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What the New DOL Fiduciary Rule Means For You

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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Seven years in the making, the Department of Labor’s long-awaited Fiduciary Rule finally went into effect June 9.* The full breadth of the rule’s impact won’t officially be felt until January 2018, when advisors must be fully compliant with the rule’s requirements.

The rule survived an upheaval by the Trump administration, which had hinted earlier this year that it might seek to block the rule’s implementation.

Aimed at saving consumers billions of dollars in fees in their retirement accounts, the Department of Labor’s new fiduciary rule will require financial advisers to act in your best interest. However, the final rule includes a number of modifications, including several concessions to the brokerage industry, from the original version proposed six years ago.

Here’s what you need to know about these new rules and how they may affect your money.

*This story has been updated to reflect the rule’s successful release.

What is a Fiduciary?

So what exactly is a fiduciary? According to the Certified Financial Planner (CFP) Board, the fiduciary standard requires that financial advisers act solely in your best interest when offering personalized financial advice. This means advisers can’t put personal profits over your needs.

Currently, most advisers are only held to the U.S. Securities and Exchange Commission’s suitability standard when handling your investments. This looser standard allows advisers to recommend suitable products, based on your personal situation. These suitable products may include funds with higher fees — with revenue sharing and commissions lining their own pockets —  which may not reflect your best possible options.

What is Changing Exactly?

Affecting an estimated $14 trillion in retirement savings, the Department of Labor’s new fiduciary rule is meant to help you receive investment advice that will aid your nest egg’s ability to grow. Many investors have been pushed toward products with high fees that quickly eat away at profits.

All financial professionals providing retirement advice will now be required to act as fiduciaries that must act in your best interest. This applies to all financial products you may find in a tax-advantaged retirement accounts. Because IRAs offer fewer protections than employment-based plans, the Department is concerned about “conflicts of interest” from brokers, insurance agents, registered investment advisers, or other financial advisers you may turn to for advice.

Despite these new protections, the Department of Labor also made some key concessions. Previously, brokers were required to provide explicit disclosures about the costs of products to their clients. This included one, five, and ten year projections. However, this requirement has been eliminated. After heavy pushback from the industry, the Department of Labor also agreed to allow the use of proprietary products.

Additionally, the Department of Labor has pushed the deadline for full implementation of their new rules. Firms must be compliant with several provisions by June and fully compliant by January 1, 2018.

Despite all of these concessions, the Department of Labor’s highest official insists the integrity of their rule is still in place.

Exceptions You Should Know About

Although advisers working with retirement investments will no longer be able to accept compensation or payments that create a conflict of interest, there’s an exception many brokers will likely pursue.

Firms will be allowed to continue their previous compensation arrangements if they commit to a best interest contract (BIC), adopt anti-conflict policies, disclose any conflicts of interest, direct consumers to a website that explains how they make money, and only charge “reasonable compensation.” The best interest contract will soon be easier for firms and advisers to use because it can be presented at the same time as other required paperwork.

How These New Rules Might Affect Your Investment Options

Although these new rules don’t call out specific investment products as bad options, it’s expected advisers may direct you to lower-cost products, like index funds, more regularly. New York Times also predicts the new regulations may also accelerate the movement toward more fee-based relationships. They also suggest complex investments like variable annuities may soon fall out of favor.

What Will the Larger Impact of These Changes Be?

Backed by extensive academic research, the Department of Labor’s analysis suggests IRA holders receiving conflicted investment advice can expect their investments to underperform by an average of one-half to one percentage point per year over the next 20 years. Once their new rules are in place, they are anticipating retirement funds will shift to lower cost investments, savings consumers billions of dollars.

What You Can Do To Protect Yourself

Although these new rules are a positive step for consumers, it’s important to remember there are still a wide variety of financial professionals out there. And the quality of the advice you receive can vary greatly based on their level of education, experience, and credentials. In order to find someone who is equipped to handle your unique financial situation, you will still need to do your homework.

You may want to start by looking for a fee-only financial planner. Due to the nature of how they are compensated, fee-only financial planners operate without an inherent conflict of interest. They are paid a fee for the services they provide and they don’t earn commissions from product sales.

Once you’ve narrowed down your options you’ll want to ask about their credentials, what types of clients they work with, what types of services they offer, while carefully checking their background and references. Like any professional working relationship, you’ll want to feel comfortable with someone you are receiving financial advice from, so it’s important to make sure your personalities and priorities are aligned. Remember, no one cares more about your money than you do. That’s why it’s essential to carefully vet anyone who is working with you to secure a healthier financial future.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Dore
Kate Dore |

Kate Dore is a writer at MagnifyMoney. You can email Kate at [email protected]

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Strategies to Save

The Ultimate Guide for Handling Your Emergency Fund

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

If our lives always went according to plan, we would never be hit with expensive car repairs, sudden job layoffs, family emergencies, or unexpected health problems. But these curveballs are simply part of life, and if you’ve ever been caught off guard for one of them, you know how important an emergency fund can be.

Most of us can agree having extra money set aside to deal with life’s rough patches is a good thing, but not everyone agrees on the specifics. It’s hard to see a downside to saving as much as possible, but here are some key tactics to keep in mind.

My Emergency Fund Story

I quickly learned the importance of an emergency fund after burning out in my previous career. Five years of promoting concerts throughout North America had taken its toll, and I knew I needed a break to recharge. But working in the music business also led to excessive spending on designer clothing, fancy dinners, and too much partying—leaving little savings to show for my hard work. So I drastically cut back, saving 40-50% of everything I earned, until I had finally socked away six-months of my take-home pay. My six-month emergency fund gave me the confidence to quit my job and recharge for a few months before eventually transitioning into tech.

How Much Emergency Fund Do You Need?

Experts recommend saving three to six months of your take-home pay in liquid assets for your emergency fund. But if you’re properly insured, a smaller amount may be sufficient. It’s also important to consider your existing level of liability. Ultimately, your individual circumstances will determine how much you need.

Ask yourself these important questions during the decision making process:

  • Does your employer or union provide a loss of income protection plan like short or long-term disability insurance?
  • What are the withdrawal terms on your permanent life insurance policy?
  • How robust is your medical insurance plan?
  • What is your existing level of fixed expenses and debt? You should certainly still have an emergency fund of at least $1,000 if you’re dealing with debt.
  • Does your family have additional sources of income?
  • Do you have access to a home equity line of credit?

Although saving too much is never a bad thing, it’s definitely possible to hold onto too much cash. Be aware that inflation eats away at the value of your cash over time. Also, there’s an opportunity cost when holding too much cash in low-return investments as opposed to investing some of those funds.

Tactics To Quickly Build an Emergency Fund

One of the fastest ways to build an emergency fund is by automating your savings. If a certain amount is deducted from every paycheck, you will never have the opportunity to spend that money earmarked for savings on payday cocktails. There are a couple of ways to set this up:

  1. Speak with your company’s HR department about automatically deducting a certain amount of money from every paycheck and depositing it into your savings account.
  2. Ask your bank to automatically transfer a fixed amount from your checking account to your savings account every month.

Even $25 or $50 a month accumulates more quickly than you might think. Remember, you won’t be able to spend what’s not available. Money market mutual funds, asset management accounts, and series EE savings bonds all work well for automated savings plans.  

Allocation of Your Emergency Fund Assets

The Importance of Liquidity

Most financial advisors emphasize the importance of maintaining adequate liquidity with your emergency fund. Liquidity means having easy access to cash, without needing to dip into your long-term investments, in order to pay your bills on time.

Although I saved the recommended six months of take-home pay, I didn’t hold an adequate amount in cash. After two months without a full-time job, I was forced to sell some stocks to cover my expenses—a move that can cause a loss of principal or tax liability.

A misallocated emergency fund certainly isn’t the worst financial problem you can have. But given the choice, you’d probably prefer not to be forced to sell off your assets when they’ve declined in value.

Where To Allocate Your Assets

There’s a lot to consider when you begin thinking about where to stash your emergency fund assets. For starters, you’ll want to consider your own risk tolerance. Next, you’ll need to evaluate each option’s rate of return. This isn’t always easy to compare because compounding interest rates are quoted at different periods (annually, quarterly, or even daily). You’ll also want to think about the tax implications of these allocations. A financial planner or accountant can help with specific tax questions you may have.

Here’s a breakdown of your options:

Checking account: They are convenient, easy to use, and FDIC insured. They generally require a low minimum balance, but some accounts can incur costly fees. The primary downside is no or low interest rates. If you’re using a checking account that keeps dinging you with fees, then it’s time to switch.

Savings Account: They are FDIC insured up to $250,000 and have higher interest rates than a checking account. In some cases the interest rates can be above 1.00% APY. However, the return is still considered low compared to the alternatives. Savings accounts aren’t as liquid as a checking account as it can take a day or more to access the funds depending on your bank.

Money Market Deposit Account: These accounts are insured, have limited checking privileges, and offer relatively attractive (variable) interest rates. However, they still offer lower returns than CDs and money market mutual funds. They also require a high minimum balance.

Certificate of Deposit (CD): CDs are insured, but interest rates are fixed, so you won’t benefit if rates go up. There’s a minimum required deposit and there are penalties for early withdrawal.

Money Market Mutual Fund: These funds work well for an automated payroll deduction plan and offer some checking privileges. There’s limited risk due to the short maturity of the investments, but they are not insured. The minimum initial balance is generally between $500 and $1,000.

Asset Management Account: This account also works well with an automated payroll deduction plan and offers a high return. However, these accounts aren’t insured and require a high minimum balance of $5,000. Additionally, these accounts have monthly fees that range from $25 to $200.

U.S. Treasury Bills: These offer attractive interest rates, are exempt from state and local taxes, and guaranteed by the Federal government. However, they are far less convenient to liquidate than the other options.

U.S. Series EE Bonds: Depending on when they are purchased, the interest rate can be fixed or variable. They can purchased and redeemed at any bank and work well with automated payroll deduction plans. They are exempt from local and state taxes. Interest only accrues twice per year, and there’s a penalty if you redeem before five years.

Regardless of the amount and the allocation you choose, an emergency fund is critical for your long-term financial health. In a perfect world, you’d never have to use it, but you’ll sleep much better at night knowing you’re covered if a disaster strikes.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Dore
Kate Dore |

Kate Dore is a writer at MagnifyMoney. You can email Kate at [email protected]

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Pay Down My Debt

Options to Get Out of Your Timeshare

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Options to Get Out of Your Timeshare

You’ve finally escaped the stress of your commute, stacks of unfinished paperwork, and the never-ending demands of the office. You’re staying someplace warm, enjoying pina coladas on the beach or working on your tan by the pool.

The resort’s sales manager has casually mentioned an affordable way to return to this same place every year. And in your relaxed state of bliss, you start daydreaming about future vacations. You imagine making the resort an annual family destination or the spot to celebrate your wedding anniversary.

Let’s face it — buying a timeshare is often an impulsive decision. And one you may regret after the drinks have worn off, your vacation is over, and reality sets in. Because chances are, your timeshare is not the amazing deal the resort’s sales manager sold you on. If you’re stuck with buyer’s remorse or simply can’t afford your timeshare, here is how to minimize the damage to your wallet and credit score.

What is a Timeshare?

So what is a timeshare exactly? A timeshare allows you to buy the right to use a property every year for a certain period of time. And the property is usually part of a resort. A deeded timeshare means you’re purchasing a portion of the property. And a non-deeded timeshare mean you’re leasing the right to use the property for an agreed upon number of years (usually 10-50).

How Much a Timeshare Actually Costs

The cost of a timeshare varies based on the size of the unit, the resort’s location, the time of year, amenities, and more. But the National Timeshare Owners Association (NTOA) says the average timeshare sales price is $20,020.

What does typical report-based financing looks like?

  • Loan Amount – $20,000
  • Term of Loan – 6 years (72 months)
  • Interest Rate Charged – 15.9%
  • Monthly Payment – $432.74
  • Actual Cost – $31,157.28

Many resorts also offer a 1-year loan with a 0% interest rate if you’re willing to put 50% down within 30 days of purchasing the timeshare.

In addition to the cost of the timeshare itself, you’re also responsible for an annual maintenance fee. The National Timeshare Owners Association (NTOA) says the average maintenance fee for 2015 is a whopping $880. This annual maintenance fee can increase over time. And you’re responsible for paying this fee every year regardless of whether or not you visit.

Selling a Timeshare

Are you thinking about trying to sell your timeshare? Although the National Timeshare Owners Association (NTOA) lists three preferred resellers on their website, it’s not always that simple.

Resale websites operate as a subscription service. And their fees range from $14.99 to $125 per year. Plus, resellers may take a portion of the sale.

Remember, timeshares are not real estate investments. And the secondary market is oversaturated with buyers. Want to see further evidence? A quick search on eBay revealed dozens of timeshares practically being given away for $1.

Try Refinancing Your Loan

Between the high interest rates of resort-based financing and the annual maintenance fee, what was sold as an affordable vacation becomes expensive very quickly. If you’re struggling to afford monthly loan payments, you may want to try refinancing to secure a single-digit interest rate.

LightStream, a division of SunTrust bank, offers timeshare-refinancing options if you’re a U.S. citizen with good credit. They don’t charge fees to refinance. And their interest rates are fixed.

Here’s an example of what the numbers may look like for refinanced timeshare loan:

  • Loan Amount – $20,000
  • Term of Loan – 6 years (72 months)
  • Interest Rate Charged – 8.49% – 14.74% APR with Autopay
  • Monthly Payment – $349.10 – $368.91
  • Actual Cost – $25,135.20 – $26,561.52
  • Money Saved – $4,595.76 – $6,022.08

Your timeshare might be such a financial drain that you decide to sell (or give it away) and then refinance the remaining debt to pay it off quickly and with a lower interest rate.

Consider Timeshare Exchanges

Did your resort’s sales manager mention the option of timeshare exchanges? It’s a major selling point for many buyers. And who wouldn’t like the option of trading timeshares with owners in other locations? But does it make sense for you? It depends.

If you’ve paid off your debt, it may be worth the additional fees to list your timeshare on an exchange. The National Timeshare Owners Association (NTOA) lists preferred exchange companies on their website. But you need to read the fine print. Less popular destinations and off-peak season timeshares tend to be more difficult to exchange. And there may be other restrictions that weren’t mentioned at the closing table.

Try To Negotiate With Original Owner

Have you paid off your debt but you’re sick of coughing up annual maintenance fees? It’s worth reaching out to the original owner to see if they’re willing to negotiate. They may agree to let you out of your original deal if you agree to cover a few years of maintenance fees. And they’ll have the option of reselling the timeshare to another buyer. It doesn’t hurt to ask!

Can’t negotiate with the original owner? Try getting a team of experts to help you legally get out of the contract with the Time Share Exit Team.

The Truth About Timeshares

It’s cheaper than ever to find affordable places to stay on vacation. Websites like Airbnb, VRBO, and HomeAway make it easy to find affordable listings all over the world. A timeshare at a luxury resort may seem attractive today, but what happens when your tastes and lifestyle change? The truth is, timeshares don’t always get used as often as buyers originally planned.

If you have to finance a timeshare, it’s probably not worth buying. Why? Resort-based financing can incur interest rates of 15-16%. And even once you’ve paid off the loan, you’re still stuck with expensive annual maintenance fees averaging $880 or more! Plus, attempting to resell can be a nightmare. It can get costly and there’s just not a strong secondary market. And all this doesn’t even include the cost of travel to get to your timeshare in the first place.

Despite all these drawbacks, almost 400,000 timeshares were sold in 2015. And it’s easy to see how buyers get roped in. It’s not easy to make a clear-headed decisions on a white sand beach after a couple of margaritas.

If you’re regretting your choice to buy or can’t afford your timeshare, you can minimize the damage to your wallet and credit by refinancing, exchanging, or negotiating with the original owner.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Kate Dore
Kate Dore |

Kate Dore is a writer at MagnifyMoney. You can email Kate at [email protected]

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