Tag Archives: Recession

Does It Really Matter Why Chase Revived the Free Balance Transfer Credit Card Market? Not Unless You’re an Investor

A free balance transfer credit card is just one of those deals that seems too good to be true, especially in the post-recession environment.  But go ahead and pinch yourself because it is real and you are not dreaming.  Consumers with above-average credit can indeed trade in their high regular interest rates for 0% introductory transfer rates without paying a thing.

If you’re surprised to hear that, you’re certainly not alone.  So-called free balance transfer credit cards were by all accounts dead and gone following the 2010 implementation of the Credit CARD Act.  This landmark law prohibits many of the predatory revenue streams that certain banks once relied upon to the dismay of consumers everywhere.  This includes the bait-and-switch tactic of using teaser rates to lure new customers before jacking up the finance charges once they had incurred a balance.

Absent the ability to raise rates at will, how can banks possibly make money off accounts that don’t charge any fees?

Such was the prevailing thought before Chase changed the game with its Slate Card.  You can avoid interest for 15 months with this card without having to pay an annual fee (many cards charge more than $100 a year) or the standard balance transfer fee of 2-4% of whatever debt you bring with you from another account.

The Slate Card’s value to consumers in our debt-reliant society is plain to see.  For example, the average household currently holds about $6,600 in credit card debt, on which they’re likely paying interest at a 17% clip (or higher).  Well, a credit card calculator will show you that by making $200 monthly payments, the Slate Card will save that average household nearly $1,700 in fees and finance charges while helping them pay off what they owe 7 months faster than they would with their original card.  The Slate Card also outperforms the average balance transfer credit card by some $1,100 and six months’ time.

While you might be inclined to send in an application before asking too many questions about how such a great deal can possibly be sustainable, this is an issue we’ve already given a bit of thought.  There are a few plausible rationales (addressed in further detail below), but the overarching notion is that banks these days are pulling out all the stops to bring the most dependable consumers into the fold.  With lessons about the importance of customers who can pay their bills even in the most financially turbulent times fresh in their minds, issuers are offering unprecedented sign-up perks – including initial rewards bonuses worth hundreds of dollars and 0% introductory rates for up to a year and a half – in the hopes of convincing people to switch their credit card allegiances.

With that in mind, Chase could conceivably be using the Slate as:

  • The Bait Needed to Hook & Cross-Sell Wealthy Consumers:  Chase obviously offers far more than just credit cards, and it would be shortsighted to assume that the Slate Card is part of such a narrowly-focused plan.  In other words, Slate’s flashy terms could just be a way for the bank to get its foot in the door with high-wealth individuals (who are most likely to have exemplary credit) before bringing more profitable products to this captive audience’s attention.  This is, of course, a risky strategy since consumers aren’t too brand loyal these days and most people simply use balance transfer credit cards as a one-off opportunity to get out of debt.

  • A Means of Influencing Investor Perception:  It’s common for investors to evaluate the strength of a bank’s credit card operations based on its outstanding balances as well as the default rates of its customers.  These metrics will typically give you a sense of how much business the bank does as well as how sophisticated its underwriting procedures are.

    The obvious exception is when a bank artificially increases its outstanding balances (thereby lowering default rates in the process) by offering a balance transfer deal that is too good to pass up, for example.  This isn’t necessarily what Chase is doing with the Slate Card, but the company’s leadership (and stock position) has been under fire in recent months, so it’s at least a possibility that’s worth considering.

At the end of the day, why Chase continues to offer the Slate Card won’t really matter to most consumers.  The ability to save heaps of money and get out from under the burden of debt is far more intriguing.  But if you’re considering any other investment in a bank like Chase that offers such a dubiously profitable product, you should certainly ask yourself why that might be before pulling the trigger on your trade.

 

Odysseas Papadimitriou, a former senior director in Capital One’s credit card division, is the founder and CEO of CardHub.com – a leading website that covers personal finance and helps consumers find the best credit cards and prepaid cards for their needs.

What are the Best Oil Mutual Funds?

Some people who want to invest in mutual funds are quite happy to invest in balanced funds that take in all manner of different companies. But others want to invest in specific funds with a theme, such as oil mutual funds for example. Oil mutual funds tend to be quite popular because their returns are generally rather good when compared to other funds.

If you are interested in this particular area, it is wise to do a spot of research to see what kinds of oil funds are out there to invest in. Obviously there are many of them and while we have provided a list of some of them below, this should not be treated as an exhaustive list. Indeed you should make your own decisions and look into each one carefully before investing. The same applies for looking at other oil mutual funds in case you prefer those you find elsewhere.

Vanguard Energy

If you want an average return of around 14% or more each year, this could be the ideal place to look. This is one oil fund that has weathered the storm of the recession rather well, even when other funds were struggling. This alone could give you serious reason to consider Vanguard.

Fidelity Select Energy Services

The idea with this fund is to get capital growth. If this is on the cards for you, explore it in more detail. It is a typical example of how an oil mutual fund has gone from strength to strength thanks to the increasing prices given to oil.

Invesco Energy

This is another oil mutual fund that has been progressing well. It didn’t do as well in 2011 as it has this year, but having said that it still outperformed many basic savings accounts, so you have to consider what to expect. It could be a good possibility for the year ahead.

ProFunds UltraSector Oil and Gas Investor

It may have a long title but the name of the game is to achieve a steady growth over time. And this particular mutual fund has managed to do just that, providing more than 9% in returns over the past decade.

Are you going to pick one or more mutual funds to invest in?

Of course the main idea is to spread your risk as much as possible. Thus you may wish to invest in more than one oil mutual fund if this is the area that concerns you. Consider how much you have to invest and what you expect to gain from that investment. This should help you work out whether you want to invest in more than one mutual fund and whether you want all of them to be involved in the oil industry.

Clearly many people pick oil mutual funds simply because they have the potential to deliver a reasonably reliable improvement each year. But regardless of your reasons to invest in them, the suggestions above should help you choose your ideal fund.

Why Do Stock Share Prices Change?

Even if you don’t yet know too much about the stock market, you’ll probably be aware that prices change on a regular basis. But why is this? Why can the price of one share be at one level on one day, and an entirely different level the next? Let’s find out more, so you know what to expect if and when you start buying or selling shares.

Supply and demand

This natural law means the price of something – anything, not just shares – is likely to go up the fewer items are available (supply). However it also relies on how many people want that item (demand).

Let’s say there are 100 shares at $10 each. If less than 100 people want them, the price might drop or stay the same. If more than 100 people want them, the price will rise. If there are 1000 shares at $50 each and less than 1000 people want them, the price would stay static or drop. More than 1000 buyers would lead to a price rise. So you see the amount of shares available and their initial price do not matter. It is the law of supply and demand that matters.

Profit warnings

Sometimes businesses will issue profit warnings if they are having a tough period of trading. These will usually lead to a drop in the share price, as the business could be in trouble. The shares will not therefore be as valuable as they would be if a business issues a good report on its earnings, pointing towards a better and more profitable future in turn.

The influence of outer forces

This might sound like something in a sci-fi drama, but in reality it’s nothing of the sort. Every business is affected by all manner of external forces. This could be anything from a rise in interest rates to a recession. If a business starts experiencing problems owing to an external force such as this, you can be sure the share prices will be affected accordingly.

Of course if a business bucks the trend and still brings in good profits despite such issues from outside, its share prices will typically rise and improve. This will be in contrast to other businesses that may be struggling.

The actions of a large shareholder

While some shareholders have relatively small amounts of shares, others have lots. These are the big shareholders that represent companies of various kinds, such as insurance brokers. If one of these shareholders should sell their shares – for whatever reason – it can spark panic among the rest. Why are they selling such a large amount of shares? Even if the company isn’t in trouble, this type of action can send the prices into freefall.

So you can see there are lots of reasons why the prices can change. The more you understand this before buying or selling shares, the easier it will be to understand the movements of the stock market. It also adds to your knowledge, and that can only be a good thing.

Unemployed? – Ways to Invest When You Don’t Have a Job

The Great Recession has turned unemployment and layoffs from a distant thought in people’s subconscious to a constant concern in the forefront of their minds every single day. It’s probably because unemployment is at an all-time high. Even if you feel secure in your job, you still need to have a plan of action in case you find yourself without a boss or a paycheck that cannot pay even your cheap home loans.

Once you establish an emergency fund and make accommodations and comparethemarket.com  for other key areas of your life, such as health insurance coverage during your gap in employment, you can start planning for things like continuing your investment activities while unemployed. Let’s look at ways you can do invest when you don’t have a job.

Stick with Safe Stocks

If you are already invested in the stock market and you lose your job, the worst thing you can do is panic. Don’t freak out and cash out – just make some minor adjustments so you’ll weather the storm a little better. While you’re without work, keep your money invested in safe, dependable companies – think blue chip stocks – that pay regular, dependable dividends. Companies such as Wal-Mart (WMT), AT&T (T), and Procter & Gamble (PG) are some great examples.

Bonds are Okay, Too

Bonds are a great way to store your money for a few years, so you’ll have access to it later on if you need it. They’re a great vehicle if you think you may need money around five years from now, but for immediate cash if you lose your job, the best way to go is to open a savings account. You’ll have cash on-hand during your job loss; but it’s also there in case you become ill and can no longer work, or if you have another financial crisis that merits dipping into the funds.

Hands Off That IRA!

Investing in your retirement regularly and for the long term is the most important investment you’ll ever make. Before you deal with stocks, bonds, or anything else, you need to have your retirement on lockdown. This brings us back to the point about your emergency fund – beef it upon in order to avoid dipping into your retirement account if you lose your job but still need a way to pay your bills.

The Best Investment You Can Make

If you’re unemployed, investing in yourself is a great way to yield higher returns, guaranteed, for life. What are we talking about?

Your education.

Investing in your education during a gap in employment will equip you with additional skills that are vital to have in a highly competitive job market. It’s tough out there, and there aren’t enough jobs to go around. Therefore, at a juncture in your life as critical as unemployment, it may be worth a few student loans to make yourself more appealing to your future boss, and increase your potential paycheck in the process.

Is it Too Late to Make Any Smart Investments for Your Future?

It’s often said that if you want to invest in a pension plan for your old age, you need to get one up and running as quickly as you possibly can. This means you have more years to save the amount you’ll need to get the results you want when you’re older.

But does this apply to all investments? For the most part it does. Take stocks and shares for example. We’ve seen many shares take a tumble in value over the past few months and years, owing to the recession most of the world has been experiencing. But if you were to look at the performance of shares in general over a much longer time period, you’d see they were actually performing quite well in the long run.

Time really is in your favor in many cases. So what does that mean if you are in, say, your forties and you’re thinking of making some investments for your retirement? You’d have been better off making those same plans in your twenties, sure, but does that mean there is no point making them now?

Planning for the future

The main thing to remember here is that you must make the most of the time you have left before the target for your investments arrives. So if you are saving for your retirement and you are currently in your forties, you still have a good few years before you actually retire.

However if you delay your plans because you are worried about whether you have enough time to save for them, you will automatically give yourself a lot less time to save. You should know the difference between delaying because you are gathering information about various options and delaying because you are hesitant about whether it is worth it or not.

To be truthful any amount of time you have to make investments in is worth using. The trick is to find the right investment for the amount of time you have available. Some are naturally time limited so you have to find a vehicle you can use that will get you the best return without posing too much of a risk to your cash. We all have different levels of acceptance when it comes to risk of course, so it makes sense to consider where you sit on that subject.

Another option to consider is whether to spread your money around. This can help to negate the risk of any one single investment you are considering putting your money into. But some investments will spread the risk for you, meaning that one vehicle can put your money into several places.

Clearly you have a lot to think about here. However old you are or whatever goals you have in mind, it is never too late to make an investment choice. The nature of the investment you make could differ depending on your age, but there are always opportunities to consider.

What Should You Do When an Investment Dives in Value?

When you look for investments that stand a chance of paying back more than just a meager rate of interest, you will automatically put your cash at a higher level of risk. For example if you buy into stocks and shares you may end up seeing your investment appreciate considerably – or it may take a nosedive, leaving you with less than you had originally invested.

Some investments are designed to run for specific lengths of time, while others give you more freedom over when you can withdraw your money. If your investment happens to be losing money now, what should you do?

Number one – don’t panic

We’ve seen many instances in the past where people have immediately withdrawn all their money – the classic ‘take your cash and run’ reaction. In many cases the people who hung on and sat back to see what happened found their investments returned to near normal soon afterwards. Those who cashed in early lost money, while those who waited didn’t.

Of course this is not guaranteed to happen. But it is definitely worth finding out more about the situation and the likely outcome before you decide what else to do.

Research how the situation could play out

The most important thing to do is not to rely on one single source of information concerning your investment. Before opting to withdraw your cash, make sure you find out the potential consequences of doing so. Remember that reading any news reports concerning the state of any investment are likely to be overly dramatic in many cases. Find out the real truth and base your decision on that.

Consider how long you were going to hold the investment for in the first place

It has long been the case that when it comes to stocks and shares, it is the overall performance that matters. Even in the case of a recession, when the value of shares can drop remarkably, the share value can eventually bounce back again.

If you were intending to cash in your shares or other investments anyway then it may be prudent to cut your losses now before things worsen. But if you were holding onto them for the long haul it may be better to hang onto them even through tougher times.

Remember there is no single solution for all circumstances

It is wise to remember that there is no ‘one size fits all’ solution to handling a weakening investment. You must consider a range of options before deciding which one would be best for you. But the most important thing to remember is never to react to the event without first looking at it from every angle. This will help you to determine whether you are better off cashing in your investment now, or waiting things out to see if or when they may improve.

There is always an element of risk in whatever decision you make. But in reality you could fare better by acting rather than reacting.

What is the Consumer Financial Protection Bureau?

On July 22, 2010 President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The purpose of the legislation, in the wake of the worst years of the Great Recession, was to make the financial system in the U.S. both transparent and accountable. A cornerstone creation of the law, the Consumer Financial Protection Bureau (CFPB), has, in the ensuing two years, taken steps to force credit card companies and other financial institutions to deal more fairly with customers.

Epidemic Levels of Credit Card Debt

Although economic historians will debate for years the real sources of the recession and the continued weak economy in this country, the high load of revolving credit card debt carried by consumers is undeniably a major factor. At the end of 2011, there were more than a trillion credit cards in circulation in the U.S. with the average American household carrying credit card debt in excess of $15,950. The only greater source of debt in this country is that held by recent graduates with unpaid student loans.

Arguably, Americans are addicted to swiping the plastic, an addiction the card companies themselves foster with attractive low interest and balance transfer incentives that carry a host of hidden fees. The longer a card issuer can keep a customer paying on an existing balance the better. These companies get rich on the high interest paid on those balances and on the fees they charge over the life of the account.

What Does the CFPB Do?

The CFPB was created to ensure that financial products and services better serve the people who use them daily. This includes not only credit cards, but also mortgages and other types of loans. Prior to its creation, there were seven federal governmental agencies that dealt with aspects of consumer protection, but none had authority to oversee the entire market.

The CFPB’s oversight authority includes large banks and credit unions as well as “non-bank financial institutions.” These entities include private mortgage lenders and services, debt collectors, payday lenders, credit reporting agencies, and private student loan companies. None of those institutions have been regulated previously. They are major providers of credit in the U.S., and they represent an industry rife with hidden fees, undisclosed fines, and practices that are both unfair and deceptive.

Shocking Abuses Against Consumers

Some of the “standard” procedures with which consumers have dealt in the past are nothing short of shocking. For instance, almost 20 million Americans use payday lenders. Those companies charge, on average, $16 for every $100 loaned over a two week period. That equals a 400 percent annual percentage rate. When borrowers miss payments, huge penalty fees kick in and trigger a virtual debt / fee cycle that leaves most borrowers much worse off than when they walked in the door.

Delinquent consumer debt in the U.S. exceeds $1 trillion. These people have faced outright predatory behavior on the part of collection agencies that engage in open harassment in seeking payment. Additionally, the government estimates that 1 in 5 Americans have fallen prey to some kind of financial scam. The CFPB was created to address these issues and more, and is considered one of the signature achievements of the Obama administration.

Surviving the Recession with Your Investments Intact – Best Moves to Make

The Great Recession may be on a downhill slide, but we’re nowhere near the end. Everyone has heard horror stories of people nearing retirement who were forced to helplessly stand by and watch their 401k accounts plummet in a matter of months. Others saw mutual funds and other investment accounts bottom out as well.

These are scary times, and emerging from the recession with your investments intact is one of the highest financial priorities for American families today. Here are some ways to survive the recession without losing your shirt.

Diversify, Diversify, Diversify

Can’t say it enough. You’ve likely heard the expression “don’t put all your eggs in one basket” many times in the past, I’m sure. Financial advisors spout the old adage in droves, and for good reason. Diversifying your investments has always been sound financial advice, but the recession has transformed the idea from a recommendation to a necessity.

To come out of the most historic economic downturn since the Great Depression with your money intact, it’s imperative to mix up your investment vehicles. Think real estate, savings, CDs, bonds, mutual funds, and retirement accounts. Spread the love and you’ll weather the storm far more effectively than your “sink everything into the old IRA” counterparts.

Stick to the Right Stocks

If you’re still investing in the stock market during these trying times, that’s okay. Many people are avoiding investing in stocks altogether, and this strategy isn’t necessarily a great one. You can still invest in stocks during a recession; you simply need to ensure you’re picking the right companies.

Although no stock is 100% safe, there are some companies in which it’s just safer to invest your money in during a recessionary period. Stick to massive, established companies that have lengthy business histories. When you adopt this strategy, you’re essentially picking brands that have the goods to withstand long stints of market weakness.

Some characteristics to look for in the companies you’re considering include those that have strong balance sheets, strong cash flow, and only a small amount of debt. Established companies with strong cash flows are the safest stock picks during a downturn because they have a greater chance of riding out the storm until it passes and emerge stronger than ever.

Protect Your 401k

Taking some smart, defensive action is a great way to protect your retirement account from getting whacked when another recession rolls around. One personal finance blogger over at Money Green Life saw his 401k suffer a 50% loss in 2008, when the market took a 45% nosedive. He was determined not to make the same mistake twice, and in 2011, when the S&P 500 was down 8%, his 401k was enjoying a 0.1% gain for the year.

How did he do it?

First, he taught himself more about his 401k and the investments that comprised it. He shifted all his money into the money market fund, which, as he points out, is essentially 100% cash. His plan was to ride out the recession by sitting on the sidelines until the storm passed and reinvest his funds accordingly when things were stable once again. While this strategy may not work for everyone, it’s a testament to educating yourself, even just a little, about your investments. That, in itself, is the single best way to protect them from a recession.

Filing For Bankruptcy in Retirement – What You Should Know

Filing for bankruptcy is one of the worst financial hits you can take in your life. It will follow you everywhere you go. Recovering from the blow is hard, and it can take up to a decade for the ding to fall off of your credit report completely. If you are in the middle of your retirement, however, things are a little different. You’re already on a fixed income, and your working years have long since passed.

A recent study done by the University of Michigan Law School found that since the recession began, people ages 65 and older have become the most rapidly growing portion of the population filing for bankruptcy protection. If you suffer a financial meltdown during your golden years, how will it affect you and those you love?

Bankruptcy during Retirement: Could it Be a Good Thing?

Unbelievably, older Americans carry an average of 50% more credit card debt than the generations that came after them. Senior citizens are losing their income from work, and the fixed income they’re left with is not enough to pay their medical bills – even after Medicare pays. That’s the most common misconception that gets this group on trouble. Medicare pays, but there are still quite a few out-of-pocket expenses that seniors must cough up the money for, and longer life spans mean that they’ll be ponying up this money for a much greater period of time than they may have originally thought.

This problem is compounded by the fact that many senior citizens are too proud to ask for assistance from their children or grandchildren, so they hide the debt in an attempt to manage the problem on their own by paying the minimums on credit cards and consumer lines of credit. Eventually, the debt repayments catch up to them and they can no longer stay afloat. That’s when bankruptcy protection may just be exactly what the doctor ordered. For an older filer, bankruptcy will carry the one-two punch of stopping the collection calls and reducing monthly out of pocket expenses back to the realm of affordability. This is a great way for seniors to be able to enjoy their golden years again.

The fixed income that senior citizens live on is one amount for the rest of their lives. Many seniors get minimum wage jobs to help with bills when they should not be working. Bankruptcy is the best way to avoid this last resort and spend the money on everyday expenses instead of credit card interest.