What Are Some Smart Ways to Refinance?

Recently, fixed mortgages were near their lowest rates in almost 30 years. And if you are one of the many people who took out mortgages in the few years prior to that, you may be wondering if you should look into refinancing.

If your mortgage was taken out within the past five years, it may be worthwhile to refinance if you can get financing that is at least one to two points lower than your current interest rate. You should plan on staying in the house long enough to pay off the loan transaction charges (points, title insurance, attorney’s fees, etc.).

A fixed-rate mortgage could be your best bet in a rising interest rate environment, if you plan to stay in the house for several years. An adjustable mortgage may suit you if you will be moving within a few years, but you need to ensure that you will be able to handle increasingly higher payments should interest rates rise.

One way to use mortgage refinancing to your advantage is to take out a new mortgage for the same duration as your old mortgage. The lower interest rate will result in lower monthly payments.

For example, if you took out a $150,000 30-year fixed-rate mortgage at 7.5 percent (including transaction charges), your monthly payment is now $1,049. Refinance at 6 percent with a 30-year fixed-rate mortgage of $150,000 (including transaction fees), and your payment will be $899 per month. That’s a savings of $150 per month, which you can then use to invest, add to your retirement fund, or do with it whatever you please.

Another option is to exchange your old mortgage for a shorter-term loan. Your 30-year fixed-rate payment on a $150,000 loan was $1,049 per month. If you refinance with a 15-year fixed mortgage for $150,000 — including transaction costs — at 6 percent, your monthly payment will be $1,266. This payment is only $217 more than your previous mortgage, but your home will be fully paid for several years sooner, for a savings of more than $150,000! And some banks around the country are beginning to offer 10- and 20-year mortgages.

Either way you look at it, it’s an attractive idea.

If you’re considering refinancing your mortgage, consult your financial professional and determine whether refinancing your home would be a good move for you.

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek advice from an independent professional ­advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2020 Broadridge Investor Communication Solutions, Inc.

What is Term Life Insurance?

Term life insurance is “pure” insurance. It offers protection only for a specific period of time. If you die within the time period defined in the policy, the insurance company will pay your beneficiaries the face value of your policy.

Term insurance differs from the permanent forms of life insurance, such as whole life, universal life, and variable universal life, which generally offer lifetime protection as long as premiums are kept current.  And unlike other types of life insurance, term insurance does not accumulate cash value. All the premiums paid are used to cover the cost of insurance protection, and you don’t receive a refund at the end of the policy period. The policy simply expires.

Term life insurance is often less expensive than permanent insurance, especially when you are younger. It may be appropriate if you want insurance only for a certain length of time, such as until your youngest child finishes college or you are able to afford a more permanent type of life insurance.

The main drawback associated with all types of term insurance is that premiums increase every time coverage is renewed. The reason is simple: As you grow older, your chances of dying increase. And as the likelihood of your death increases, the risk that the insurance company will have to pay a death benefit goes up. Unfortunately, term insurance can become too expensive right when you need it most — in your later years.

Several variations of term insurance do allow for level premiums throughout the duration of the contract. You may be able to obtain 5-, 10-, 20-, or even 30-year level term, or level term payable to age 65. An advantage of renewable term life insurance is that it is usually available without proof of insurability.

Life insurance can be used to achieve a variety of objectives. The cost and availability of the type of life insurance that is appropriate for you depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have contract limitations, fees, and charges, which can include mortality and expense charges.

 

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2018 Broadridge Investor Communication Solutions, Inc.

ETFs or Mutual Funds: What’s the Difference?

Mutual funds are still king of the investment world, but exchange-traded funds (ETFs) have become increasingly popular over the last few years. At the end of 2016, more than $2.5 trillion in assets were invested among over 1,700 ETFs. This is equivalent to about 15% of the assets invested in mutual funds. In 2006, ETF assets were equivalent to only about 4% of mutual fund assets.1

ETFs have some attractive features that set them apart from mutual funds, but there are also cost and risk factors to consider.

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Trading Flexibility

Like a mutual fund, an ETF is a portfolio of securities assembled by an investment company. Mutual funds are typically purchased from and sold back to the investment company and priced at the end of the trading day, with the price determined by the net asset value (NAV) of the underlying securities. By contrast, ETFs can be traded throughout the day on stock exchanges, like individual stocks, and the price may be higher or lower than the NAV because of supply and demand.

In relatively calm markets, ETF prices and NAVs are generally close. However, when financial markets become more volatile, ETFs may quickly reflect changes in market sentiment, while NAVs — adjusted once a day — may take longer to react, resulting in ETFs trading at a premium or discount. Most ETFs are passively managed and track an index of securities. Investors can choose from a variety of indexes, ranging from broad-based stock or bond indexes to very specific market sectors. A growing number of actively managed ETFs assemble a non-indexed mix of investments that should reflect the fund’s objectives.

Expenses and Risks

ETFs typically have lower expense ratios than mutual funds. However, you must pay a brokerage commission whenever you buy or sell an ETF, so your overall costs may be higher, especially if you trade frequently. Also, whereas mutual fund assets can typically be exchanged within a fund family, moving assets between ETFs requires selling and buying assets separately.

The trading flexibility of ETFs is part of their appeal, but it could lead some investors to trade more frequently than might be appropriate for their situations. The principal value of ETFs and mutual funds fluctuates with market conditions. Shares, when sold, may be worth more or less than their original cost.

Exchange-traded funds and mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

 

Growth Stocks vs. Value Stocks

Investors are often confused about the differences between growth stocks and value stocks. The main way in which they differ is not in how they are bought and sold, nor is it how much ownership they represent in a company. Rather, the difference lies mainly in the way in which they are perceived by the market and, ultimately, the investor.

Growth stocks are associated with high-quality, successful companies whose earnings are expected to continue growing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. The P/E ratio is the market value per share divided by the current year’s earnings per share. For example, if the stock is currently trading at $52 per share and its earnings over the last 12 months have been $2 per share, then its P/E ratio is 26. The price-to-book ratio is the share price divided by the book value per share. The open market often places a high value on growth stocks; therefore, growth stock investors also may see these stocks as having great worth and may be willing to pay more to own shares.

Investors who purchase growth stocks receive returns from future capital appreciation (the difference between the amount paid for a stock and its current value), rather than dividends. Although dividends are sometimes paid to shareholders of growth stocks, it has historically been more common for growth companies to reinvest retained earnings in capital projects. Recently, however, because of tax-law changes lowering the tax rate on corporate dividends, even growth companies have been offering dividends.

At times, growth stocks may be seen as expensive and overvalued, which is why some investors may prefer value stocks, which are considered undervalued by the market. Value stocks are those that tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales). Value stocks generally have good fundamentals, but they may have fallen out of favor in the market and are considered bargain priced compared with their competitors. They may have prices that are below the stocks’ historic levels or may be associated with new companies that aren’t recognized by investors. It’s possible that these companies have been affected by a problem that raises some concerns about their long-term prospects.

Value stocks generally have low current price-to-earnings ratios and low price-to-book ratios. Investors buy these stocks in the hope that they will increase in value when the broader market recognizes their full potential, which should result in rising share prices. Thus, investors hope that if they buy these stocks at bargain prices and the stocks eventually increase in value, they could potentially make more money than if they had invested in higher-priced stocks that increased modestly in value.

Growth and value are styles of investing in stocks. Neither approach is guaranteed to provide appreciation in stock market value; both carry investment risk. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Investments seeking to achieve higher rates of return also involve a greater degree of risk.

Growth and value investments tend to run in cycles. Understanding the differences between them may help you decide which may be appropriate to help you pursue your specific goals. Regardless of which type of investor you are, there may be a place for both growth and value stocks in your portfolio. This strategy may help you manage risk and potentially enhance your returns over time.

 

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2017 Broadridge Investor Communication Solutions, Inc.

Retirement Plan Limits

How much money can I put into my IRA or employer-sponsored retirement plan?

IRAs and employer-sponsored retirement plans are subject to annual contribution limits set by the federal government. The limits are adjusted periodically to compensate for inflation and increases in the cost of living.

IRAS

For the 2016 and 2017 tax years, you can contribute up to $5,500 to all IRAs combined (the limit is adjusted annually for inflation). If you have a traditional IRA as well as a Roth IRA, you can only contribute a total of the annual limit in one year, not the annual limit to each.

If you are age 50 or older, you can also make a $1,000 annual “catch-up” contribution.

EMPLOYER-SPONSORED RETIREMENT PLANS

Employer-sponsored retirement plans such as 401(k)s and 403(b)s have an $18,000 contribution limit in 2017 (unchanged from 2016); individuals aged 50 and older can contribute an extra $6,000 each year as a catch-up contribution. (Section 403(b) and 457(b) plans may also provide special catch-up opportunities.)

SIMPLE PLANS

You can contribute up to $12,500 to a SIMPLE IRA or SIMPLE 401(k) plan in 2017, and an extra $3,000 catch-up contribution if you are age 50 or older (unchanged from 2016).

Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income, except for any after-tax contributions you’ve made, and the taxable portion may be subject to 10% federal income tax penalty if taken prior to reaching age 59½ (unless an exception applies). If you participate in both a traditional IRA and an employer-sponsored plan, your IRA contributions may or may not be tax deductible, depending on your adjusted gross income.

 

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2017 Broadridge Investor Communication Solutions, Inc.