Advantages Of ETFs

Exchange traded funds better known as ETFs have been a part of the investment market for many years. So it is quite evident that their popularity is continuing and is also increasing. Mentioned below are some of the advantages of ETFs.

  • Cost Efficient:

There will a single transaction that will be conducted per trade and hence the commissions are much lower on ETFs as compared to an index that needs various stocks along with multiple trades. Load fees are also not present. The managing fees of ETFs are lower in comparison to the regular mutual funds. ETFs are not expensive to buy, sell as well as own. On an average the cost involved in ETFs investing is 75% less than the cost of mutual fund investment. A transaction fee to buy ETFs is there. But the extra costs such as sales loads, exit fees, distribution fees, commissions, annual marketing fees along with early withdrawal penalty that is associated with mutual funds are not applicable to ETFs.

  • Tax Benefits:

Capital gains take place when a security is sold off at a high price compared to its purchase price. Since ETFs have a very passive investing approach, there lie less security turnovers in an ETF. As a result of this capital gains along with its potential for lower distribution at the year-end are triggered not so frequently. The taxes of capital gains for ETFs are much lower than for any traditional mutual fund because of each trade’s structure. If a gain is identified in everyday trade of mutual fund or in any index trade, taxes of capital gain will be incurred immediately. But with ETFs it is completely the opposite. No single capital gain is identified until selling of the assets occurs along with the total fund. Thus ETFs are considered as one such investment that is tax friendly. In case of any dividend ETFs, the pay-outs of actual dividend are differently treated and it will also create a tax benefit.

  • Diversification:

If you buy an ETF, you will be getting instant exposure to its following index. It will contain a huge number of securities. An ETF will give you exposure to a group of equity, market segment and style. It is capable of tracking a wide range of stocks or making an attempt of mimicking a country as well as group of countries returns. Mutual funds can also be diversified. But ETFs have lower fees and they trade similar to an equity investment. So it will act as an excellent way to achieve exposure to various asset classes that will be diversified.

  • Simple:

Investing in the shares of an individual company requires professional help. But active funds also need lots of research. You are never sure that how your manager is actually running the money. But ETFs have an aim of matching an index and thus they are known as straightforward investments. The structure of ETFs are simple and thus they can be easily understood other than intricate funds like leveraged as well as inverse ETFs. So if you wish to invest in a particular industry or emulate the rate of interest on any specific index or maybe underlying asset, you can start off with ETFs.

  • Transparent:

If you invest in ETFs you will have a proper understanding of whatever you will be buying. Most of the ETFs are seen to replicate their underlying indexes and hence their components are getting disclosed each trading day. But the traditional mutual funds will be revealing their total holdings once quarterly. Once you can find out what is actually present in your fund portfolio, you will be able to evaluate how well your fund manager is adhering to each and every objective as well as the fund’s style.

  • Variety:

ETFs offer choices that are inaccessible through mutual funds. It has been reported that at the end of the year 2015, almost 1600 ETFs were available in the US. Along with the equities, ETFs also offer various investments in commodities, fixed income, currency and international security. ETFs cover the US investing scene from different angles, thus making them one such investment tool that is very flexible. One can invest in ETFs by market capitalization as well as sector or even asset class. International ETFs are also available and they are hedged to the Canadian dollars. So no need to feel worried about any impact of changes in the currency exchange rate on the returns. With the help of this variety, investors will be able to make some targeted investments very easily and also attain a diversification level. This level of diversification will not only be time consuming but also costly to replicate by purchasing individual security.

So there are many advantages that will make you believe that you should include ETFs in the investment portfolio. ETFs will act as your ultimate investment tool among all the other solid investments.

Making A Personal Finance Plan

Stop making financial decisions based on fear and help you determine the order of your major life steps. Discover Where Your Money Goes Now. Set financial goals, Prepare for the unexpected with insurance. Keep an eye on your credit,start saving. Begin to build a portfolio. Keep track of your plan, Plan your exit strategies.

Benefits Of Home Equity Loan

Home equity loan will allow you to lend money for huge expenses or even aid you with debt consolidation. So as a responsible borrower who has a fixed and reliable source of income, a home equity loan will look like an excellent option. Mentioned below are some of its benefits.

  • Fixed Rate Of Interest:

Home equity loans usually come with fixed rate of interest. For the coming years of loan repayment, the rate of interest will stay fixed. So you can plan the loan repayment in a much better way when you will be paying it each month. A fixed rate of interest is much better than the variable one that keeps on changing with the economy’s as well as the lending company’s performance. In an environment of changing rate, a loan with a fixed rate of interest will offer simplicity in the budgeting. This is because the payments you will be making every month will remain constant over the life of that loan as well as not increase. So if the rate of interest rises, your payment will never get affected.

  • Low Rate Of Interest:

One of the biggest benefits of home equity loans is their low rates of interest. Any unsecured loan such as credit cards as well as personal loans are never backed up any anything. The lender only has some faith in you that you will repay the debts. This being a risky proposition, you need to pay a higher rate of interest. The rates of interest on the home equity loans are much lower than the personal loan’s rate or credit card’s rate of interest as your home will be used as the collateral. From a bank’s point of view, it is a strong guarantee that any borrower will be repaying the loan reliably. The bank basically assumes that the borrower will unlikely put his home at huge risk. A low rate of interest will aid in keeping the borrowing costs very low.

  • Large Amount:

Home equity loan is the easiest way to avail a large amount of money within a short time. Thus a fixed rate of home equity loan is excellent for those scenarios where the homeowner is exactly aware of what he is going to do with the loan. Home improvements, clearing of various debts, financing a child’s education can be included as the purpose of taking the loan. The amount you will borrow with any home equity loan will be provided in one large amount rather than you withdrawing the amount based on your needs. Thus you will have a flexibility to cover up large expenses. It is also repaid by making monthly payments that are fixed. Each payment will reduce the balance of the loan as well as cover up the cost of the interest on a very familiar amortization schedule.

  • Flexibility:

A home equity loan will offer the homeowners great flexibility when they will spend the money. There is no restriction on how you should use your money. Some loans need you to justify the plans for taking the money like putting up a business plan for availing a business loan. But you can use home equity loan however you want. You can begin a business, pay for your vacation, buy an investment or may be use it for any other purpose. Some of the reasons for making use of the home equity loan will be better than other loans. But once you apply for it and get it approved, you can use the large amount for anything you want.

  • Stability:

A large amount of home equity loan has stability. Thus homeowners prefer it. Home equity loans have a fixed rate of interest that never gets changed over the life of that loan. So once an individual takes a home equity loan, the money will be his. He will have to pay off the loan every month.

  • Tax Deduction:

Home equity loan is tax deductible. It is almost similar to the primary mortgage. As a result it is completely removed from any taxable income. The total tax expense liability is thus lowered. If you used the home equity loan for renovation of your home, then tax deduction will be there for all those monthly interests that you keep on paying on the loan. But there is a tighter limit on how much tax you can deduct if the borrowed funds are used for any other task rather than buying, building or improving a home. For more information you can consult a tax professional.

Home equity loan may appear to be a great financial move particularly in certain conditions. But you must think well before you opt for it. Compare each and every loan option starting from personal loans, credit cards to home equity loan, etc. and then take the loan that will best fulfill your requirements.

Benefits Of Rental Property Investment

Rental properties are bought or developed properly to earn income. These properties are considered as true business my many people. So if you are thinking of becoming a rental property owner then you must have a look at the below mentioned benefits.

·         Rental Income:

One of the biggest benefits of owning any rental property is the fact that renters will be providing you direct and steady source of income. The rent checks that will give you monthly will directly go in your account. This will be more than enough for offsetting expenses for that month. If you own a property that you have rented out for $1500 each month, then that house will give you $18000 each year when completely occupied. With rental property investment, partial results are also great. So if you rent your property for at least half of the year, then also you will be earning enough. Try to use your networking skills as well as time to get hold of better deals that will be providing you a much better and greater return. So by investing in a property that will be occupied by tenants you will be receiving rental income and it will become your passive source of income.

·         Appreciation Of Real Estate:

Individuals who invest in real estate can earn money with the help of cash flow as well as appreciation. Appreciation of real estate means an increase in the value of the invested property over time. So it simply means that when an investor will be generating steady cash flow from his rental property, more value will be added to the property. Thus by renting your property you can hold because if it appreciates you have the option of selling it off at the right time. The amount of the appreciation will vary according to the market. You can research the potential of the appreciation of various cities along with your neighbourhoods to find out what you can expect.

·         Tax Write-Offs:

If you are an owner of a rental property, then will receive great tax deductions. You can get rid of the interest on the mortgage and credit cards that you used to purchase the property. You can also write-off the insurance, any maintenance repair, travel expense as well as property taxes. Other than these deductions, depreciation of the purchase price of the property is also allowed on the basis if some depreciation schedule even if the property is appreciating well in value. So if you own of a rental property, you will get several tax benefits that will help you in mitigating all the risks as well as grow the returns.

  • Inflation:

Are you afraid of the term named inflation? But if you own a rental property, you should not. Real estate investment acts as a shield against inflation. As a result no property investor if affected negatively by inflation. If inflation occurs, any individual who own a real estate property can escalate the monthly rental charges. The value of the property will increase. If you plan to sell the property during inflation, you can also list it for a high price and earn profits in real estate markets that have less supply of the investment property.

  • Direct Management Of Investment:

Investors of rental properties will be solely responsible for my investment’s outcome. Before buying a property you should analyse it well. Ensure that the property is in proper condition for renting. You do not have to depend on anyone else to manage your investments directly as well as personally.

  • Huge Variety:

Rental properties will offer you a wide variety within asset class. As a rental property investor, you will be able to make investment in single-family houses, multifamily property, office buildings and many other options. You can also find larger, smaller and newer within each of these classes. So you will have endless possibilities as a rental estate investor.

  • High Security:

There are many people who shift temporarily for work and some inherits their family house as they do not wish to sell them off for sentimental issues. There are several reasons due to which individuals will find themselves with any empty property. Any vacant house is left open to vandalism as well as squatters. The maintenance issue also goes unnoticed. This can quickly lead to greater problems. It is really difficult to keep an eye on such a house where you no longer live. So renting such a property to tenants will give peace of mind. You will feel relaxed that the property is maintained well and taken care of.

Owning a rental property can benefit you financially as well as personally. Rental properties like any other real estate investments always come with risk. So becoming a rental property owner is a great commitment. But you need to handle it well and let this huge commitment bring great financial returns.

HELOC Or Home Equity Loan

Both the loans will make use of your home as the collateral, but HELOCs as well as home equity loans are different in terms of accessibility of loan funds along with repayments. Among these two types of home equity loans, understand well which one will be most suitable for your situation.

HELOC:

Equity line of credit will allow you to draw cash as you require it till your credit limit. HELOCs are adjustable loans in order to make your monthly payments changed along with the market. Often these loans will let you pay the interest only for some time. This can reduce your monthly payments till you are almost ready to clear off the principal payment. The interest on this loan in most cases is tax deductible for loan amounts till $100,000.

Who Will Be The Most Benefitted?

Individuals who require access to a huge amount of cash over a long period of time will be most benefitted by HELOC. During renovation of your home, you can periodically withdraw cash and pay contractors. HELOCs will provide with the flexibility of accessing cash, but not making any interest payment until you withdraw it.

Benefits And Risks:

  • HELOCs offer flexibility. You can withdraw the cash when you require it and then pay the interest on the used amount. But be clear that most of the lenders will require a least withdraw at closing.
  • HELOCs will have lower upfront charges than home equity loans. Some lenders will offer to pay for the closing costs.
  • The main drawback of HELOCs is that they make use of a variable rate of interest that is pegged to the prime rate of interest. It can become higher any year. So with HELOC your interest payments will increase. To qualify for HELOC you require a very good credit score.
  • Tax changes along with the rising rates are making the interest in HELOCs go down.
  • Customers prefer refinance to combine the existing first mortgage with a HELOC into a single loan.

Home Equity Loan:

It is the second mortgage that comes with a fixed rate of interest. You repay the interest along with the principal every month. The payment is usually received as a huge amount and you will not be able to withdraw extra money from this loan. The rate of interests of home equity loans is higher than that of the same amount of HELOCs because you are having the security of a fixed rate. The interest is generally tax deductible for loan amounts till $100,000.

Who Will Be The Most Benefitted?

If you want money for any one time event and also prefer security of the fixed rate loans will be the most benefitted. Home equity loan is a great option if you wish to keep the existing mortgage as well as prefer to get cash in a huge amount.

Benefits And Risks:

  • It has a fixed rate of interest for the loan term. This is one of the major benefits of a home equity loan in this current scenario of increasing interest rates.
  • With the help of home equity loan, you will be able to avail a huge amount upfront and continue with the same stable payment. Thus a home equity loan can be easily budgeted.
  • If you already have a mortgage, you need to keep track of the two separate loans and then make two different payments each month.
  • Like a regular mortgage, this loan also has the same kind of closing prices.
  • These costs will take their toll, if you are not ready to borrow so much money.
  • The rate that will be offered by the lenders for a home equity mostly depends on an individual’s credit score. So a credit score below 700 will make you pay a high rate in order to compensate for any risk that the bank feels while giving the loan.

Which One Will Be Right For You?

There lie both advantages along with disadvantages for both the loans. So make the right decision depending on your financial needs. In case of huge expense along with proper idea of exactly what it will charge you, you will be more benefitted by taking a home equity loan with fixed rate of interest as well as huge amount. Not only this, you will also be having greater certainty related to your repayment terms as well as overall cost of interest over the period of the loan. This will let you plan your budget in a precise way. So while planning to buy a rental property or any vacation home, home equity loan will act as a better plan.

If you get into a situation where you require direct access to cash, but not aware of how much exactly you need and for how long, then HELOC will be much better for you. By taking this benefit of higher flexibility that is provided by HELOCs, you will be able to borrow what you require as well as avoid paying interest on whatever you do not. So if your child is studying in a college, you will be able to borrow some money for tuition fees or even lodging. You can also avoid paying any interest on the borrowed money till the time you actually require it.

So now that you are well aware about both the loans, you can select either HELOC or home equity loan according to your financial requirements.