Corbin Blackwell, CFP®

How To Manage Debt And Invest At The Same Time With the right strategy, it's possible to make progress on both goals. In 1 minute Managing debt and investing is a tricky balancing act, but they're both vital to your financial future. At Betterment, we recommend you focus on your high-interest debt first. Anything over 5% should be prioritized, starting from the highest-interest debt and working your way down the list. You shouldn’t let this grow, or it might get out of hand. For your other debts, you may be able to get by with minimum payments. If your employer offers to match your contributions to a retirement plan, get on that! An employer match is one of the fastest ways to maximize the value of your investments. You don’t want to waste the opportunity for free money. And a 401(k) comes with tax advantages to boot! You’ll also want to protect yourself from unexpected expenses by saving up a safety net. When a surprise bill shows up, you want cash on hand to prevent you from going further into debt. Other than that, treat your debt payments and investments as part of your fixed monthly expenses. Don’t let working toward your goals feel optional. Managing debt and investing can feel overwhelming. But our step-by-step guide below will walk you through it. In 5 minutes In this guide, we’ll explain how to manage debt and invest in six steps: Account for your spending Make minimum debt payments Contribute to an employer-matched retirement plan (if you can) Build a Safety Net Fund Focus on high-interest debt Invest for the long-term First, let’s talk about your debt, your goals, and your repayment strategy. Planning around your debt. Debt can completely derail your financial goals. It eats through your savings and can offset the gains you make through investing. Repaying major debt like student loans can feel like climbing a mountain. For Black and Latino folks, that mountain tends to be higher as the need for student loans is often greater and the interest rates often higher than non-Black or Latino students. But not all debt is the same. High-interest credit card debt will quickly outpace your investment earnings. Ignore it, and it will consume your finances. Debt with lower interest rates, like some student loans or your mortgage, can be much less of a priority. If you put off investing in favor of attacking this debt, you may not have time to reach your goals. It is possible to pay debt and invest at the same time—the key is to create a strategy based on your debt and your financial goals. At Betterment, we recommend focusing on the debt with the highest interest first. The more time you give this debt to grow, the harder it becomes to pay off. Now let's walk through Betterment’s six steps to manage your debt and invest. Step 1: Account for your spending. Your finances are finite. You have a limited amount of money to pay down debt, invest, and cover your expenses. The first step is to learn what comes in and goes out each month. How much do you have to work with after rent, food, utilities, and other fixed expenses? Are there expensive habits you can eliminate to free up more money? Don’t plan to make changes you can’t stick to. The goal here is to establish a monthly budget, so you have enough to cover your bills and know how much you can save or put towards debt. We also recommend keeping enough in your checking account to act as a small buffer—three to five weeks of living expenses is generally a good rule of thumb—as even the best laid plans (or budgets) are derailed at times. Step 2: Make minimum payments. You really don’t want to miss your minimum payments. Fees and penalties make your debt hit harder, and they’re usually avoidable. Think of your minimum debt payments as fixed expenses. After your regular living expenses, minimum debt payments should be a top priority. Step 3: Contribute to an employer-matched retirement plan. If your employer offers to match contributions to a 401(k), that’s free money! Don’t leave it on the table. A 401(k) also comes with valuable tax benefits. Even if it under performs, the match program allows your contributions to grow faster. It’s like your employer is giving your financial goals a boost. And that’s why this is almost always one of the smartest investment moves you can make. Step 4: Focus on high-interest debt. When it comes down to it, high-interest debt is your biggest enemy. It’s a festering financial wound that grows faster than any interest you’re likely to earn. Left unchecked, credit card debt can easily cost you thousands of dollars in interest or more. And that’s money you could’ve invested, applied to other debt, or saved. Step 5: Build a Safety Net Fund. Without a financial safety net, you’re one unexpected medical bill, car accident, or surprise expense away from even more debt. Generally we encourage you to pay off your high interest debt before fully funding a three to six month emergency fund. However, some people, particularly those who are worried about income loss, prefer building a large cushion of cash for emergencies first over paying down extra debt Step 6: Invest for the long-term. Once you’ve paid down your high-interest debt, you can begin investing for the long-term. With a diversified portfolio, your investments can outpace your lower-interest debt. So you can work toward financial goals while making minimum payments. Using automatic deposits, you can create an investment plan and stick to it over time, treating your investments as part of your fixed budget. Your safety net will give you some financial breathing room, and before you know it, you’ll be making progress toward retirement, a downpayment on a house, college for your kids, or whatever your goal is.

3 Low-Risk Ways To Earn Interest Earning interest usually means taking on risk. But with bonds, cash accounts, and compound interest, you can keep that risk as low as possible. In 1 minute When you don’t have much time to reach your goal, you can’t afford to make a risky investment. Thankfully, you can earn interest without putting everything on the line. Here’s how. Bonds Bonds are one of the most common types of financial assets. They represent loans, which a business or the government uses to pay for projects and other costs. Just as you pay interest when you take out a loan, bonds pay investors interest.You’ll typically see lower returns than you might with stocks, but the risk is generally lower, too. Cash accounts Cash accounts are similar to traditional savings accounts, only they are designed to earn more interest (and may come with more restrictions). These are great when you need your money to be readily available to you, but still want to earn some interest. And to top it off, many cash accounts are offered at or through banks so your deposits are FDIC insured, so there’s minimal risk. Compound interest The longer you invest, the more time you have to earn compound interest. This is the interest you earn and the interest your interest earns. That’s right. As you accrue interest, that interest makes money and that money in turn makes more money. The more frequently your interest compounds, the more you can earn. In 5 minutes Want to earn interest? You usually have to take some risk which means you could lose some money. Financial assets can gain or lose value over time. And investments that have the potential to earn greater interest often come with the risk of greater losses.  But there are ways to lower your risk. If you have a short-term financial goal or you’re just cautious, you can still earn interest. It might not be much, but it will be more than you’d get keeping cash under your mattress (don’t do that). In this guide, we’ll look at: Bonds Cash accounts Compound interest Bonds Bonds are basically loans. Companies and governments use loans to fund their operations or special projects. A bond lets investors help fund (and reap the financial benefits of) these loans. They’re known as a “fixed income” asset because your investment earns interest based on a schedule and matures on a specific date. Bonds are generally lower-risk investments than stocks. The main risks associated with bonds are that interest rates can change, and companies can go bankrupt.  Still, these are typically fairly stable investments (depending on the type of bond and credit quality of the issuer), making them ideal for a short-term goal. With municipal bonds, you can earn tax-free interest. These bonds fund government projects, and in return for the favor, the government doesn’t tax them. Invest in your own state, and you could avoid federal and state taxes. Even when your goal is years away, including bonds in your investment portfolio can be a smart way to lower your risk and diversify your investments. Learn more about how earning interest and bond income works at Betterment. Cash accounts Cash accounts seek to earn more interest than a standard savings or checking account, and they’re federally insured by the FDIC or NCUA. (This is usually the case but depends on the institution housing your deposits (i.e., banks or credit unions). Check to make sure your account is insured before depositing any money.) In most cases, there’s little risk of losing your principal. Your interest is based on the annual percentage yield (APY) promised by the bank or financial institution you open the account with. One of the great perks of a cash account is that it’s highly liquid—so you can use your money when you want. It won’t earn as much interest as an investment, but it won’t be as tied up when you need it.  For short-term financial goals, a cash account works just fine. The key is to choose an account that meets your needs. Pay attention to things like minimum deposits, transaction limits, fees, and compound frequency (that’s often how it accrues interest). These differences affect how fast your savings will actually grow and how freely you can use it. Compound interest Compound interest refers to two things:  The interest your investments or savings earn The interest your interest earns It’s your money making more money. If you want to build wealth for the long-term, investing and allowing your interest to compound is one of the smartest moves you can make. The sooner you invest and put your money to work, the more you can expect to have down the road. Compound interest starts small, but it grows exponentially. Over the course of decades, it can easily become hundreds of thousands of dollars depending on how much you invest upfront. Your investment grows faster because your interest starts earning interest, too. If you start young, you have a huge advantage: time is on your side! The graph below shows that if you invest over time, compound interest can grow your portfolio much quicker than just saving cash over time. With interest, you need to know how often it compounds. There’s a huge difference between interest that compounds daily, monthly, and annually. The more frequently it compounds, the more interest you earn.

4 Ways Women Can Counter The Financial Effects Of COVID-19 The COVID-19 pandemic and its economic fallout are having a regressive effect on gender equality. Here are four solutions that can help women empower themselves financially. Whether you experienced the virus yourself, cared for sick loved ones, lost your job, had work fundamentally change, or assumed new roles in your household as kids stayed home from school and daycare, it goes without saying that no one is going to walk away from the COVID-19 pandemic untouched. That being said, data regarding the immediate and projected long-term effects of the pandemic consistently show that the impact on women—particularly women of color—are far greater than the impact on our male counterparts. How Women Are More Vulnerable To COVID-19 Economic Effects In September, four times as many women dropped out of the labor force compared to men. During the spring and summer of 2020, on average, 10% of working mothers reported not working each week because they were caring for a child who was not in school or childcare. And to make matters worse, in addition to all of this, women also experience a greater negative financial impact. To understand the significance of what is happening, it’s crucial to address the wealth gap prior to the start of the pandemic.  According to the National Partnership for Women & Families: “White, non-Hispanic women are typically paid just 79 cents for every dollar paid to white, non-Hispanic men.” “Black women are typically paid just 63 cents for every dollar paid to white, non-Hispanic men.” “Native American women are typically paid just 60 cents for every dollar paid to white, non-Hispanic men.” “Latinas are typically paid just 55 cents for every dollar paid to white, non-Hispanic men.” As shown above, the wealth gap is significantly wider for women of color, as they face not only a gender wealth gap, but a racial wealth gap as well. This means that well before the world turned upside down, women were already facing major headwinds financially, and now things seem to be getting harder, not easier. While this is a pretty harsh reality, the good news is that even in tough times, there are things all women can do to help themselves and their families succeed financially. 1. Know your expenses. First things first: Know what you spend money on each month. It is easy to feel overwhelmed and bury your head in the sand when bills start piling up, but knowing where your money goes can help you stay in control of your finances. For example, many people forget about small recurring bills for subscriptions or services, which could add up when money is tight. Housing costs are typically the largest expense, but this is not something that’s easily reducible if you are experiencing job loss or lower wages. Knowing the money areas that are more flexible can help you come up with an effective cost cutting strategy that can be implemented at any time. Research Relief Programs As part of knowing what you spend, you should also know where you can cut costs on larger bills. Due to COVID-19, many private companies are providing some relief to their customers. Educate yourself on the programs available, be it a reduced rate on your utility bill, or waiving late credit card fees. In addition, various social service agencies, states, and local governments are still offering additional rent assistance, and President Biden extended the nationwide moratorium on foreclosures and evictions until at least March 31. Think of it like a fire drill: If you know what to do beforehand, you know what to do in the face of an emergency. 2. Manage debt. The Equal Credit Opportunity Act of 1974 banned lenders from discriminating against consumers based on sex. It is illegal for lenders to charge women higher interest rates based on sex or race. Unfortunately, bias still shows up in the lending process. For example, lenders typically use income to inform loan terms, and since women are statistically paid less, and take on more unpaid work (particularly true during the pandemic), it is no surprise that women face less favorable terms like higher interest rates on credit cards and personal loans. While the system is certainly flawed, managing debt effectively is something everyone can do. If you’re able, the most important thing to do is make sure you are making minimum payments on time. This will help you avoid late fees and negative impacts to your credit score, as missed or late payments feed into payment history which is a large part of your credit score. Women should also be careful about how much they put on credit cards, as many credit card companies will approve customers for larger lines of credit than they can really afford to pay back in a reasonable time frame. Of course, in an emergency sometimes credit cards or loans are your only option to bridge the gap before you are back on your feet, so make sure you use them judiciously. 3. Build an emergency fund. Unfortunately, there are few, if any, programs in the U.S. that act as social or medical “emergency funds” for Americans facing financial hardships unrelated to the pandemic or natural disasters, so it is largely up to individuals to protect themselves financially. If you are fortunate enough to still be employed, you should consider building a three to six month emergency fund. It should cover three to six months of your living expenses to protect you in case of sudden job loss, unexpected medical bills, or other unforeseen events that could cause you to go into debt. I recommend keeping your emergency fund in a low risk account such as a high yield savings account, or low risk investment account. If you do choose to keep your funds in a low risk investment account, at Betterment we currently recommend keeping your portfolio in a 30% stock/70% bond allocation. This is to help keep up with inflation and maintain your money’s purchasing power over time. Use state and federal funds for emergencies. If unfortunately you’ve lost your job during the pandemic or are working less hours, then applying for your state and local unemployment benefits is the best course of action. In addition, with the new COVID-19 relief bill, expanded unemployment benefits from the federal government would be extended through September 6th, 2021 at $300 per week. This in addition to the one time stimulus checks, with single taxpayers getting $1,400 checks, while married couples who file jointly would get $2,800, with an additional $1,400 per dependent for both filers. 4. Keep your career options open. Women leaving the workforce at astonishing rates is a very real problem socially and economically. However, I am generally optimistic that this trend could improve over time as businesses open and new businesses emerge, and kids go back to in-person school full time. If you have been laid off, or forced to stay home due to a lack of childcare, I encourage you to keep your options open by maintaining a professional network or picking up a side hustle. Maintaining a professional network looks different for everyone, but some examples include staying in touch with former colleagues and managers, joining professional organizations, or reaching out to professionals in fields you are interested in through professional networking sites such as LinkedIn. You never know who may be looking to hire in the future that could think of you. As for a side hustle, this can both help bridge the gap financially, but also allow you to explore other fields and gain skills that may translate to full time work or your own business in the future. Hang in there. Over the past year, our lives changed in big ways. Women have been feeling the brunt of these changes, as we’ve had to assume more roles, with less support. It has not been easy, and the new norm may be here to stay for a while longer. That being said, there’s light at the end of the tunnel as more vaccines are distributed, another stimulus check may be headed your way, and kids start going back to school. In the meantime, take the steps outlined above to help you keep moving forward and empower yourself financially.

Should You Create a Trust Fund? It Could Help You Preserve Wealth Weigh the costs and benefits of establishing a trust as part of your estate planning. For those who have assets to leave as a legacy, a trust can be a strategic part of estate planning. Trust assets can include everything from a life insurance settlement and real estate to investments and cash. However, not all trusts are the same—there are many variations, each with specific benefits and restraints. In the past, establishing a trust was largely viewed as a tool for very high net worth individuals looking to preserve wealth across generations. But these days, easily accessible low-cost investing accounts help us all take advantage of the value that creating a trust can provide for our assets. One of the benefits of trusts is that they can shield assets from lawsuits and probate costs. Many are interested in these benefits regardless of their net worth. With the emergence of automated investing services, like Betterment, setting up and managing a trust account of any size is easier than ever. Selecting the right type of trust for your needs will be something to discuss with an estate planning specialist, such as a financial advisor, accountant, or estate planning attorney.1 However, there are some general benefits that most trusts offer. Below is a summary to help you decide whether a trust may be right for you. Privacy and Protection After an individual’s death, an estate typically goes through probate, where the will is open for public scrutiny and assets may be used to pay off creditors. If assets are held in multiple states (real estate, for example), probate will take place in every state—adding substantial costs to settling an estate. The costs associated with probate could reduce the estate by 3% to 7% on average—and that’s not including additional estate taxes and income taxes that may be due. These additional costs mean significantly less assets are given to the intended beneficiaries. With certain types of trusts, all assets that have been placed in the trust are considered property of that trust, and thus they are off limits to creditors, they’re kept out of public record, and they can avoid probate. Trusts are also a useful way to shield and protect assets for people who are at higher risk of litigation, such as doctors. Placing assets in a trust may also reduce the potential for lawsuits between heirs. Taxes Different types of trusts provide different tax advantages. For example, an irrevocable life insurance trust shelters any life insurance death benefit proceeds from estate taxes. The most popular type of trust is a revocable living trust, which is a trust that can be modified once it is established. It’s created during the grantor’s (the person who funds the trust) lifetime. On its own, a revocable living trust doesn’t provide specific tax benefits, but additional provisions can be added to these trusts to help reduce estate taxes. There are about nine commonly used trust types. Speaking with an estate planner and tax advisor will help you determine how to maximize tax advantages and establish the right type of trust for your needs. Distribution Control Not all beneficiaries need the same thing. A trust can establish guidelines for how and when funds are distributed. Rather than simply naming the person who will inherit your assets, you can add provisions that specify how the trust assets can be used. By adding these provisions to your trust, you can help your assets last longer, since you decrease the risk of a beneficiary draining the account for frivolous expenses. For example, funds might be earmarked for education, for special medical needs, or for distribution only after the beneficiary has reached a certain age. In addition, a trust can ensure—through its guidelines—that money is distributed in a specific way to a specific entity, rather than an individual. This might mean a charity, a religious institution, or your alma mater. Sound Investment Strategy A trustee is the person(s) named in a trust document who is responsible for making decisions regarding the trust. By law, a trustee has a fiduciary responsibility to oversee the funds entrusted to them. Regulation, such as the Uniform Prudent Investor Act, states that a trustee must act “prudently” when administering a trust, which means holding the investments in a sound interest-bearing account, as well as assessing the risk, return, and diversification of assets. Trustees can be an investment firm or an individual. Trustees should ensure trust assets are invested wisely to fulfil the specific aims of the trust.  Automated investment services like Betterment provide trustees with an easy, low-cost way to manage a trust. Consider the Benefits Whether you are looking for asset protection, privacy, tax minimization, control over how your beneficiaries use their inheritance, or a combination of each of these things—establishing and managing a trust has never been easier. After speaking with your estate planning specialist and determining which type of trust is best for you, check out our FAQ on what we offer for trust accounts here at Betterment. 1Note that Betterment is not a tax advisor and nothing in this blog post should be construed as specific advice—please consult a tax advisor regarding your specific circumstances.

Debt and Savings: Initial Moves for Effective Investing Tackling your debts and saving money are prerequisites to investing and building wealth. Here are 5 ways to tackle your different financial priorities. Whether you're a new graduate navigating your first full time job while facing intimidating student loan debt or if you’re a seasoned professional who is newly focused on taking control of your finances, it can be overwhelming to figure out where your dollars can work the hardest for you. In this article, I’ll be providing some best practices that should set you on the path to becoming debt free, without sacrificing your future financial goals and savings plans. Always pay your minimum debt payments. To the best of your ability, always make at least your minimum debt payments on time. Not keeping up with minimum payments will hurt your credit score and can load you with extra penalties, interest, and fees. Everyone’s financial situation is different, but making minimum debt payments on time is of paramount importance. Setting up automatic payments can help ensure you never forget to keep track of due dates. In addition, many lenders will work with you to consolidate loans, refinance, or lower interest rates. If any of these options seems appealing to you, it may be worth contacting your lender to inquire about your possibilities. Take advantage of employer-sponsored matches. Now that you have your minimum debt payments under your belt, this next step depends on whether or not you have an employer sponsored retirement plan with an employer match. If you are fortunate enough to be covered by an employer plan that has an employer match, you will want to take full advantage of those “free” dollars. For example, an employer may match 100% of the first 6% you contribute. Receiving a match from your employer for each dollar you contribute to your 401(k) is by default a 100% return on your investment. You'll rarely find this kind of return elsewhere. Pay off high interest debt. While all financial advisors define high interest debt differently, at Betterment we take a conservative route and consider any debt with an interest rate greater than 5% to be high interest. Debt that has an interest rate of 5% or higher may snowball more quickly than the growth you can expect from your investments when you factor in short term market fluctuations. Over the last 20 years the U.S stock market has returned about 8% per year on average, but 8 of those years had returns well below 5%. Ultimately, your dollars should go further by paying down this high interest debt. If you have debt with an interest rate below 5% you are likely better off paying the loan back on schedule and investing your extra funds. If you have multiple loans with high interest rates you should aim to fully pay off the highest interest loan first before making payments towards other loans. Build, but don’t overfund, your safety net. Once you tackle your high interest debt and maximize your employer match, you can start building a safety net. A safety net should cover three to six months of fixed expenses and can be held in a savings account or a low risk investment account. It may be tempting to overfund your bank’s savings account as it is familiar and safe, but this can be harmful to your financial plan in the long term. The general cost of living, healthcare, and education all increase each year. This is known as inflation. Inflation can eat away at the amount of goods and services your dollars can purchase. This is one reason why we encourage customers to limit their excess cash savings and begin investing for their long term goals using an appropriate mix of stocks and bonds. Having a fully funded safety net is a critical part of any good financial plan. These funds provide some breathing room should you lose your job or encounter a large unexpected expense. The goal for your safety net is to be able to fund emergencies without going into debt, and should not be where you build up your portfolio. Invest for your long-term goals. While retirement is likely your largest and most pressing financial goal, different timelines, values, desired lifestyles, financial goals, and tolerance for risk can impact your financial priorities. This is why creating and implementing a personalized financial plan is so important for keeping you on track. Everyone’s financial situation is different, but hopefully using this road map can help you make smarter decisions when it comes to securing your financial future. Organizing your debt payments and savings plans are crucial prerequisites to investing. Betterment can help you create a full retirement plan, set up spending goals, and invest your savings appropriately using our automated investing tools. However, we know sometimes you just want to speak with a professional. Our team of CFP® professionals can help with your financial plan whether you are ready to invest or not. With an efficient and disciplined plan in place, you can be on your way to investing for your future sooner than you may think.