Where is Your Money Going?

I often talk about the importance of getting a handle on cash flow, which is the income you have coming in and where it goes. Getting a handle on your cash flow is the foundation of taking control of your finances.

The image below shows how there are different things that will compete for your income each month (or pay period).  Do you have structure around how your income is getting allocated and is it marching you toward your financial goals?


On the left side of the image you’ll see part of your income will go into typical monthly expenses like housing, food, transportation.  Some of these expenses will be fixed and some you will have control over.  The next bucket is Taxes, which are usually everyone’s least favorite place to distribute their income to.

Next, you may have a couple of financial goals that you are heading towards.  Some examples include Retirement, planning for a child’s College Education, purchasing Real Estate (whether it is a new personal residence or investment property), or generating a stream of passive income.  Each goal will have a cost to it.  For example, if you want to retire with assets that can generate $100,000 a year in income you may have to save $10,000 a year into a retirement fund from ages 25 to 60.

The last two buckets on the image relate to preparing for a catastrophe.  One way to do this is having an Emergency fund to ensure there is enough liquidity with your assets so that you can withstand things like a medical emergency, job loss, or a large home maintenance cost.  The Paycheck Protection bucket represents having insurance in place should your paycheck go away because of death or disability.

Everyone will have different buckets on where they want their money to go.  The approach I like to take is to first determine what it costs to fund each bucket.  Then look at the income being generated and determine if it is enough to fully fund all of the buckets.  If it is enough to fund everything that’s great.  The final step is to execute and ensure that each month your income is getting allocated to the proper place.  The more of the allocation you can automate the better.  If your income is not enough to fully fund everything the next step would be to prioritize the buckets to ensure the most important ones are getting funded and put together a plan on the ones that cannot be fully funded.

How a Clinton or Trump Presidency could affect the Economy

By Anthony Rubinich

In American History, there has surely never been an election quite like this. Between Hillary Clinton and Donald Trump, I wish I could say that the stakes weren’t high. Unfortunately, this is a very important election. The winner of the election will inherit a $19 trillion debt. Never before in the history of this country has there been such a gap between rich and poor. Not to mention depreciating race relations and the threat of radical Islamic terrorism. Don’t be mistaken, this is a very important election for the future of our country. The purpose of this article is to elaborate on how a Trump or Clinton administration could affect the stock market.


Major issues surrounding the 2016 race include taxes, debt, illegal immigration, and infrastructure. As always, the state of the economy will be a hot-topic, but ironically, this is the issue politicians have the least control over. Some sources say there will be a recession no matter what.   And neither candidate is attractive from a Wall Street perspective.


Urban Legends

There are many preconceived notions about how the government and the stock market work. One urban legend circulating around is that a divided government is good for the market because each party is neutralized, allowing stocks to flourish. This is false. “In the two years following an election, Standard & Poor’s 500-stock index gained 16.9%, on average, when one party controls the White House and both houses of Congress; 15.6% when one party controls both houses of Congress and the other party owns the White House; and just 5.5% when the House and Senate are divided,” says Anne Smith of Kiplinger. There is also a belief that Republican candidates are better for the market, even though stocks have historically performed better during Democratic Presidencies. Ultimately, in regards to your portfolio, it doesn’t matter who wins!

 “From the financial markets’ standpoint, the choice between Clinton and Trump is really a choice between the lesser of two evils,” says Bob Johnson, president and CEO of American College of Financial Services


What to Look Out For

It is true that elections affect markets. Stocks routinely rise and fall with the passing of each 4 election year cycle. Slowdowns, bear markets, and recessions typically begin during years one and two of a president’s first term. Since 1833, the Dow Jones Industrial Average has gained an average of 10.4% in the year before a presidential election. Adversely, the first and second years of a president’s term sees average gains of 2.5% and 4.2%.

Our advice to investors is to keep your portfolio and political beliefs separate. Your partisan beliefs will have an impact on your investments in ways you may not even imagine. Additionally, studies have found that people will trade aggressively or conservatively depending on whether or not their party is in power. “People’s positive sentiment when their party is in power leads them to think the world will deliver higher returns with lower risk,” says Santa Clara University professor Meir Statman. In other words, people can foolishly employ an aggressive investment strategy whether or not their Party of choice is helping or hurting the market.

Estate and Gift Tax Changes

Two federal tax plans that will be affected by this year’s election include the estate tax and the gift tax. An estate tax is a tax on the value of a deceased person’s inheritance before it is distributed to your descendants. The gift tax is a tax on the transfer of property by one individual to another. Trump has proposed to eliminate the estate and gift tax.

Here are Clinton’s estate tax proposals, courtesy of tax expert, Martin Shenkman. “Clinton’s proposal appears to include the following key changes: 1) $1 million gift tax exemption. This is a dramatic decrease from the current $5.45 million. 2) $3.5 million estate tax exemption. This is a dramatic decrease from the current $5.45 million. 3) Elimination of the inflation adjustment. This is significant in that over time, even the $3.5 million exemption would be substantially eroded by inflation. No longer will clients be able to assume that some or all of the growth in their net worth will be offset by a commensurate inflation increase in the exemption. 4) 45 percent rate increase from the 40 percent current rate.”

2016-07-20 14_53_35-Stock Market’s Enduring Record of Calling Presidential Races - Bloomberg

Stock Market “Ouija Board”

While the presidential race isn’t likely to predict the fate of the stock market, the stock market may predict the next President-elect. If stocks are up 3 months heading into the election, this generally favors the incumbent party. If stocks are down, the opposing party usually wins. In the past 22 presidential elections since 1928, 14 were proceeded by gains in 3 months prior. In 12 of those 14 instances, the incumbent won. In 7 of 8 elections proceeded by stock market losses, the opposing party claimed the White House. Examples from recent history. In 1992, despite overwhelming approval ratings, incumbent George H. W. Bush lost to Bill Clinton. The S&P Return that year was down 1.2% the three months before the election. The 1984 presidential race ended with Ronald Reagan crushing Walter Mondale.  That year, the S&P was up 1.9%.

The S&P 500 as a method for predicting Presidents has a success rate of roughly 87%. By analyzing the markets, the answer for who will become the 45th President of the United States could come as early as October 31st. As for investors, my advice is to be on the defensive no matter which candidate wins.

2016-06-13 10_48_50-Author Page - Word

The Next Generation of ETF Investing

By Cody Laska

In the age of “smart everything” from phones and watches to cars and even refrigerators, it would make sense for the financial service industry to offer a “smart” product of its own. Adding onto a design that has been around since the 1970s and conceived in 2003 is the Smart Beta ETF. Utilizing strict entrance criteria focused on mathematical calculations, the Smart Beta delivers the best of both of the traditional worlds.


The original two options for investors were: the passive index funds, which are entirely hands off and determine the weightings of the securities within them based on the equities’ market cap, or actively managed funds better known as mutual funds. While there are some advantages in both products and this is by no means a post telling you as an investor to liquidate all of your assets and load them into Smart Betas, they both have their faults.

As previously mentioned, passive index funds determine the weights of the securities within them based on the size of their market cap; this means larger companies or companies that are growing hold a larger share of the portfolio while the smaller companies hold a smaller share. In a vacuum, this strategy would make perfect sense as there is a reason for the larger companies being large as they must’ve performed better to reach their current size. However, in reality this can lead to something called a value drag. A value drag occurs when the companies that hold a majority of the weight in the portfolio become overvalued and the smaller companies become undervalued. This leads to a correction (when securities settle to their proper values) resulting in roughly a 2% loss. This type of strategy also completely ignores large companies that are stagnant and show no sign of growing as well as small companies that are poised to grow. The upside to passively managed index funds is that they have consistently outperformed the S&P 500.

The issue with actively managed funds is that humans are mistake prone, overwhelmingly mistake prone. This means that not every pick is going to be a winner and that there are going to be losing streaks a plenty. The objective is to beat the market and outperform the S&P 500 but that is very difficult to do especially during a bear market. Generally over the long term, actively managed funds fail to outperform the market or even their general benchmark. Plus the fees that they charge will take away from all the money they just made for you. But this style of fund brings a venture and prospecting ability to the table to pick unknown companies that are positioned for huge growth as well as the ability to remove companies that have hit their peak and show no sign of continuing to add to their success.

The optimal solution would be a style of fund that can deliver the above average returns without a fee and with minimal risk; this is where the Smart Beta ETF comes into play. Making up 1/5th of the ETF market and outperforming the S&P 500 through 5 full market cycles, the Smart Beta ETF delivers exactly what the modern investor is looking for. No one is the same and each one is positioned for a specific purpose with the most common being risk aversion. The mathematical formulas behind each one prevents value drags as each security contained within the ETF holds the optimal percentage size in the portfolio; preventing over and under valuation. In addition to this they are entirely transparent so the investor knows exactly where their money is going and what exactly they are betting on.

Like the other two traditional options, the Smart Beta is not without fault. Research is still required on the investors end so they can understand if the bets the mathematical formula has placed for them are actually the proper bets for their savings goal. Also as pointed out in a recent study by Bloomberg Business, Smart Betas are not immune to a problem similar to that of an actively managed fund. Often actively managed funds will set out with a specific criteria to maintain within the portfolio; for example a large-cap fund would contain all large caps and small-cap fund would contain all small caps. However, as time progresses and the manager realizes that they can make more money in the shorter term in a different way than they began, they change the style of what is in the portfolio. This is called a style drift and even with the mathematical formulas in place right now, it cannot be avoided in Smart Betas. But when compared to an actively managed fund this is not a huge issue. When an actively managed fund style drifts it can have a dramatic impact on the performance of the fund because the manager is essentially making a massive decision on the direction of the portfolio based on a short term hunch. But when a Smart Beta style drifts, it does not change the portfolio’s performance rather just what is within the portfolio. As described by one BlackRock analyst “As long as the portfolio performs as titled it doesn’t matter. If it says it will deliver 15-20% less risk than a normal fund, and it still delivers 15-20% risk, there is no issue.”

While it may be referred to as “the next generation of investment tools” the idea of a Smart Beta ETF has been around for years. With increasing popularity it is finally getting the respect it deserves as the best of both worlds. While it may not be ready to be the core of your portfolio just yet, it makes a wonderful tactical enhancement.

Cody Bio

Paradise Lost: The Puerto Rican Debt Crisis

By Anthony Rubinich

On July 4th 1776, the American colonies declared independence from Great Britain. In 2016, the island territory of Puerto Rico is fighting for a different kind of independence. As the Revolutionary War was fought with bayonets and muskets, Puerto Rico’s fight for financial independence is being fought with words and money. Unfortunately, this a fight that our island neighbor is losing.

El Morro Fortress, San Juan, Puerto Rico

On June 30th, the Senate passed a bill to help the Puerto Rico government manage its insurmountable amount of debt. The Puerto Rico Oversight, Management, and Economic Stability Act, or PROMESA, passed through the Senate by a vote of 68 to 30. Though President Obama signed PROMESA with no hesitation, the island’s long, arduous rehabilitation process has only just begun. It will take decades of effective governance to get Puerto Rico back on track.

So how did it happen? How did Puerto Rico dig itself a $70 billion hole it can’t get out of? It didn’t just happen overnight.

The PR has been a territory of the United States since 1952. As a territory, Puerto Rico receives assistance, but it doesn’t have the sovereignty of a state. While it has had the benefits of being a US territory, the PR has not had a legitimate economy since the early 1970’s.

Corporate tax breaks designed to spur the economy expired in 2006. As a result, manufacturing and other businesses left the island. Since 2006, the government borrowed money by issuing municipal bonds to compensate for decreasing revenue and prevent mass layoffs. The collapse of the housing market in 2007 also hurt the Commonwealth’s economy. As more and more businesses left the island, the PR responded by borrowing more and more money, not just from the U.S. government, but from U.S. investors. Mutual funds have looked to bonds issued by the PR government to find high yielding offerings during a period of discounted interest rates.

The struggling economy led many people to leave the island. Between 2010 and 2013, roughly 144,400 residents emigrated in search of better paying jobs. “A mass exodus of workers, retirees and entire families has shrunk the PR’s population by more than 9%,” says Wall Street Journal reporter, Nick Tamiraos.

The government has closed nearly 10% of schools for defaulting on their payments. With nurses and doctors leaving the PR, hospitals are closing their doors as well. “The strains on public health infrastructure have made it more difficult for the island to combat an outbreak of the Zika virus,” says Daniel Marans, reporter for the Huffington Post. Hospitals that could not pay their electric bills got their power turned off. There are even stories of hospital staffs rushing to finish surgeries on time before power lines were cut.

With a colossal debt, shrinking workforce, and inefficient cash –flow, it was only a matter of time before the island would become insolvent. In a press conference almost a year ago, Governor Garcia Padilla admitted, “The debt is not payable.”

“For me it is difficult to understand that people are questioning how severe the financial crisis is,” says José Javier Colon, University of Puerto Rico


On July 1st, the PR government defaulted on two huge bond payments. The first time since 1933 that a state or territory has failed to pay its general obligation bonds on time. Currently, Puerto Rico’s debt stands at $73 billion. That’s more debt than Detroit incurred when the city declared bankruptcy in 2013. A large portion of the PR’s debt has been absorbed by vulture funds. These “vultures” are hedge funds who buy debt from companies, countries, and individuals who have become insolvent. These hedge funds have made a killing off Puerto Rico’s fall from grace.  A similar episode occurred in 2001 with debt issued by Argentina


So why doesn’t the island just declare bankruptcy like Detroit?

Loopholes and caveats in the legal system have effectively blackballed the PR. As a commonwealth of the United States, Puerto Rico cannot declare bankruptcy or restructure its debt without congressional approval. Furthermore, the same hedge funds that are profiting from the commonwealth’s demise have lobbied against sending relief and granting bankruptcy powers to the island.

How will Puerto Rico’s debt crisis effect the rest of the United States?

General consensus is that the PR is of no immediate economic danger to the rest of the US. The biggest threat the debt crisis poses is the vulnerability of individual investors, mutual funds, and other financial institutions who have invested in the territory’s municipal bonds.

In the face of economic disasters or political events around the world, there is a tendency for people to want to care about America first and no one else. Everyone is entitled to their opinion, but Puerto Rico is not some distant land or a mere tourist attraction, it is an island with its own people and culture right in our own backyard.

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The Four Roles I Play as a Financial Advisor

When you are in college and thinking about different career paths, the possibilities can seem endless. Sometimes, this endlessness can be overwhelming to think about because by choosing one path, it can feel like you’re shutting out another and the opportunities it could have brought. When I was in college, I thought I would like to become a high school teacher and athletic coach. I enjoyed tutoring other students and liked playing competitive sports. These two paths seemed like they could mesh together as a possible career choice, but I also had another passion: finance. Reading about rock star traders who knew how to play the markets inspired me.  I thought going into finance could allow me to pursue what I love and satisfy that competitive streak, even if I wouldn’t be involved in coaching sports. I ended up choosing the financial path that eventually led to me becoming a financial advisor.  At first, I thought like most people do, that as an advisor I would only be managing people’s investment portfolios. But in my position as a financial advisor, I actually find myself in multiple roles I love.


When clients come to me, they come to learn about the financial industry and the strategies that will work best for them. A big part of what I do is educating clients about DSC_8980all of their available options and the short and long-term effects of taking each of those options. In our discussions, I take the complex information I’ve learned through my own education and hands-on experience and present it to clients in a way they can understand and feel confident in making decisions.


If a teacher’s job is to help their student understand a topic, a coach’s job is to motivate the student to use the information they’ve learned.  I help clients determine what their specific financial goals are and what steps they need to take to achieve those goals.  Examples of the goals I’ve helped people achieve include not running out of money in retirement, saving for their children’s college education, or obtaining financial freedom by generating enough passive income from their investments.  Reaching these kinds of goals requires a plan, which is part education, part motivation, and part discipline.


I don’t just create strategies and a plan for clients, then turn them loose to try to achieve their goals and manage their own investments. I stay with my clients every step of the way and help keep them on track. Things change throughout life and when they do it is important to have someone there who can help you adjust.  I’m there to guide and advise the client, which brings me to my final role,


As an investment advisor, I’m at the helm of each client’s portfolio. In this role, a client might count on me to minimize the fluctuations with their investment returns or analyze a set of real estate properties to determine which could be the most profitable to add to their portfolio. Every client has unique needs and as markets fluctuate and outside circumstances put new and different pressures on their portfolios, it’s my job to adjust the sails and keep each client on course.

What I provide to my clients goes beyond a service. We build relationships, and that’s what I love most about being a financial advisor. These relationships give me the opportunity to experience a little bit of each of the career paths I considered, letting me do everything I’ve always wanted to do by helping my clients achieve their dreams.

Brexit: The Index Case

By Anthony Rubinich

On June 23rd, 2016, the British people voted to leave the European Union, the first time in EU history. While to the casual listener this would appear as a seemingly innocuous event, the decision has global economic and social implications. Within hours of the announcement, stock prices plummeted and international markets were sent into a frenzy. The exact story line and the events that led up to the referendum fit the description of a high-octane, political drama. The purpose of this report is to reveal exactly what happened that led to the Brexit referendum and comment on its effect on the US economy.

Union Jack

The European Union was created in 1957 and has grown to include over 20 countries. The EU’s goal was to provide a means of diplomacy in order to prevent an event like World War II from happening again. While England has been a member since 1973, the UK has consistently tried to distance itself from the Union. For instance, Brits have insisted on using the pound and not the EU regulated Euro. For almost fifty years, Brexiters were defeated referendum after referendum. However, the late 2000’s would change all that.

The first 16 years of the 21st Century would prove to be a trying time for England, and the world. In 2009, several countries in the EU defaulted, sparking the European Debt Crisis. As a result, stronger countries had to bear the weight of weaker ones. England was one of them, not to mention the cost of England’s membership in the EU was growing exponentially. According to Open Europe, EU regulations set the U.K. back 33.3 billion pounds, nearly $50 billion.

In addition to economic stress, the Syrian Refugee Crisis would also test the UK’s patience. In response to the Syrian Civil War, Syrians began an Exodus-like movement into the European countries.  The mass-immigration of refugees to England resulted in health, education, and housing issues that leaders in Parliament refused to face.

Tensions brought on by immigration boiled over into 2016. On February 20th 2016, Prime Minister David Cameron announced that a Brexit referendum will take place on June 23rd.

June 23rd 2016

The polls closed at 10 pm London time. Five hours later, the announcement was made that the U.K. was leaving the European Union. Even proponents of Brexit were shocked by the results. 52% of Brits voted to leave the Union, even though 75% of young people voted to stay. Without warning, international markets were in tumult. The pound plunged to its lowest level since 1985. Following the declaration, David Cameron announced that he would resign as Prime Minister.

How the UK voted (2)


The effect Brexit will have on the US economy is hard to predict. So far, markets and funds on our side of the Atlantic have reacted normally. Our advice to investors is to know your risk, assess liquid reserves, and stay alert for tax saving opportunities. It is important to balance your portfolio and shoot for a long-term growth strategy. Furthermore, it is best to stay away from foreign markets, just for now. Non-US equity is still a good bet but always maintain a 3-5 year view and hold out for the eventual recovery.

Pound vs Euro after Brexit (2)

What happens next? Before Brexit, the U.K. had one of the top five best economies. With the pound suffering its worst one day drop in history, the international market has become very volatile. The referendum sets a dangerous precedent for other Eurosceptic nations such as France, Spain, and Greece. Should the EU dissolve altogether, diplomatic relations will resemble that of pre-WWII Europe. Without the Union, Eastern countries Lithuania, Belarus, and Poland may be susceptible to a Russian invasion, similar to what happened in the Ukraine.  The effect Brexit has on the US is largely unknown. The pounds plunge could have an inverse effect on the value of the US dollar, but it doesn’t necessarily mean the US will become an economic safe haven.

2016-06-13 10_48_50-Author Page - Word

The Tenets of Ethical Investing

By Anthony Rubinich

The opening to the 21st Century has been wrought with one huge corporate scandal after another. From Enron to Madoff, it appears as though good faith and ethical values are hard to come by in a world of suits. However, in light of these scandals, many people have taken to a new stratagem of investing that hopes to generate both high financial returns and progressive changes. According to the Forum for Sustainable and Responsible Investing, “sustainable, responsible and impact (SRI) investing is an investment discipline that considers environmental, social, and corporate governance to generate long-term and competitive financial returns and positive societal impact.” Social responsibility investing or “green” investing offers an alternative to investors who want to see their money be put to good use.

businessman hand touch virtual chart business

Recent data suggests that “green investing” is becoming more and more popular. In 2013, $6.57 trillion in total assets were generated using SRI investments. Between 2012 and 2014, SRI practices grew at a rate of 76%. Moreover, SRI investing has become noticeably popular among mutual funds. The number of mutual funds that practiced green investing rose from 333 to 456. In addition, their collective assets increased from $641 billion to $1.93 trillion. In percentiles, an increase of over 260%.

Historically, SRI funds have been involved with three categories of issues: (E) environmental, (S) social, and (G) governance. Some environmental topics that ESG funds try to take on include climate change, pollution, energy efficiency, and deforestation. Other firms try and set above average social standards by taking into account diversity, human rights, labor standards, and corporate-community relations. Lastly, governance is the act of managing or controlling. Issues that firms have dealt with relating to governance include:  board member composition, corruption, and lobbying activities.

Individuals may choose to invest in a mutual fund whose primary interest is finding companies with good labor and environmental practices. Hospitals and Medical schools will refuse to invest in tobacco or alcohol companies. Religious institutions may not invest in companies whose actions go against their beliefs like stem cell research. Venture capitalists may only work with companies that comply with above-average labor standards or seek to help the environment in one way or another.

One SRI mutual fund is the Appleseed Fund. Launched in 2006, Appleseed seeks to invest in companies that are conscious of their environmental and societal impact.The fund will not invest in companies that derive substantial revenues from tobacco, alcohol, pornography, gambling, or weapons industries. Appleseed will also consider a company’s performance with respect to environmental responsibility, labor standards, and human rights.

Here is a link to their website:


The rationale behind green investing has developed from age-old ethical beliefs. Speaking as student from a Jesuit University, I’ve been beat over the head with philosophy and ethics. Everything from Socrates to Kant, and from Hobbes to John Stuart Mill. While I may not have enjoyed taking these classes, it’s interesting to see the ethical concepts we studied emerge in everyday life.

The very concept of green investing directly correlates to corporate social responsibility. CSR- the steps a company takes to assess and regulate its effect on the environment and social well-being. For those who practice the CSR there is a triple bottom line:

  • Planet
  • People
  • Profit

“The obligation to work for social betterment is the essence of the notion of corporate social responsibility,” says modern day ethicist, William C. Frederick.


Still, no practice comes without flaw, and social responsibility investing is no exception. Here are its pros and cons. Pros. Green Investing allows environmentalists, political activists and health advocates a chance to talk with their money. By investing in companies that are congruent with your beliefs, you are in layman’s terms, “putting your money where your mouth is.”  In addition, you are rewarding, shall we say, “right-minded” companies.

The cons. Your investing in a company that promotes clean environment protocols may not result in a high return rate.  There is little evidence to suggest that “responsible” firms produce high rewards. By choosing a green fund, you could very well be denying a good, high reward investment. In addition, SRI funds have historically under-performed their contemporaries. Furthermore, how do you measure someone’s ethics? The crux is that companies may appear socially responsible, but may turn the other cheek when the spotlights off.

Morningstar’s Sustainability Rating System can be used to evaluate how well a company is managing there ESG factors. To evaluate companies, Morningstar utilizes an intricate rating system that rates companies on a scale of 1 to 5 stars. The bottom 10% of companies receive 1 star, while the top 10% receive 5.

An example of a fund with a five star rating is Janus Enterprise Fund Class I (JMGRX). Janus prides itself on addressing ESG-related issues, in particular energy efficiency. Janus encourages their clients to invest in a strategy that appeals to their personal beliefs. Perhaps Janus’ most attractive facet is its consideration of global affairs and recognition of socio-economic trends. On the other side of the coin, T. Rowe Price New America Growth Fund Advisor Class (PAWAX) was given a rating of one star.

Social responsibility investing is a sustainable investment strategy that adheres to the tenets of ethical thinking. The practice is concurrent with corporate social responsibility. However, it begs the question, how altruistic can a company be? Some corporations struggle when they have to choose between making a profit and doing the right thing.

Furthermore, how altruistic can you be with your money? Are you investing to make a profit or to help society? History has shown us time and time again that investors, entrepreneurs, and inventors could combine their materialistic desires with good faith. With all the controversies and seemingly lack of ethics on Wall Street, rewarding companies that “follow the rules” should be of the utmost importance.

2016-06-13 10_48_50-Author Page - Word

The Rent-or-Buy Debate

Over the last couple years, there has been much discussion on whether it’s smarter to rent or buy a home. For generations, owning a home was a sign of success, a trophy. That changed when the housing bubble burst in 2007, sparking the Recession. From that moment on, the façade of success and financial stability associated with owning a home was broken.

House of paper in hand
As of late, renters account for 37% of American households, the highest since the 60’s. Evidence suggests that renting is a popular trend amongst young people. 51% of American renters are under 30 years old. New Jersey alone has just over 1 million people living in apartments. In addition, more people are staying and raising families in apartments than ever before. Yet, one shouldn’t jump to conclusions. People still need to recognize the benefits of the two.

19th Century German Astrologer, Johannes Kepler once wrote, “Nature loves simplicity and unity.” The web developers at the New York Times attempt to appeal to these same loves, particularly simplicity. The Times website employs a complex, user friendly interface that essentially serves as a “rent/buy calculator.” In this article, I’m going to show you how to interpret it.

Before we start, let’s weigh all the pros and cons of both renting and buying. The pros for renting. Renting is more affordable. When you rent you’re not held responsible for any cleaning or maintenance duties. In addition, renting allows you to save up for other things. The cons. You don’t have much control over your living space. If you own a home, you can make any additions whenever and wherever you want. Also, your rent can go up every month. Furthermore, you also can’t build equity, which we will go over shortly.

With buying a home comes the freedom to make any additions you want. Owning a home and paying bills on time can help you establish good credit which can get you a sound interest rate. As implied before, home ownership gives you the opportunity to build equity. Equity is the amount of your home that you actually own. You can increase your equity by updating kitchens and bathrooms, decreasing debt, and increasing property prices.

The cons. When you own a home, as many of us know, you are a responsible for the maintenance and cleaning. Owning a home also makes it harder to just pick up and move whenever need be. Before you buy a home, it is important that you are financially viable or have “skin in the game.” To be financially stable, you have to at least be able to pay 20% for a down payment on your property.

Now onto the New York Times:

1) The Home Price
The sales price of your desired property will vary due to a plethora of factors, including but not limited to the surrounding area, crime rates, and even the cleanliness of your neighbors. As they say in real estate, “location, location, location.” For this category, suppose we use the average housing price of the area I grew up in, Essex County. Plug in $377,000 and 20% for the down payment.

2) How Long You Will Be Staying
It’s important to note that if you plan on staying for only a short time, renting is the better option. Renting will give you the freedom to move whenever need be. However, for our example, suppose you are looking to stay 10 years.

3) Mortgage Rate
The mortgage rate is defined as the rate of interest charged on a mortgage as determined by a lender. For our example, we’ll use an average mortgage rate of 3.7.

4) Length of Mortgage
This is the time in which you plan to pay off your mortgage. We’ll use a 30 year mortgage plan because they are the most popular. Remember, the longer the mortgage, the smaller the payments due.

5) Growth Rates and ROI
The home price growth rate is used to measure any increase in value in your home. Historically, home price growth rates have hovered around 3%. So let’s use that. In addition, rent growth rates measure the amount your rent increases annually. If put in layman’s terms, the longer you stay, the higher your rent becomes. Rent growth rates typically hover around the rate of inflation, for our example use 2.5%.

The “Return on Investment” or ROI is a performance measure used to evaluate the efficiency of an investment. For this, suppose our scenario resulted in a ROI of 4%. And finally, let’s give a ball park number of 2% to inflation rate.

6) New Jersey Taxes
Unfortunately, New Jersey has some of the highest property tax rates in the country. In 2015, it was discovered that 48% of state and local revenues came from property taxes alone. 48%! Property taxes in Essex County are among the highest in the state. For our example, enter 2.51%. Moving on, the other tax rate mentioned is the marginal tax. The marginal tax rate puts you into tax brackets based on every dollar of income you make. Let’s assume your successful career has put you in the 25% tax bracket.

2016 tax brackets

7) For closing costs, keep the 4% for the cost of buying a home and the 6% for the cost of selling a home

8) For Maintenance fees, plug in 1% for maintenance, .46% for homeowners insurance, $350 for monthly utilities, Common fees – $0

9) The Security Deposit
A security deposit is the amount of money a renter pays to his or her landlord that can be used if the renter causes any damage to the property. The standard security deposit is typically one month.

10) Broker’s Fee
This is the fee charged by an agent to facilitate the transactions between buyers and sellers. To simplify our scenario, let’s say we don’t have any broker’s fees.

11) Renters Insurance
Renter’s Insurance covers you and your personal belongings should the worst happen. Accidents, burglaries, explosions, vandalism and fires are all covered under renters insurance. It is worthwhile to note that the average renter is 25% more likely to be burglarized than a homeowner. For this last slot, type 2.51%

After all this information is plugged in, it should yield an average renting cost of $1,700 per month for this particular piece of property. There will be a phrase that reads, “If you can rent a similar home for less than … (said price) … then renting is better.” In other words, if you can find a property similar to the home you’re considering and its renting cost is cheaper, then renting is more economical. On the other side of the coin, if a similar property cost more than the given price to rent, you should probably just buy it.

In essence,
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*Reminder that this inequality is relegated to our example and should not be used as a universal measure.

Deciding whether to rent or buy depends on a variety of factors: whether you’re single, married with children, how much money you have on hand, the area you want to live, your job security, your property of interest, the school system your children will grow up in, savings goals, as well as your willingness to take chances. These are all questions that should be answered before making any serious financial decision. With the math behind renting and buying constantly changing, it is most important to answer these questions first. After that, your course of action should be clear.

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Financial Tips for College Grads

As part of my internship, I was asked to write an article about how newly college grads should spend their money. While I’m only half way through college, I like to think I have matured in many ways since high school. While many people can say they had the “time of their life” in high school and college, I realize that finding success and happiness after college is just as if not more important.

Moving forward, here are 6 pieces of advice I can give to my fellow colleagues and millennials:

1) Be frugal

There is a saying: “live below your means.” For the first time, you are working a job that pays well above minimum wage. Don’t blow your first paycheck on fancy clothes and other ridiculous accessories. Also, going “out” every night could become a costly hobby. Instead, make a budget and stick to it. For example, learning to cook is good for the soul and it will keep you from having to buy lunch and dinner every day. Pickup different hobbies such as reading or playing a musical instrument or whatever. As for the weekends, it’s okay to have fun but remember, you’re an adult.

2) Maintain Your Credit Score

Maintain your credit score like your most prized possession. Be sure to pay bills on time. Banks and credit card companies will use your credit score to measure any risk in lending you money. They can also use your credit score to see whether or not you qualify for a loan, the interest rate on that loan, and the credit limits. Bad credit can not only make it difficult to get a loan, but it can also turnoff future employers.

Woman watering the money trees outdoors

3) Get Health Insurance

When you graduate from college you are sanguine, happy, and you believe you’re impervious to human illness. Don’t be mistaken, you are not. Illnesses, accidents do happen and medical bills can get very expensive. Under Obamacare, you can be insured as a dependent on your parent’s plan if you’re under 26. The exception is: if you can get health insurance through your own job. If you don’t have a job that offers health insurance, it behooves you to find a short term policy.

4) Manage your Debt

In Greek mythology, Sisyphus was punished by the Gods for his trickery and dishonest ways. In the afterlife, he is forced to push a huge boulder up a hill, only to watch it roll back down and have to walk all the way back and do it again, for eternity. Metaphorically speaking, this could be you in twenty years. If you don’t pay off your student loans quickly and on time, it could feel like a seemingly endless struggle.

Due to rising tuition rates, families are borrowing more and more money to pay for college. The seemingly exponential increase in tuition costs is a result of a plethora of factors: including increases in faculty salaries and facility expenses. Unfortunately, as of 2016, the average student loan debt is nearly $40,000. It sounds over simplified but treat your debt like an extra mortgage. Paying $500-$700 a month instead of $100-$300 could be the difference between repaying your loans in five years versus five decades. Don’t put it off!

5) Save for Retirement

“I enjoy waking up and not having to go to work, so I do it 3 or four times a day,” Says comedian, screenwriter Gene Perret. Uncanny as it sounds, the best time to start saving for retirement is when you first start working as a newly college grad. It’s a lifetime away, but your future self will be happy that you did it. When you find a job, look to establish a 401K. Your basic 401(k) is an employer-sponsored retirement plan that allows you to save and invest a portion of your paycheck before taxes are taken out. When an employer offers a match, they are matching your contributions, often up to a certain percentage of your income. There is another account you can setup, a Roth IRA. When differentiating between these two accounts, think about it in terms of Pre-Tax (traditional 401K) and post-tax (Roth IRA). A Roth IRA is an individual retirement account allowing you to invest up to $5,500 a year. These accounts are ideal for young investors who can benefit from decades of tax-free compounded savings.

6) Automate Your Checking Account

Furthermore, if you are one that really struggles to pay the bills, it may benefit you to automate your checking account. This of course depends entirely on when and how you get paid. If you get paid once a month, you can automate your checking account so that as soon as money is deposited there, set fractions will be sent to your Roth IRA, 401K, and any other accounts you setup. Financial Advisors and clients alike love this!

Money can’t buy happiness, but it makes things easier. Learning to manage your finances is among the first steps to adulthood. So be smart, wise, and frugal. And whenever you feel like giving up, remember Sisyphus!

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Last Chance To Take Advantage Of These Social Security Claiming Strategies Before They Are Gone

As part of the Budget Act of 2015,  two popular Social Security claiming strategies, “File and Suspend” and “Claim Now, Claim More Later”, will not longer be allowed. For anyone who is 66 or older they have until April 29, 2016 to decide if they would like to utilize one of the two strategies.
File and Suspend allows someone at their full retirement age (currently 66) to file for his or her own benefits and then immediately suspend those benefits.  That action triggers benefits for a spouse or other eligible family member while the worker’s own benefit continues to grow.  It also creates an option to collect a lump sum payout of suspended benefits.

The second strategy is often called “Claim Now, Claim More Later”, and it allows a spouse or qualified divorce spouse to claim only spousal benefits at full retirement age – worth up to half of their spouses benefit amount – while their own retirement benefit continues to grow to the maximum amount at age 70.

Utilizing these strategies may allow you to collect tens of thousands of dollars of additional social security income than you would have collected without them.

There is a phase-in timetable based on birth dates that determines who will be able to use these strategies and for how much longer, but anyone who is 66 or older who files after April 29, 2016 will not be able to use them.  If someone is already collecting social security benefits the changes will not impact them.