every seven. Historically, the market has always recovered over time.
My advice to you would be a lot different if you were 58 or 68. That doesn’t mean I’d tell you to panic and sell off all your investments if you were older, but I’d want you to look carefully at how much risk you’re taking, lest you need your money before that recovery happens.
But you’re 28. You probably have three or four decades left until retirement, which means your investments have plenty of time to recover from the inevitable dips and valleys.
Withdrawing your retirement money at 28 is like creating your own personal stock market crash, even if the stock market soars. You’ll pay a 10% early withdrawal penalty on money you take from your 401(k) plan, plus any Roth IRA earnings you touch. Add in the tax bill, and the blow to your net worth could be much harsher than the temporary damage from a crash.
Because of the taxes and penalties, you’ll need way more than $100,000 to pay off that $100,000 mortgage. You’d also be trading off 10% average annual returns in the stock market to save on a debt that you could easily pay less than 3% for at current mortgage rates.
And yet, I get why you’re tempted to do what you’re suggesting. In unpredictable times, we all want certainty. If you’re focusing only on the next few months or years, paying off your house seems like a solid bet because you get the certainty of not having a mortgage payment. Meanwhile, the stock market is a gamble if you invest based on daily fluctuations. On any given day, investing in the S&P 500 index has a 53% of generating positive returns — meaning it’s slightly better than a crapshoot.
Over the longer term, your chances of success are much higher. In a 10-year period, you’ll get positive returns 94% of the time. And at no point in the S&P 500’s history would you have lost money if you kept the money invested for 20 years, even if you invested at the market’s peak and sold after a crash.
Let’s focus on what you can control in these crazy times, and the stock market isn’t one of them. What you can do is make the next crash as painless as possible for you. The best way to do that is to build an emergency fund that could cover your expenses for at least six months. That way, you won’t need to tap your investments if you need cash right after the market tanked.
One thing to keep in mind is that the stock market only shows what investors think will happen, not the reality of what’s happening. How many times this year have we seen the stock market rally, even while the world seemed on the verge of implosion?
COVID-19, American politics and climate change all present very real reasons to worry. But don’t assume that people spouting off about what that means for the stock market know anything more than you.
If losing money truly keeps you up at night, I’d suggest you review the risk tolerance questionnaires you probably filled out when you opened your 401(k) and IRA. Your answers are used to determine how aggressively your money is invested. Make sure the answers you chose accurately reflect how you feel about the possibility of short-term losses. You normally want to invest aggressively in your 20s and 30s. But if the idea of a crash causes you major anxiety, it may be worth sacrificing higher returns for your peace of mind.
Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. Send your tricky money questions to [email protected].
COVID-19 has changed America in profound ways, almost all of them bad — 300,000 dead, millions jobless, children kept out of classrooms, countless lives upended.
However, there’s one unexpected way it’s made things more convenient: It’s becoming easier to get life insurance without going through the rigamarole of getting a medical exam.
There’s been a surge of interest in life insurance during the pandemic, as more Americans are realizing they probably need it. But for many people, social distancing mandates and fear of infection have prevented them from going to a doctor for an in-person exam.
That’s leading more people to seek out no-exam life insurance, and it’s causing more insurers to offer this option. For a lot of customers, COVID-19 is changing the way life insurance works.
Historically, getting a life insurance policy has always been kind of a pain. You had to jump through a bunch of hoops — sign a million forms, go to a doctor’s office to get a physical and bloodwork done, then send a stack of paperwork to an insurance agent. The whole ordeal typically took weeks.
But newer companies like Bestow are updating and disrupting the life insurance industry’s traditional way of doing business. Bestow uses algorithms instead of medical exams to evaluate applicants.
Customers who want life insurance to be fast and easy can quickly get a free quote from Bestow without an exam — or without even getting up from the couch. In fact, most customers who apply for a Bestow policy do it from their phones, the company says.
With the pandemic still raging, it’s a simple fact of life that more Americans are deciding to get life insurance. Overall, Americans have been buying about 10% more life insurance policies in 2020 than they did in 2019 — the largest increase in nearly two decades, according to the life insurance industry group LIMRA.
Insurers are offering more no-exam life insurance policies as well, LIMRA says.
People tend to overestimate the cost of life insurance. For instance, nearly half of millennials think life insurance costs about five times what it actually does, according to a study by LIMRA.
With Bestow, for example, rates start at just $16 a month. If you’re under the age of 54 and want to get a fast life insurance quote without a medical exam or even getting up from the couch, it only takes minutes to get a free quote.
Are you new to investing? Or are you an experienced trader who keeps tabs on the stock market?
Either way, there’s an app you ought to check out. It’s called Webull, and it’s a commission-free stock trading platform that’s super easy to use.
Since it launched in 2018, Webull has been growing fast and now has more than 10 million members. It’s offering new users a cool incentive: two completely free shares of stock.
If you sign up and open an account, you get two free stocks, each valued from $2.50 to $250. Afterward, if you deposit $100 into your Webull account, you get two more free stocks, each of them with a value ranging from $8 to $2,300. It’s like a lottery. You might suddenly find yourself getting a $2,300 stock for free — a nice bonus to help you build your investments!
If you’re not quite ready to dive in head-first with this whole investing thing, you can try out Webull with the equivalent of digital Monopoly money. You can see for yourself how it works, without the risk of losing any of your real money.
It’s called “paper trading.” Webull will put a million fake dollars’ worth of virtual money in your account. You can practice with a stock trading simulator and test out different strategies. If you earn a lot of fake money through your amazing investing genius, that’s cool. On the other hand, if you go big and take chances and lose a ton of fake money, it’s no biggie.
Once you’re ready to invest real money, Webull is super easy to use, no matter your level of experience. Plus, there’s no minimum investment required for you to get started. You can start as small or as big as you want.
There are no commission fees, so you can buy and sell stocks without commissions cutting into your profits. You can also invest in ETFs, exchange-traded funds, which are collections of hundreds or thousands of stocks and bonds.
If you’re a newbie, you can keep it simple. If you’re a more experienced investor, Webull has a whole roster of widgets and tools and intuitive charts you can use to decide what to invest in, and a homepage that you can customize for your own needs. Interested in cryptocurrency? You can even use WeBull to trade Bitcoin, Bitcoin Cash, Ethereum and Litecoin with no commission and real-time data. It has way more features than Robinhood, which is probably its biggest competitor.
Webull also offers ways to help you learn. It has online seminars and a Webull online community, where you can interact with other users and chat about potential investment opportunities.
If you want to do more advanced stuff, like options trading, short selling, extended-hours trading, stop orders, covered calls, cash-secured puts, advanced quotes or margin trading, Webull’s got you covered. It’s even offering a free three-month subscription to Nasdaq Totalview - Level 2, the premier data feed for serious traders.
But if you have no idea what any of that means, that’s fine, too!
You don’t have to know that stuff. There’s no need to get overwhelmed with a bunch of technical stuff.
Is Webull safe to use? Yes. Your financial information is encrypted, and your deposits are insured. Customer support options include phone support and 24/7 chat.
Whether you’re a new investor or an experienced one, it’s easy to get started with Webull. Put $100 in your Webull account, and see if you can score $2,300 in free stock.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.
People give gifts for various reasons, including marking an occasion or event or showing love, thoughtfulness and caring.
This year, there may be another reason behind a lot of gift giving: guilt.
The NPD Group’s annual holiday survey, conducted in September, showed 40% of the 3,429 respondents planned to buy more gifts than usual because of COVID-19. The goal is to bring joy to their loved ones, but it’s possible that many people may buy gifts to help them feel less guilty about not being with their loved ones during the holidays.
This dynamic is called “guilt giving.”
“Guilt is a weird thing that crops up for all kinds of people in all kinds of ways, explains Kathryn Summers, a psychotherapist in Durham, N.C. “Any time people feel out of control or things feel kind of chaotic or scary, some people have a response where they just feel responsible for it and therefore guilty.”
Summers said people don’t usually consciously decide to spend or do more to relieve their guilt; it’s usually unconscious.
“You don't actually know that's why you're spending more than you usually would,” she said. “It’s more like, ‘It would feel good to me if I buy you something extra special.’”
Being too generous could put strain on your finances.
“What makes me most nervous is just the amount of people out there that want to show people how much they love and appreciate [their loved ones], but not feeling like they're in a position to do so,” says Scott Henderson, an accredited financial counselor (AFC®) and founder of Simplifinances.
Henderson said it typically takes people about nine months to pay off their holiday spending, and that this may be even more pronounced this year.
“I think we’ll see an increased number of people who may be spending money they don’t have to buy gifts for people to try to make the holidays the best they can be, because it has been a hard year,” he said.
The extra spending may seem small in comparison, but Henderson says it can end up costing a lot.
“It can become a vicious cycle for a lot of people where it's really, really hard to get out of once that credit card balance is accumulating,” he said. “And you go a month and you can't make the payment so you start paying interest. Interest can be crippling for a lot of people.”
Henderson also warns people about “revenge spending,” which happens when people try to rationalize the fact they haven’t been able to do or spend what they wanted to this year.
“The holidays are kind of like this, ‘I'm just going to blow it. I'm just going to revenge spend and I'm just going to buy whatever I want for whoever I want right now because I deserve it,’” he said, adding that he thinks it’s a common mentality.
But it’s a mentality that can have serious consequences.
“It's maybe not $100 that you spend on a gift in December, but maybe you're carrying a balance over from November, and because you've now added a bunch of unexpected expenses, you now have an even higher balance in January that you're stressed about and you can't pay off,” Henderson said.
He points out that a person in this situation ends up paying more than that initial $100 because of interest, and that’s on top of the balance from November that wasn’t paid off.
“It just kind of turns into this downward spiral,” he said.
How do you balance both your budget and your giving spirit?
First and foremost, Henderson recommends making a budget and figuring out how much you can afford to spend.
“You just need to understand what you're capable of doing this year within your limits,” he said. “And maybe if it's not spending as much money, maybe it's more of what gifts, could you give as a service if you don’t have the money.”
For instance, helping with a home improvement project or talking on the phone are ways to show love and generosity without spending money.
It’s also important to dig a bit deeper about why you’re giving the gift, especially if the gift is out of the norm for you.
“Within a relationship, there's a history of gift giving,” Summers said. “Whether it's a friendship or an intimate partnership, or a family, there tends to be context of this is how we tend to exchange gifts.”
She said an example of out-of-the-norm gift giving could mean that you normally give your friends cute coffee mugs, but then you suddenly give them $200 pajamas.
“If the gift comes and it’s way out of that typical context, it might cause some confusion,” she said.
To reduce that confusion, Summers recommends acknowledging that the gift is different than in years past, and explaining why.
“‘I know this isn't typically what we do, but I'm sending this to you because you were on my heart and mind this year, and I want you to know how important you are to me even though we're separated,’” she offered as an example of how to have this discussion.
Being aware of your own motivations is the key to avoiding guilt gifting.
“What am I looking for? Am I looking for a specific response from the other person, or am I doing it because it feels good to me to give?” Summers says to ask yourself. “If you're looking for a specific response from the other person, you're setting yourself up for failure because we can't predict how other people’s responses are going to go.”
Summers and Henderson suggest asking yourself a few questions about why you want to give a gift, especially an extravagant one.
Summers also reminds us that gift giving this year can serve another purpose.
“Maybe it's not always based in guilt,” she said. “But maybe because we can't connect in person, we’re trying to find other ways to connect, and so maybe gift giving this year is more important, not necessarily out of guilt but just as a desire to connect.”
Tiffani Sherman is a Florida-based freelance reporter with more than 25 years of experience writing about finance, health, travel and other topics.