Top 5 Investment Strategies for Beginners You Must Know Before Investing

Top investment strategies for beginners. Investing can be one of the best decisions you can make for yourself, but getting started can be tough. You don't have to be worry again because we have put together top 5 investment strategies to consider:

As we come closer to end of 2023, the world of investing is becoming increasingly complex and competitive. For beginners, it can be challenging to navigate the vast array of investment options available. However, there are some tried and tested strategies that can help beginners get started on their investment journey. For beginners, it's important to focus on building a solid foundation for their investment journey. 

A good investment strategy minimizes your risks while optimizing your potential returns. But with any strategy it’s important to remember that you can lose money in the short run if you’re investing in market-based securities such as stocks and bonds. A good investment strategy often takes time to work and should not be considered a “get rich quick” scheme. So it’s important to begin investing with realistic expectations of what you can and can’t achieve. The wonderful thing about investing strategies is that they can be adjusted as needs arise.

First you need to define your investment goals, whether it's saving for retirement, buying a house, or funding your child's education. Having clear goals helps you align your investment strategy and make appropriate investment choices.

It is crucial to educate yourself and seek professional advice. Take the time to educate yourself about different investment options, risk management, and investment strategies. Read books, attend seminars, or consider seeking advice from a financial advisor who can help you make informed investment decisions.

Diversification is a strategy that involves investing in a variety of assets to spread the risk. This can include stocks, bonds, real estate, and commodities. By diversifying your portfolio, you can reduce the impact of any one asset class performing poorly. This strategy is particularly useful for beginners who are just starting out and may not have a lot of experience in investing.

1. Diversify your portfolio: You must be familiar with the proverb "Don't put all your eggs in one basket," right? The line of reasoning is also supported by portfolio diversification. The likelihood of your investment capital declining during a market downturn is higher if you put all of your money into one or a small number of stocks. It is crucial to diversify your portfolio because of this. You could decide to invest in a basket of companies from several sectors and businesses rather than putting all of your money into one or a few stocks. By doing this, you will spread out your risk and lessen the possibility that all of your stocks will perform poorly during a market slump.

Rebalance your portfolio when needed:-You would have used a certain combination of investments when you built your own portfolio. For instance, based on your objectives, you might have built a portfolio with a 40% equities, 50% debt, and 10% fixed income asset allocation. Now that time has passed, the values of your possessions will likewise fluctuate. In the end, this will result in an imbalance in your portfolio, which is not ideal in terms of being able to achieve your goals. This is why it's crucial to frequently check and adjust your portfolio.

2. Bonds: Bonds are debt securities issued by companies or governments to raise capital. They offer a fixed income stream and can provide a relatively stable investment option for those looking for lower-risk investments.

What are some tips for investing in bonds? When investing in bonds, it’s important to:

Know when bonds mature. The maturity date is the date when your investment will be repaid to you. Before you commit your funds, know how long your investment will be tied up in the bond.

Know the bond’s rating. A bond’s rating is an indication of how creditworthy it is. The lower the rating, the more risk there is that the bond will default – and you lose your investment. AAA is the highest rating (using the Standard & Poor’s rating system). Any bond with a rating of C or below is considered a low quality or junk bond and has the highest risk of default.

Investigate the bond issuer’s track record. Knowing the background of a company can be helpful when deciding whether to invest in their bonds.

Understand your tolerance for risk. Bonds with a lower credit rating typically offer a higher yield to compensate for higher levels of risk. Think carefully about your risk tolerance and avoid investing solely based on yield.

Factor in macroeconomic risks. When interest rates rise, bonds lose value. Interest rate risk is the risk that rates will change before the bond reaches its maturity date. However, avoid trying to time the market; it’s difficult to predict how interest rates will move. Instead, focus on your long-term investment objectives. Rising inflation also poses risks for bonds.

Support your broader investment objectives. Bonds should help diversify your portfolio and counterbalance your investment in stocks and other asset classes. To make sure your portfolio is balanced appropriately, you may want to consult an asset allocation calculator based on age.

Read the prospectus carefully. If you’re investing in a bond fund, be sure to study the fees and analyze exactly what types of bonds are in the fund. The name of the fund may only tell part of the story; for example, sometimes government bond funds also include non-government bonds.

Use a broker who specializes in bonds. If you’re purchasing individual bonds, choose a firm that knows the bond market. Use FINRA BrokerCheck to help find trustworthy professionals that can help you open a brokerage account.

Learn about any fees and commissions. Your broker can help break down the fees associated with your investment.

What are the benefits of investing in bonds?

Bonds offer a host of advantages:Capital preservation: Capital preservation means protecting the absolute value of your investment via assets that promise return of principal. Because bonds typically carry less risk than stocks, these assets can be a good choice for investors with less time to recoup losses.

Income generation: Bonds provide a fixed amount of income at regular intervals in the form of coupon payments.

Diversification: Investing in a balance of stocks, bonds and other asset classes can help you build a portfolio that seeks returns but is resilient through all market environments. Stocks and bonds typically have an inverse relationship, meaning that when the stock market is down, bonds become more appealing.

Risk management: Fixed income is broadly understood to carry lower risk than stocks. This is because fixed income assets are generally less sensitive to macroeconomic risks, such as economic downturns and geopolitical events.

Invest in a community: Municipal bonds allow you to give back to a community. While these bonds may not provide the higher yield of a corporate bond, they often are used to help build a hospital or school or that can improve the standard of living for many people.

What are the risks associated with investing in bonds?

As with any investment, buying bonds also entails risks:Interest rate risk: When interest rates rise, bond prices fall, and the bonds that you currently hold can lose value. Interest rate movements are the major cause of price volatility in bond markets.

Inflation risk: Inflation is the rate at which the price of goods and services rises over time. If the rate of inflation outpaces the fixed amount of income a bond provides, the investor loses purchasing power.
Credit risk: Credit risk (also known as business risk or financial risk) is the possibility that an issuer could default on its debt obligation.

Liquidity risk: Liquidity risk is the possibility that an investor might wish to sell a bond but is unable to find a buyer.

Stocks tend to earn more money than bonds. In the period 1928-2010, stocks averaged a return of 11.3%; bonds returned on average 5.28%.

Bonds freeze your investment for a fixed period of time. For example, if you buy a 10-year-bond, you can’t redeem it for 10 years. This creates the potential for your initial investment to lose value. Stocks, on the other hand, can be sold at any time.

You can manage these risks by diversifying your investments within your portfolio.

3. Buy index funds: This strategy is all about finding an attractive stock index and then buying an index fund based on it. Two popular indexes are the Standard & Poor’s 500 and the Nasdaq Composite. Each has many of the market’s top stocks, giving you a well-diversified collection of investments, even if it’s the only investment you own. (This list of best index funds can get you started.) Rather than trying to beat the market, you simply own the market through the fund and get its returns.

Index investing, sometimes referred to as passive investing, is typically done by investing in a mutual fund or exchange-traded fund (ETF) that aims to track a particular index. This type of investing strategy can be appealing if you don't have the time or experience to research which specific stocks, bonds, or other investments you may want to include in your portfolio.

The advantages of indexing.

Index funds provide the benefit of diversification, and they tend to be cost effective and tax efficient. Investing in index mutual funds and index ETFs allows you to own multiple companies without regularly choosing which ones to buy or sell, and offers the following benefits.

Low fees

Expenses erode returns over time. There are fees associated with any investment. But over time, the fees you pay can really add up, which is why low-cost index investing can leave more of your money invested for growth.

The average actively managed mutual fund charges 0.49% in annual fees. The average index fund charges 0.06% in annual fees.¹

Tax efficiency

Index mutual funds and ETFs tend to have low turnover—meaning they buy and sell securities less frequently—potentially generating fewer capital gains.

Over time, returns lost to taxes add up. In this hypothetical example, $100,000 invested in an active equity fund would have lost over $9,000 more to taxes over 10 years compared to an index equity fund.

Advantages: Buying an index fund is a simple approach that can yield great results, especially when you pair it with a buy-and-hold mentality. Your return will be the weighted average of the index’s assets. And with a diversified portfolio, you’ll have lower risk than owning just a few stocks. Plus, you won’t have to analyze individual stocks to invest in, so it requires much less work, meaning you have time to spend on other fun things while your money works for you.

Risks: Investing in stocks can be risky but owning a diversified portfolio of stocks is considered a safer way to do it. But if you want to achieve the market’s long-term returns – an average 10 percent annually for the S&P 500 – you’ll need to hold on through the tough times and not sell. Also, because you’re buying a collection of stocks, you’ll get their average return, not the return of the hottest stocks. That said, most investors, even the pros, struggle to beat the indexes over time.

4. Dollar-Cost Averaging: Dollar-cost averaging is a strategy that involves investing a fixed amount of money at regular intervals, regardless of the market's performance. This approach can help beginners avoid the temptation to time the market and can help them build a diversified portfolio over time.

Advantages: By spreading out your buy points, you’re avoiding the risk of “timing the market,” meaning the risk of dumping all your money in at once. Dollar-cost averaging means you’ll get an average purchase price over time, ensuring that you’re not buying too high. Dollar-cost averaging is also good for helping to establish a regular investing discipline. Over time you’re likely to wind up with a larger portfolio, if only because you were disciplined in your approach.

Risks: While the consistent method of dollar-cost averaging helps you avoid going all-in at exactly the wrong time, it also means you won’t go all-in at exactly the right time. So you’re unlikely to end up with the highest possible returns on your investment.

5. Dividend stocks: Dividend stocks are shares in companies that pay out a portion of their profits to shareholders in the form of dividends. These can provide a steady stream of income for investors.

6. Robo-Advisors: Robo-advisors are online investment platforms that use algorithms to create and manage portfolios for investors. They offer a low-cost and hands-off approach to investing, making them an excellent option for beginners who are just starting out.

7. Real Estate Investment Trusts (REITs): REITs are a type of investment that allows investors to invest in real estate without owning physical property. They offer a way to diversify your portfolio and earn passive income through rental payments. This strategy is suitable for beginners who want to invest in real estate but don't have the capital or expertise to invest in physical property.

In conclusion, there are many investment strategies available for beginners. Diversification, index funds, dollar-cost averaging, robo-advisors, and REITs are all excellent options to consider. 

Remember, investing involves risks, and it's important to do thorough research and assess your risk tolerance before making any investment decisions. However, it's essential to do your research and consult with a financial advisor before making any investment decisions. 

Backdoor Roth IRA: What it is, Benefits, Limits, and how to set it up

"Backdoor Roth IRA" is simply a term to describe a strategy used by high-income earners who can't contribute to a Roth IRA because their income is above certain limits. Rather than contribute directly to a Roth, you contribute to a traditional IRA, and then convert it to a Roth.

A Roth IRA is a popular retirement savings account to which you contribute after-tax dollars, and if you meet certain requirements, you can withdraw both the invested money (principal) and earnings accrued on the money tax-free in the future. You might be a good candidate if you think you'll be in a higher tax bracket when you retire. The benefit of a Roth IRA is that it offers tax-free growth.

Backdoor Roth IRA income limits

If your modified adjusted gross income (MAGI) is above certain income limits, then the amount you can contribute to a Roth IRA is phased out. The phaseout occurs between $138,000 and $153,000 for single filers and $218,000 and $228,000 for joint filers in 2023. The backdoor method allows those with higher incomes who can't contribute in the typical manner to still take advantage of a Roth IRA.

How to set up a backdoor Roth IRA

1. Contribute money to an IRA, and then roll over the money to a Roth IRA. For this strategy to work, you should contribute to a traditional IRA with no balance. If there's a balance in the IRA, there could be a taxable event when you convert. Once you contribute to the account and wait for any required holding period, you'll then convert the account to a Roth IRA. Any money earned due to market performance before the conversion takes place is subject to taxes. The contribution is considered nondeductible once you fill out IRS Form 8606 and complete your tax return. Note that there's no tax benefit for the year you establish a backdoor Roth IRA.

2. If your 401(k) plan allows, you may be able to do a mega backdoor Roth conversion. Some 401(k) plans permit automatic Roth conversions, which means you can make after-tax contributions and have them automatically convert to Roth within their accounts. Check with your plan to see if this option is available to you.

When should you not consider this strategy?

A backdoor Roth IRA doesn’t make sense for everyone. If you're able to make a Roth IRA contribution the standard way, then you don't need to use the backdoor method.

If you have a balance in a rollover IRA and plan to contribute to that account, you may not want to make a backdoor Roth conversion because of the "pro rata" rule. This rule requires all IRA distributions to be taken proportionally from your pre-tax and after-tax contribution sources. This could limit the tax benefits you'd receive from a Roth conversion. For example, if you have a total of $1 million in IRA assets, and $100,000—or 10%—is after-tax money, then 10% of any withdrawal must be taken from after-tax money. For a $10,000 withdrawal, $1,000 would have to be after-tax money.

It's important to keep in mind when you plan to use the money. If you're looking to withdraw the money within 5 years, you may not receive all the Roth tax benefits.* Also, when creating a backdoor Roth IRA, you'll have to work with an accountant to file tax forms to ensure you complete it accurately.

What are the benefits?

The main benefit of a backdoor Roth IRA contribution is the ability to contribute to a Roth IRA even if your income is too high to contribute directly.

Making a backdoor Roth contribution means that the money converted to the Roth IRA will not be subject to required minimum distributions (RMDs) after the account holder turns 73. Having money in a Roth IRA also provides tax diversification for the account holder once they reach retirement. If the five-year rule requirements are met and you are at least 59½, there are no 10% early withdrawal penalties and withdrawals will be tax-free.

With the enactment of the Secure Act that went into effect on January 1, 2020, the rules for inherited IRAs for most non-spousal beneficiaries changed. Prior to this, those inheriting an IRA could stretch it out over their own lifetimes in most cases. While RMDs are required for IRAs inherited prior to these new rules, the ability to stretch the RMD payments out over a longer period has served to minimize the tax hit for many beneficiaries.

The Secure Act changed the rules for what are called “non-eligible designated beneficiaries.” This includes many non-spousal beneficiaries. The new rules require that these beneficiaries must withdraw all of the money within ten years from an IRA inherited beginning in 2020 or later (the 10-year rule).

In the case of an inherited Roth IRA, the 10-year rule still applies. However, the withdrawals will be tax-free as long as the original account holder satisfied the five-year rule on the account prior to their death. This can allow the beneficiaries to keep more of their inheritance.

Who is the backdoor Roth for?

The backdoor Roth technique is mainly for those investors who want to be able to contribute to a Roth IRA, but who earn too much in a given tax year to do so. To benefit from a backdoor Roth IRA, you need to be able to pay any extra taxes that might be triggered by the conversion. This is true of any type of Roth conversion, or for any type of taxable withdrawal from a traditional IRA. If you don’t have the cash on hand to pay taxes on the conversion, it may not be a good strategy.

How to do a backdoor Roth conversion

• Contribute to a traditional IRA. Contributions are typically made on an after-tax basis, though you could make a pre-tax contribution if desired.
• Convert your contribution to a Roth IRA. If you already have a Roth IRA account open that’s great. If you don’t you will need to open a Roth IRA in order to complete the process.
• Pay any applicable taxes as part of your tax return for the year in which the backdoor Roth IRA is done.

What are the tax implications?

Typically the contributions to start the backdoor Roth IRA process are made on an after-tax basis to a traditional IRA account.

There may or may not be any taxes when the conversion from the traditional IRA to a Roth IRA are made. This will be governed by the pro-rata rule. This rule says that if you have amounts in a traditional IRA that consists of money contributed on a pre-tax basis, the amount converted is taxed based on the ratio of after-tax contributions to pre-tax contributions and earnings in total across all traditional IRA accounts you may hold. Note that beyond just regular traditional IRA accounts, the calculation would also include amounts in a SEP-IRA or SIMPLE IRA account.

If you do not have any other money in a traditional IRA, your backdoor Roth IRA might be tax free. If you contribute $6,500 after-tax to a traditional IRA and do the conversion right away, the conversion will be tax-free assuming that your contribution to the traditional IRA did not have any earnings in between the time of your contribution and the time when the conversion occurred.

Using the same $6,500 after-tax contribution, if you wait for a period of time and there are earnings inside of the traditional IRA, then the conversion will be taxed based on the ratio of the amount pertaining to the tax-free contributions and the earnings portion of the conversion.

Let’s say that the earnings in the account are $250 by the time you do the conversion. The total amount of the conversion was $6,750. The amount subject to taxes would be 3.7% of the amount converted. This is calculated as $250 divided by $6,750.

Let’s look at a different situation using the same $6,500 after-tax contribution to the traditional IRA. In the case of our hypothetical person, she has $100,000 in total inside of traditional IRA accounts counting the $6,500 contribution. Of this $100,000, $20,000 is the result of after-tax contributions and the rest consists of money contributed on a pre-tax basis plus earnings inside of the accounts. Of any money she converts 80% will be subject to taxes.

Backdoor Roth IRA contribution limits for 2023

The IRA contribution limits for a particular year govern the amount that can be contributed to a traditional IRA to start the backdoor Roth process. The IRA contribution limits for 2023 are $6,500, with an additional $1,000 catch-up contribution for those who are 50 or over.

The other limit that pertains to backdoor Roth IRAs are the income limitations on the ability to contribute directly to a Roth IRA account. This is the main reason that people do a backdoor Roth IRA. For 2023, these following are the income limits on the ability to contribute directly to a Roth IRA.

What is a Roth IRA and Steps to Open a Roth IRA

A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. Roth IRA rules dictate that as long as you've owned your account for at least 5 years and you're age 59½ or older, you can withdraw your money when you want to and you won't owe any federal taxes.

A Roth IRA is a tax-advantaged account designed specifically for retirement savings. Unlike traditional IRAs, which are typically funded with pretax dollars, a Roth IRA is designed to help you save for retirement with after-tax contributions that offer the potential for tax-free income in retirement.

Which mean at any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on your investments can also be withdrawn tax-free and penalty-free, provided  you meet certain requirements.

Roth IRA offers tax-free withdrawals

With a Roth IRA, you get a future bonus: Every penny you withdraw in retirement stays in your pocket. As long as you have earned income (up to limits set by the IRS), you can contribute to a Roth IRA. Not sure how much to contribute? Use the Contribution Calculator offered by fidelity.

What are the benefits of a Roth IRA?

Once you open and fund a Roth IRA, you can invest your assets in a variety of investments, including stocks, bonds, certificates of deposit (CDs), mutual funds, exchange-traded funds (ETFs) and money market funds. These choices give you the opportunity to diversify your savings with an appropriate mix to help meet your retirement objectives.

Roth IRAs have unique benefits that can help you save for your retirement goals. These benefits include:

Access 

Although Roth IRAs are designed for retirement savings, you can access your contributions at any time without taxes or penalty.

Tax-free income 

A Roth IRA generally provides tax-free income in retirement, giving you greater flexibility to manage your taxes in retirement.

No required minimum distributions (RMDs) 

Unlike traditional IRAs, Roth IRAs do not have RMDs, allowing your assets more time to grow tax free.

Tax-free asset for heirs 

A Roth IRA won't create a tax burden for your heirs.

How do Roth IRA contributions work?

Your contributions to a Roth IRA are made with after-tax dollars, since you can't deduct them from your income taxes. In exchange for paying taxes today, your future qualified withdrawals are tax free, giving you greater flexibility to manage your taxes in retirement.

If you’re eligible, you can contribute up to 100% of your taxable compensation or the annual contribution limit, whichever is lower. Contribution limits are set every year by the Internal Revenue Service (IRS) and are tied to cost-of-living adjustments. 

Keep in mind your total contribution can be no more than the limits shown below for all your traditional and Roth IRAs combined:

Roth IRA Contribution Limits

If you’re 49 or younger $6,500 $6,000 and If you’re 50 or older $7,500 $7,000

To be eligible to contribute to a Roth IRA, you must have taxable compensation and your modified adjusted gross income (MAGI) must be below a certain threshold. MAGI limits vary, depending on your tax filing status.

If your MAGI exceeds these limits, you may still be able to contribute to a Roth IRA through a backdoor Roth contribution.

IRA contributions must be made in cash and can be made at any time during the year up to the tax-filing deadline, not including extensions (generally April 15).

In addition to funding your own IRA, you can also fund an IRA on behalf of:

Your spouse. If your spouse has no taxable compensation, you may be able to contribute up to the maximum IRS annual contribution limit for that account, too, as long as you file a joint tax return.

Your child or grandchild. You can fund a Roth IRA on behalf of someone else, including a minor, as long as the owner is eligible to contribute.

While Roth IRA contributions aren’t eligible for a tax deduction, eligible taxpayers can receive the Saver’s Credit for their Roth IRA contributions. The Saver’s Credit is a nonrefundable tax credit of up to $1,000 for single filers ($2,000 for joint filers) that can help lower your tax bill.

What’s a Roth conversion?

A Roth conversion is when you move funds from a traditional IRA to a Roth IRA. With a Roth conversion, you pay taxes now to have access to tax-free distributions in the future, as well as other benefits Roth IRAs offer. But, please be aware that once a traditional IRA is converted to a Roth IRA, you can’t undo this action.

While there are no eligibility requirements for a Roth conversion, there are several factors to consider when determining whether a Roth conversion makes sense for you, including your current tax rate versus your expected tax rate in retirement, your ability to pay taxes on the conversion, when you need to access your funds, your current mix of pretax and after-tax assets, and your desire to leave a tax-free inheritance for your heirs. A financial advisor can help you determine whether a Roth conversion is a good option for you.

How are Roth IRA distributions taxed?

You can distribute the contributions you made at any time without taxes or penalties. If it’s been at least five years since you first funded a Roth IRA and you’re 59½ or older, you can also distribute your earnings tax- and penalty-free.

However, if you don't meet both criteria, a distribution of earnings may be subject to taxes and or a 10% penalty (see next question for possible penalty exceptions).

What are the penalty exceptions for distributions before 59½?

• Per the IRS, the 10% penalty is waived for early IRA distributions if you:Inherited the IRA after the original account owner died.

• Are disabled or terminally ill.

• Take distributions in substantially equal payments over your life expectancy.

• Have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.

• Use the distribution to pay for medical insurance premiums due to unemployment.

• Use the distribution for qualified higher education expenses.

• Use the distribution to build, buy or rebuild a first home (up to $10,000).

• Use the distribution to pay for expenses related to the birth or adoption of a child (up to $5,000 taken within one year following the event).

• Are a reservist called to active duty after Sept. 11, 2001.

• Use the distribution to satisfy an IRS levy.

• Are impacted by a qualified disaster and take the distribution within the required timeframe (up to $22,000 lifetime limit).

What’s the difference between a Roth IRA and a traditional IRA?

One of the main differences is the way contributions and withdrawals are taxed. Roth IRA contributions are made with after-tax dollars and future, qualified withdrawals are tax free. Traditional IRA contributions are generally made with pretax dollars, earnings grow tax deferred, and future withdrawals are taxed like income.

Another difference is required withdrawals. If you have a traditional IRA, the IRS requires you to withdraw a minimum amount each year when you reach 73, known as a required minimum distribution (RMD). A Roth IRA has no RMDs.

What’s the difference between a Roth 401(k) and a Roth IRA?

A 401(k) plan through your employer is designed to allow you to contribute a percentage of your salary for retirement savings. Employer plans may offer a traditional 401(k) and a Roth 401(k) for employees. Like an IRA, a traditional 401(k) is funded with pre-tax dollars and distributions are taxed as ordinary income, while a Roth 401(k) is funded with after-tax dollars with the potential for tax free withdrawals in the future.

With a 401(k), your employer makes several decisions on your behalf where your account is held, when you’re eligible to contribute, what investment options and services are available to you, and when you can take distributions from your account, to name a few. 401(k) plans are generally less expensive than IRAs and can offer certain benefits that are unavailable to IRAs, such as employer matches, the ability to borrow against your assets, and the ability to take penalty-free withdrawals beginning at age 55 if you meet certain criteria. Unlike with Roth IRAs, there are no income limits for Roth 401(k) contributions, but you generally can’t access your contributions at any time like you can with a Roth IRA. You also have to take required minimum distribution (RMDs) from a Roth 401(k) when you turn 73, although this requirement will be eliminated in 2024 as a result of the SECURE 2.0 Act.

A Roth IRA is an individual account you contribute to and manage. It offers you more control and choice over where and how your contributions are invested as well as when you can access your funds. These accounts aren’t tied to your employer and are transferable between institutions at any time. If your 401(k) plan does not offer a Roth option, a Roth IRA can help you diversify the tax treatment of your assets, giving you greater flexibility to manage your taxes in retirement.

Additionally, if you want to maximize your retirement savings, you can contribute up to the annual limits for your 401(k) and a Roth IRA as long as you meet the eligibility requirements.

Can I roll over my employer retirement plan to a Roth IRA?

You generally must meet two criteria to be able to roll over your employer retirement plan to an IRA:

• Your plan must allow you to take a distribution.
• The distribution must be eligible to be rolled over. 

Certain distributions, such as required minimum distribution (RMDs) and hardship distributions, aren’t eligible.

Additionally, Roth 401(k) assets may only be rolled over to a Roth IRA. Pretax 401(k) assets can be rolled over to a traditional or a Roth IRA. But, if you roll over pre-tax 401(k) assets to a Roth IRA, it’s considered a Roth conversion, and the amount that’s rolled over will be taxed.

It’s also important to know that there are differences between employer plans and IRAs. Make sure you understand your options before rolling over. A financial advisor can also help you determine whether rolling over makes sense for you.

Can I move my IRA to another provider?

Yes, you can transfer your IRA to another provider at any time without tax consequences or tax reporting as long as the assets move directly from your current IRA provider to your new IRA provider.

To move an existing IRA to another provider, you will need to contact a financial advisor to help you determine the method best suited to your needs.

I hope you find this article helpful.

Why is it Important to Save Money and How to Start Saving Money Today

Without savings, a financial shock even minor, could set you back, and if it turns into debt, it can potentially have a lasting impact.

The importance of saving money is simple is it allows you to enjoy greater security in your life. Saving gives you the freedom to live life on your own terms. Despite the importance of saving money, many of us aren’t following through on that tip. When it comes to doing the right thing financially, just knowing you should save isn’t enough.

It can be tough to allocate some of your cash to a savings account if you don’t have a set goal for that money. Why save for later when you can spend on what you want today, right? But among the many reasons to save money is that even if you don’t know exactly what you are saving for right now, you’ll likely find something you want to save for in the future. A new car, a new home, a child’s education… the possibilities are endless. Plus, it’s critical to have some cash set aside for emergencies and unexpected expenses as they come up.

1. Eliminate Your Debt

If you’re trying to save money through budgeting but still carrying a large debt burden, start with your debt. Not convinced? Add up how much you spend servicing your debt each month, and you’ll quickly see. Once you’re free from paying interest on your debt, that money can easily be put into savings. A personal line of credit is just one option for consolidating debt so you can better pay it off.

The best way to jumpstart establishing a budget is to realize your spending habits. On the first day of a new month, get a receipt for everything you purchase throughout the month. Stack the receipts into categories like restaurants, groceries, and personal care. At the end of the month you will be able to clearly see where your money is going. Additionally, your bank or credit union may have this as an online-banking feature. Seeing what you spend in total on food, shopping, etc. can be humbling!

If you have trouble with overspending, try the envelope budget system where you use a set amount of cash for most spending. And once the cash is gone, it's gone.

2. Automate your savings with an app

If you often forget to put money into your savings account or struggle to know how much to sock away, consider using an app that does the work for you.

There are plenty of apps that will automate your savings. Qapital and Digit are two options. These automated savings apps are designed to automatically transfer a predetermined amount from your paycheck into your savings.

You won’t earn the highest annual percentage yield (or sometimes any) on your deposits with these apps, so once you’ve saved up a bundle, consider transferring the money into a high-yield savings account.

3. Set Savings Goals

Start saving for your retirement as early as possible. Few people get rich through their wages alone. It's the miracle of compound interest, or earning interest on your interest over many years, that builds wealth. Because time is on their side, the youngest workers are in the best position to save for retirement. Save your windfalls and tax refunds. Every time you receive a windfall, such a work bonus, inheritance, contest winnings, or tax refund, put a portion into your savings account.

If you need motivation, set saving targets along with a timeline to make it easier to save. Want to buy a house in three years with a 20% down payment? Now you have a target and know what you will need to save each month to achieve your goal. Use savings calculators to meet your goal.

Those with a savings plan are twice as likely to save successfully.

4. Earn cash back on your purchases

Avoid purchasing expensive or unnecessary items on impulse with a self-imposed 24-hour rule. For any non-essential item, wait 24 hours before purchasing. It’s perfect for online shopping where your items can simply be added to your cart to purchase later.

Even when times are toughest, you’ll still need to spend money on essentials, so you might as well be rewarded with cash back. There are cash-back credit cards that can help you collect cash back on your purchases. Some don’t even have an annual fee.

Your existing credit card might also have cash-back offers at certain retailers, but you might need to opt in to redeem this reward. These offers may have an expiration date or other terms and conditions, so double check to ensure you’re not caught off guard.

Cash-back apps might also be an option to consider before you start shopping for new credit cards.

5. Refinance your mortgage

Refinancing has a lot of advantages: It can allow you to lower your monthly payment, save money on interest over the life of your loan, pay your mortgage off sooner and draw from your home’s equity if you need cash.

Explore if you have the option to refinance your mortgage to a lower interest rate. On a 15-year $100,000 fixed-rate mortgage, lowering the rate from 7 percent to 6.5 percent can save you more than $5,000 in interest charges over the life of the loan. And, you will accumulate home equity more rapidly, thus increasing your ability to cover those pesky unexpected home repairs.

6. Set up automatic payments for bills if you make a steady salary

We’re busy. It’s all too easy to forget to pay all of our bills on time. One easy way to save money is to pay your bills when they’re due, assuming you can afford to do so.

Companies charge you late fees for overdue balances. While this might amount to just $5 here or $10 there, those fees quickly add up. Credit card late fees can be a lot more expensive.

People with irregular income may want to hold off automating bill payments and instead consider trying a service like Steady, which connects you to side gigs and other earning opportunities near your payday and bill due dates.

7. Create an Interest-Bearing Account

For most of us, keeping your savings separate from your checking account helps reduce the tendency to borrow from savings from time to time. If your goals are more long-term, consider products with higher yield rates like a CD or money market account for even better savings.

Open a short-term certificate of deposit (CD): A one-year CD could help you earn more interest than a savings account. Plus, a CD’s yield is usually fixed; as long as you keep the money in the CD through the duration of the term, you’re guaranteed to earn the opening APY.

One important caveat: Avoid CDs if you think you might need the cash before the CD term ends, so you won’t have to pay early withdrawal penalties.

8. Make your saving automatic

Saving automatically is one of the easiest ways to make your savings consistent so you start to see it build over time. One common way to do this is to set up recurring transfers through your bank or credit union so money is moved automatically from your checking account to your savings account. You get to decide how much and how often, but once you have it set up, you’ll be making consistent contributions to your savings.

Saving automatically will help you build the good financial habit of saving regularly, but without putting in a lot of effort. And since the money never hits your checking account, you’ll never miss it which potentially reduce the temptation to spend what you should be saving.

9. Annualize Your Spending

Do you pay $20 a week for snacks at the vending machine at your office? That’s $1,000 you’re removing from your budget for soda and snacks each year. Suddenly, that habit adds up to a substantial sum.

As you implement these tips into your financial life, remember that where you save your money is important too. Regularly move the money you save out of your checking account into your savings account, where you’ll be less likely to touch it before you reach your goals.

How do I build it?

There are different strategies to get your savings started. These strategies cover a range of situations, including if you have a limited ability to save or if your pay tends to fluctuate. It may be that you could use all of these strategies, but if you have a limited ability to save, managing your cash flow or putting away a portion of your tax refund are the easiest ways to get started.

Building a savings of any size is easier when you’re able to consistently put money away. It’s one of the fastest ways to see it grow. If you’re not in a regular practice of saving, there are a few key principles to creating and sticking to a savings habit:

Set a goal. Having a specific goal for your savings can help you stay motivated. Establishing your emergency fund may be that achievable goal that helps you stay on track, especially when you’re initially getting started. Use our savings planning tool to calculate how long it’ll take you to reach your goal, based on how much and how often you’re able to put money away.

Create a system for making consistent contributions. There are a number of different ways to save, and as you’ll read below, setting up automatic recurring transfers is often one of the easiest. It may also be that you put a specific amount of cash aside each day, week, or payday period. Aim to make it a specific amount, and if you can occasionally afford to do more, you’ll watch your savings grow even faster.

Regularly monitor your progress. Find a way to regularly check your savings. Whether it’s an automatic notification of your account balance or writing down a running total of your contributions, finding a way to watch your progress can offer gratification and encouragement to keep going.

Celebrate your successes. If you’re sticking with your savings habit, don’t miss the opportunity to recognize what you’ve accomplished. Find a few ways that you can treat yourself, and if you’ve reached your goal, set your next one.

It’s important to remember to keep your retirement savings and emergency fund separate. There are better ideas than using your retirement savings for unexpected expenses. Instead, you can put your retirement savings into a long-term investment account like a 401(k). Just be sure to contribute enough to get your employer to match if they offer one. An emergency fund can be kept in a high-yield savings account, which earns interest and is readily available.

9 Gold IRA Scams to Avoid: How To Protect Your Retirement Savings

If there's money involved, there's going to be scams, and there's no shortage of them in the gold IRA industry.

In a world where financial scams are prevalent, it's crucial to be aware of the risks associated with Gold IRA investments and take necessary precautions to safeguard your hard-earned money.

Gold is a good investment, and there is no reason for any dishonesty. Yet it happens, and you must be aware of the risks.

Many bad actors out there will take advantage of investors who do not understand the complexities associated with investing in gold or setting up retirement accounts of this kind, which makes it important for those looking into these options to know how to recognize a potential scam.

In this article, we will examine the warning signs of Gold IRA scams and provide valuable insights to help investors make informed decisions and protect their investments—not only does knowing them protect your hard-earned retirement money from being funneled away, but it also helps improve the industry as a whole through greater transparency.

What Is A Gold IRA Scam?

A Gold IRA scam is a fraudulent scheme that targets individuals looking to invest in gold through Individual Retirement Accounts (IRA). This scam often involves making false promises or misleading guarantees, and it may also involve using unqualified or unethical "experts."

You may wonder why gold is so popular as an investment. It is because of it unique characteristics and the benefits it offers. As a tangible asset, gold acts as a hedge against inflation and economic uncertainties, providing stability when market volatility strikes.

The beauty of gold investment lies in its versatility, offering you various avenues to explore its potential. The possibilities are plentiful, from owning physical gold bars and coins to investing in gold exchange-traded funds (ETFs) and mining stocks.

Understanding How Gold IRA Scams Work

Misleading Sales Tactics: Scammers often employ high-pressure sales tactics, promising unrealistic returns or guaranteeing a risk-free investment. Be wary of companies or individuals who use aggressive tactics to push you into making hasty investment decisions.

Unverified Claims: Fraudulent Gold IRA providers may make false or exaggerated claims about their expertise, affiliations, or track record. Always verify the credibility and reputation of the company before entrusting them with your investment.

Hidden Fees and Excessive Charges: Some scam artists disguise hidden fees and charges, significantly reducing the overall returns on your investment. It is crucial to carefully review and understand the fee structure of any Gold IRA provider before committing your funds.

Here are 10 of the most common Gold IRA Scams:

1. The Bait-and-Switch Gold IRA Scam

A bait-and-switch scam is a fraudulent sales tactic in which a seller advertises one product or service but then tries to sell the customer a different, more expensive product or service. This scam is often used in the gold IRA sector, where sellers may advertise low-cost gold coins or bars but then try to switch the customer to more expensive products, such as rare coins or coins with high premiums.

The bait-and-switch scam typically works like this:

• The seller advertises a low-cost gold product, such as a 1-ounce American Gold Eagle coin.
• The customer calls the seller and expresses interest in the product.
• The seller then tells the customer that the product is out of stock or that the price has increased.
• The seller then tries to sell the customer a more expensive product, such as a rare gold coin or a coin with a high premium.

The seller may use a variety of techniques to pressure the customer into buying the more expensive product, such as:

• Claiming that the more expensive product is a better investment.
• Saying that the more expensive product is in high demand and is likely to appreciate in value.
• Offering the customer a discount on the more expensive product.
• If the customer refuses to buy the more expensive product, the seller may simply cancel the order.

If you think that you have been the victim of a bait-and-switch scam, you should contact the seller and file a complaint with the Better Business Bureau (BBB). You may also want to consider filing a lawsuit against the seller.

2. Overpricing Gold Bullion or Coins

In this scam, the gold seller intentionally inflates the price of the bullion or coins they’re selling, sometimes charging three times or more than the current market price. They’re banking that you won’t do enough research to discover your cost is excessively high, which could make it extremely difficult for you to recover your initial investment.

To avoid falling into this trap, you must understand the market price for gold and use it to guide your investment decisions.

3. Damaged or Shaved Coins, Rounds, and Bars

Damaged or Shaved coins, rounds, and bars are a common form of gold IRA scam. This type of fraud involves buying coins, bars, or rounds at a deep discount due to damage done to them.

These coins often appear to be in pristine condition but can be seen as having teeth marks or small chips in them upon closer inspection. The coins may also have been sanded down to reduce the amount of metal used in the coin, thus reducing its weight and gold content.

Scammers will use these damaged or shaved coins to cheat buyers out of their money.

They may try to pass off the coins as if they are full-bodied pieces and sell them at a much higher price than their true value. In addition, some scammers may also offer coins that have been counterfeited and try to pass them off as authentic pieces.

Buyers must be aware of this gold IRA scam and take extra steps when purchasing coins or bars. Buyers should always inspect the coins, ask for a certificate of authenticity, and make sure they purchase from a reputable dealer. American Hartford Gold is a trusted source for gold coins, so you can be sure to get the right ones.

In addition, buyers should use an independent third-party appraiser to help verify the coins' value and quality. This can help buyers protect themselves from being taken advantage of by unscrupulous sellers.

4. Frauds Posing as Storage Companies

Knowing that IRAs require the gold to be stored in a third-party depository, some scammers may claim to be storage companies and offer to keep it in private or ‘secure home safes,’ which is a direct violation of IRS regulations. Falling for this scam puts your investment at great risk. Ensure to verify your chosen storage company with the IRS.

5. Counterfeit Coins

Counterfeiting gold coins is an age-old problem, but it has been increasingly targeted in recent years. In particular, a popular scam targeting investors looking to open a Gold IRA (individual retirement accounts) involves counterfeit coins.

The scammers often advertise on social media and offer deals that sound too good to be true. They then use fake coins or other objects disguised as gold coins, only to leave the investor with a worthless product.

The scam is often difficult to detect because it can be hard to tell whether the coin offered is real. To protect yourself against this kind of fraud, it is important to buy your coins from a reputable dealer with an established track record.

You should also get a written appraisal of the coins before you make any purchases or have them authenticated by an independent third party. Finally, look for warning signs such as low prices or rushed transactions that suggest something is wrong.

6. Pushing Only Their Products 

Some companies may only push their products on you to invest in, limiting your investment options. Genuine firms should encourage portfolio diversification through a variety of gold products from different mints. Beware of companies that do not provide options for diversification.

7. Selling IRA-Ineligible Gold

One of the most important things to note is that not all types of gold are allowed in an IRA. Gold coins and bars must meet specific purity standards set by the Internal Revenue Service (IRS), known as "fineness," and must also be approved by the IRS.The IRS requires that precious metals in an IRA be at least 99.5% pure gold, silver, platinum, or palladium.

Unfortunately, some unscrupulous gold dealers may try to take advantage of investors that are unaware of this by offering them gold coins or bars that are not approved for an IRA.

These coins or bars may be of lower quality and purity than what is allowed in an IRA, and the IRS may also confiscate them. Therefore, it's essential to only purchase gold from reputable dealers who can provide proof of their legitimacy.

Our precious metals IRA guide can help you make informed decisions for your retirement.


8. Non-Delivery Scams

Sellers might convince customers to pay upfront for gold but never actually deliver the gold. This is a scam just to get your money. In a gold IRA, the IRS requires a trustee or custodian to manage transactions, including storage at an IRS-approved facility, thereby providing an additional layer of protection for your investment.

9. False Grading

False Grading Gold scams are a type of fraud that defrauds investors by misrepresenting the quality and value of gold investments. In this scam, victims are lured into buying gold coins or bars that have been falsely graded as being a higher purity than what they contain.

The scammers typically overvalue these items, charging a much higher price than what the gold is worth. Furthermore, they often do not provide any documentation or proof of authenticity to back up their claims.

In many cases, these "falsely graded" products have been misrepresented as collectables or rare silver coins and bars with a much higher value than normal bullion coins or bars. This allows the scammers to charge a much higher price for their products, often with buyers not realizing they are being taken advantage of until it is too late.

Gold investments are usually considered a safe haven asset and a wise investment. Unfortunately, as interest in gold and silver products as retirement investments increased, scams targeting retirees interested in precious metals have also increased.

To avoid becoming the victim of this type of scam, it is important to make sure that any gold investments you make are backed up with documentation and proof of authenticity from a reliable third party. It’s important to research the bullion you are purchasing and ensure that the product's purity and quality match what the seller is claiming.

Scam-Free Gold IRA Companies

1 - Augusta Precious Metals (Most Trusted)

Augusta Precious Metals is our top gold IRA company recommendation. They have a great reputation, are great for high networth individuals, and have been around since 2012. They are almost completely focused on precious metals as their name suggests. Augusta Precious Metals is extremely well rated by both the Better Business Bureau as well as the Business Consumer Alliance.

2 - Birch Gold Group (Best Choice For New Investors)

Birch Gold Group is renowned for its reputable custodial services and commitment to protecting clients' retirement assets. They have established themselves as a trusted partner by offering a wide range of investment options and ensuring the security of investors' precious metals holdings. With their strong focus on customer satisfaction and industry expertise, Birch Gold Group is a reputable choice for individuals seeking to invest in a Gold IRA.

3 - American Hartford Gold (Best Customer Service)

American Hartford Gold is easily one of the most trustworthy gold IRA dealers, with near pristine ratings and reviews online, great product inventory, and super a super helpful team with great customer service. It's obvious they care about their customers. On the other hand, if you're looking for platinum or palladium, you're out of luck. We gave AHG 5 out of 5 stars.

4 - Advantage Gold (Best For IRA Rollovers)Goldco

Goldco is another highly reputable Gold IRA company, offering a range of investment options and excellent customer support. Their commitment to customer satisfaction sets them apart, and they have been praised for their responsiveness and expertise in guiding investors through the process. Goldco's dedication to providing tailored solutions and flexible investment strategies makes them a top choice for Gold IRA investors.

Advantage Gold is a relatively young company that’s been in business since 2014 and an awesome gold IRA company to work with for a rollover. They specialize in converting eligible accounts into precious metals IRAs and deal with both precious metals IRAs as well as cash sales of precious metals.

5 - Gold Alliance (Focus on Retirement Investing)

Gold Alliance is one of the oldest companies in the gold IRA sector that we've come across. With a dedicated focus to retirement gold investing, you're in good hands if you're looking to open a gold IRA with Gold Alliance, however, we recommend looking elsewhere if you want to invest in gold outside of an IRA.

How To Protect Yourself from Gold IRA Scams

Research and Due Diligence: Thoroughly research and evaluate potential Gold IRA companies. Check their background, customer reviews, ratings with reputable organizations like the Better Business Bureau, and any legal actions or complaints filed against them.

Verify Credentials: Ensure that the Gold IRA provider is reputable and trustworthy by verifying their licenses, registrations, and accreditations. Legitimate companies should be registered with relevant authorities and comply with regulatory guidelines.

Independent Custodian: Choose a Gold IRA provider that works with an independent custodian to hold and safeguard your physical gold. This separation of roles adds an extra layer of security and reduces the risk of fraudulent activities.

Understand the Fee Structure: Be clear on the fee structure involved with your Gold IRA, including the costs associated with the custodian and depository services. Insist on a detailed breakdown of all fees and be wary of companies that are not transparent about their charges.

Transparent and Clear Terms: Carefully read and understand all terms and conditions, agreements, and disclosures provided by the Gold IRA company. Transparent and clear communication regarding fees, storage, and any limitations is essential to protect your interests.

Professional Guidance: Seek advice from qualified financial professionals or advisors who specialize in retirement planning and Gold IRA investments. Their expertise can help you navigate through the complexities and identify reputable Gold IRA providers.

How do I set up a Gold IRA?

To set up a Gold IRA, you will need to follow these general steps:

(1) Select a reputable Gold IRA company or custodian that offers self-directed IRA services.

(2) Open a self-directed IRA account and complete the necessary paperwork.

(3) Fund the account by transferring funds or assets from an existing retirement account or making a contribution.

(4) Work with the custodian to choose the desired precious metals for your Gold IRA and facilitate the purchase and storage of those metals.

Conclusion

Gold IRAs can be an excellent method to diversify and protect your wealth. However, like many financial opportunities, it comes with potential pitfalls like scams. Arm yourself with knowledge and do your homework. Trust only reputable companies and stay vigilant. If something seems suspicious, don’t hesitate to report it.

Research any Gold IRA company you are considering working with thoroughly before making any commitments. Be sure to check Gold IRA reviews, both positive and negative, as well as the Better Business Bureau rating.

How to Get Small Business Loan in Nigeria Without Collateral

Startup business loans aren’t a specific type of loan; rather, they are any type of loan used to open a new business. You might need this money to help develop a product or service, hire employees, lease space or equipment, and buy inventory. Startup loans can also include funding for businesses that have opened their doors but are still in the earliest stages.

Startup loans generally don’t require business credit or high revenue—lenders know they’re lending money to support a new idea. However, your personal credit and experience in the industry can affect your eligibility and loan terms. You can also use different types of financing to support your business. Here are nine common options.

What credit score is needed for a startup business loan?

The credit score you need for a startup business loan can depend on the type of loan and the lender, but having a personal credit score that’s at least in the high 600s (the maximum is 850) can be helpful. However, some types of financing, such as crowdfunding, don’t require good credit.

How to get a startup business loan

• Create a business plan.
• Evaluate your personal credit.
• Compare different types of financing.
• Apply for financing.

You may want or need multiple rounds of funding to get your idea off the ground, and the specifics will depend on the options you choose. However, the basic steps start with preparing your pitch, reviewing your qualifications, and seeing what you can qualify for at the time.

Create a business plan. Lenders want to see that you’ve thought through the challenges and opportunities that will come with your new business. Include any relevant information about your experience running a business or working in the industry.

Evaluate your personal credit. Your personal credit may be a factor in whether you qualify for financing and the rates and terms you receive. Many free apps and financial accounts let you check your credit scores for free. See where you stand and what you can do to improve your credit score.

Compare different types of financing. Consider how much money you need, when you need it, and how much you can afford to repay as you review the options and home in on your top choices.

Apply for financing. Review the eligibility and application requirements and apply with several lenders or organizations. Compare the offers you receive to determine which will be the best fit for your business idea.

Online business loans are often term loans, which means you receive the entire loan amount when you accept the loan offer and then make regular payments over a predefined term until the loan is repaid.

Online lenders may also have easier qualifications and a faster application process than traditional lenders, and they might use modern techniques (such as connecting to and analyzing your bank account) to determine who qualifies.

One of the strongest barrier startups face is in providing collateral for a loan. This is because startups, most times, do not have existing assets, which disqualifies them from the majority of commercial loans.

No Collateral Required
The Smart Business Loan is structured to provide access to loans of up to N20m without collateral.

Flexible Repayment
The repayment plan can be structured to suit your business and flexible for up to 2 years.

Convenience
Easy access to the loan through our digital application forms and automated repayment process.

Top-up is available
If you need additional financing during your loan tenor, we can offer you a top up after 12 months if regular repayments are made.

The Nigeria bureau of statistics has stated that these MSMEs and SMEs contribute to over 50% of the country’s GDP employing about 80% of the country’s workforce. Despite this, MSMEs and SMEs still struggle to access adequate credit, with only about 5% of these businesses having access to funding and credit.

These statistics are probably not so far-fetched as you may know a few yourself that haven’t been able to get credit. For this reason, many business owners have had to squeeze themselves dry to get started. They used their savings, borrowed money from family and friends, and even sold properties just to get some capital. Truth be told, finding credit can seem like looking for a needle in a haystack, but it doesn’t have to be.

In this post, we’ll teach you how to get a small business loan in Nigeria, so your small business can expand and truly reach its potential. If you are new to the business world, we will also talk about ways to obtain a loan for startup business in Nigeria.

Ways to procure loans for small businesses in NigeriaAccess to small business loans, especially business loans without collateral is not as common as most would think, but there are still a few safe and secure ways to get loans. We’ve outlined the main ones below.

Loan Apps

This is the fastest and most common way of getting a loan for start-up businesses in Nigeria. Loan apps usually take about 5 – 10 minutes to decide on your loan package and if you should be given a loan. Loan amounts range from ₦250,000- ₦10,000,000. Majority of the time, these apps don’t require collateral & offer collateral free loans for business. They only use your credit score to determine if you are likely to pay back.

Pros of loan apps

• They are fast. 
• They give substantial amounts of money
• No collateral needed
• No need to go to a branch. 
• You only have to download an app.

Cons of loan apps

• They often have only one physical branch
• You may not get the amount you want. 
• The app decides the amount it can trust you with.

Even though loan apps give some of the best small business loans, you still need to do your due diligence. Do not download just any app on the app store instead, check out this list we’ve compiled on the top loan apps in Nigeria and pick a loan app partner based on your needs.

SBA loans

The US Small Business Administration (SBA) doesn’t offer most SBA loans directly, but it partially guarantees loans offered through participating lenders. You can apply for different types of SBA loans depending on your business and how you plan to use the funds. Although the application and approval process can be lengthy, the guarantee can also make it easier to get a substantial loan on favorable terms, even if you don’t have great credit.The SBA 7(a) loan program is one of the most popular programs and offers up to $5 million in funding. In 2021, about 17% of SBA 7(a) loans went to startups.

The SBA 504 loan program could be a good option if you’re buying real estate or equipment, but only 10% of those loans went to startups.

The Community Advantage loan program is for businesses in underserved markets, and 45% of these loans went to startups in 2021.

The SBA microloan program offers up to $50,000 to start or expand a business, although the SBA doesn’t say what share of those went to startups.

The SBA also has a lender matching tool you can use to find participating lenders and compare loan offers based on your specific needs.

Banks

Before loan apps, banks were the number one place small business owners who wanted to grow their businesses go to get loans. Although they are trustworthy, loans from banks usually come with high-interest rates and a request for collateral. This often discourages startups from getting loans. However, start-ups can request business loans from banks, if the owners have a good track record and can provide sufficient collateral.

Pros of banks

• Trustworthy 
• You may get more loans as you build credit with them.

Cons of banks

• High-interest rates
• Lots of documentation and need for collateral
• Long processing time

Government loan schemes

The Nigerian government has established a few bodies to help MSMEs and SMEs. Examples of these bodies are the Bank of Industry (BOI), Bank of Agriculture (BOA), Development Bank of Nigeria (DBN), Nigerian Export-Import Bank (NEXIM), and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN).

They were established to give grants, and low-interest loans to MSMEs and SMEs in Nigeria. Here are their pros and cons.

Pros of Government loan schemes

They offer grants or low-interest loans
They focus on MSMEs and SMEs
They sometimes offer collateral-free loans for business

Cons of Government loan schemes

Competition is high, so they are difficult to get

Crowdfunding

Online crowdfunding platforms can help you organize a campaign and raise money from strangers and people you know. There are four common types of crowdfunding: debt, equity, donation, and rewards.

With equity you’re raising money in exchange for a portion of your business, while with a loan or bond you’re taking on debt that must be repaid with interest. Donor crowdfunding, like GoFundMe campaigns, isn’t often used by startups because you have little or nothing to offer in return. But you could consider a rewards-based campaign and offer donors one of your business’s products or services in exchange for their contributions.

Online apps for small business loans

Loan apps in Nigeria are known for their speed when it comes to loan approval and disbursal. They don’t require you to go to a place or present numerous documents. All you need to do is download the app, sign up and request a loan.

This is especially good for small businesses that need money to sort out business emergencies or for businesses just starting out with no social proof and no collateral.

Here is a list of the top loan apps that give loans without collateral:

FairMoney MFB: FairMoney’s main appeal is that it is a full-fledged digital bank that gives loans of up to ₦3,000,000. This means you can sign up to get a loan on the FairMoney app in under 5 minutes and increase your chances of getting a higher amount by banking with FairMoney and enjoying other benefits. 

Here is a detailed review of FairMoney. Check out more details about FairMoney loans here.

Branch: Branch prides itself on offering quick collateral-free loans. They have over 10 million downloads and their loans require no documentation. 

Kuda: They offer loans called “overdrafts”. They can only be given to people who have been using Kuda for a while. The overdrafts typically accumulate a 0.3% interest daily.

RenMoney: They offer loans to both individuals and start-up businesses in Nigeria. Their loan offer is currently maxed out at ₦6,000,000Carbon: Carbon typically helps customers buy commodities and allows payback in instalments at a later date. The repayment period is usually 3-6 months.

These apps have made it possible for the average credit-worthy Nigerian to start and grow business/businesses in Nigeria.

What Are the 5 Areas of Personal Finance You Need To Improve On?

One of the major reasons we fail to secure a financially stable life is because we are unaware of the things that we need to put in place to make it right. Having the basic personal financial skills is one of the most important things we can do to live a healthy and happy life. It is also important to know what the key areas of our personal finance is so that we can keep focus on while creating a road map for our financial well being.

In this article we will look at different aspects of personal finance to give an idea about how your complete financial picture should look like. The height at which you understand these basic will greatly impact your life. This article covers all you need to know about personal finance and all that relates to the subject.

Before deep delving into the topic, it is important to note that there are 5 areas of personal finance.  There are saving, investing, financial protection, tax planning and retirement planning, but in no particular order. 

What are the 5 areas of personal finance? The areas of personal finances are 5. 

• Savings: You need to keep money aside as savings to cover any sudden financial need. 

• Investing: Investing is important to grow money so that you can achieve what you aspire.

• Financial protection: Now, financial protection through insurance ensures you and your family are able to sail through during the hard times.

• Tax planning: With proper tax planning, i.e. making adequate expenditure/investment, you can bring down your taxable income, eventually saving a lot of money every year.

• Retirement planning: Finally, retirement planning is crucial to ensure that you have a big bank balance meant solely for your needs during the twilight years.

These are the important aspects of a complete financial picture and we will discuss each of the 5 areas in full further detail: 

1. Savings: 

The need for sudden money can come at anytime. That is why saving money is important for a number of reasons. Firstly, it helps you to manage your expenses and avoid overspending. By setting aside a certain amount of money each month, you can ensure that you have enough money to cover your basic needs, such as food, rent, and bills.

Secondly, personal savings can provide a safety net in case of emergencies. It is essential to have some money saved up for unexpected expenses, such as medical bills or car repairs. By having a savings account, you can avoid going into debt or relying on credit cards to cover such expenses. It also provides peace of mind and reduces financial stress.

Thirdly, savings can help you to achieve your long-term financial goals, such as buying a house, starting a business, or retiring comfortably. When you set aside money regularly, you can accumulate a significant amount over time and use it to achieve your goals. 

However, such emergency events can be dealt with if we have enough savings to cover the need. As a thumb rule, the fund for your emergency needs should be three to six month of your expenses. 

2. Investing: 

The majority of people consider investment and savings to be synonymous. The point is they are different. Savings as we have earlier stated are excesses from your income after all expenses. While investment involves purchasing assets such as mutual funds, real estate, stocks, bonds, etc. with your money with the expectation to generate a rate of return. Investment comes with a lot of risks. This is because not all assets actually end up yielding ROI. 

Now talking in terms of investment, mutual funds are an excellent investment option if it is done right. However, while investing in mutual funds it is essential to be mindful about choosing the right fund for your investment, otherwise it might turn counterproductive.

Now what funds should one pick as per their financial goals?

Short term goals: The goals that need to be achieved within three years are short term goals. From saving for a trip to saving for a phone, there are multiple things for which one needs to arrange funds within this timeframe.

Mid-term goals: If you have set a goal for yourself that needs to be achieved within three to five years, for example downpayment for a house, it can be termed as mid term goals.

Long term goals: Milestone events like retirement, children education, their marriage, i.e. the goals for which the timeframe is minimum of 5 years are termed as long term goals.

3. Financial protection: We might have different dreams in life and create investment plans to turn those dreams into reality. But unless we protect them with a safety net, the same can turn into a liability. That safety net is insurance.  This is a wide array of products that you can use to guide against unforeseen occurrences. In the case of finances this is generally purchasing some type of insurance. Insurance is a means of protection from financial loss. It is a form of risk management, and it can be used to prevent the risk of a contingent or uncertain loss. There are 4 kinds of insurance we all need which I will discuss  below.

 

The Consumer Financial Protection Bureau was created to provide some financial education assistance and financial tools to consumers that desire to have the facts about financial matters. For more information visit, www.cfpb.gov.

1. Term insurance

It is a kind of life insurance that ensures that your family or dependents do not have to go through financial hardship if you die early. As compared to other health insurance products, the sum assured for term insurance is higher as against the premium amount. Now if you calculate it correctly, then you can account for day-to-day expenses of your family, a retirement corpus for your spouse, cover for your liabilities like – home loan, and children’s education in the sum assured.

2. Health insurance and Critical Illness insurance

Having health insurance ensures that you do not have to pay from your pocket in case you or any of your family members have taken ill. Health insurance covers all costs for treatment of the insured like hospitalisation, medication, pre and post hospitalisation expenses etc. Meanwhile you can opt for critical insurance along with your basic health policy. In case you are diagnosed with one of the critical illnesses mentioned in your policy, the insurance company will pay you the sum assured.

3. Mortgage Protection insurance

Mortgage protection insurance pays off your mortgage if you die during the term of the mortgage. It ensures the loan or mortgage for home, car, property etc. does not become a liability for your family, in case you die early.

4. Personal Accidental insurance

In case you meet with an accident and get seriously injured, or become partially or fully injured, the insurance company will pay the sum assured to cover the expenses for treatment and also loss of income. Meanwhile, if you die during the accident, the lumpsum amount will be paid to your family. The payable amount, however, is dependent on the fatality of the accident.

Having financial goals is very important to provide you and your family with financial freedom and security. The earlier you start having a financial plan, the better.

5. Retirement planning

Retirement is one of the most crucial stages our life, and it can be as blissful or as miserable depending upon how we have planned for it. It holds true for financial planning too. 

There are two aspect to consider when planning for retirement. First, is saving for retirement and second is, generating income from your assets during retirement. And, here are the two steps:–

1. Building a retirement corpus: Saving for retirement is crucial for two reasons majorly – loss of income and increased life expectancy. Let’s assume that you retire at 60 and live up to 85. How do you plan to fund your expenses for 25 years after retirement, at a time when you do not have any steady income? 

Plus, considering inflation, i.e. the rise in prices of goods and services for regular use, your expenses will be much higher after retirement than it is today. For example, if your monthly expenses are Rs 35,000 right now, it would be Rs 80,000 per month in 20 years, considering you would want to maintain similar living standards.

Now, building a fund as large as a retirement corpus is a lifelong process. So, the earlier you start saving, the better it is.

2. Generating income during retirement: As much as it is important to ensure that you are saving enough for your retirement while you are working, it is equally important that you channel that corpus correctly after retirement. Making the right investments will ensure that you have a steady income as long as you live.

Investment options for generating income during retirement: STP withdrawal/transfer from Mutual Funds, life insurance annuity, and rental income. 

Saving money is an important part of personal finance and can provide financial stability and independence. According to a rule of thumb, don’t spend more than you earn. The instant this starts happening, debt is imminent. Although going into debt can be very helpful. But this is when you borrow to secure an asset with the expectation of a return. 

The process by which you manages your personal finances is usually summarized in your financial plan or a budget. Having all the aspects of a complete financial picture in one frame ensures that your financial future is just picture-perfect.