How to Get Approved for Credit in a Financial Downturn

In a recession it’s common for many people to rely on credit cards and loans to balance their finances. It’s the ultimate catch-22 since, during a recession, these financial products can be even harder to qualify for. This holds true, according to historical data from the Federal Reserve Bank of St. Louis. It found that

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What Is Quantitative Tightening?

In the past two years, investors have taken an unusual interest in the Federal Reserve Bank. That’s mostly due to a Fed policy known as ‘quantitative tightening’, or QT. Effectively, QT was the Fed’s attempt to reduce its holdings after … Continue reading →

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How to Stay Calm During a Market Fluctuation

Woman staying calm during market fluctuation

The last few weeks, I’ve been covering my eyes before I look at my investments, and only peeking through my fingers — as if I’m facing Freddy Kruger rather than a series of numbers. It doesn’t help that the financial headlines are full of frightening potential futures: a possible recession, trade wars, and potential market corrections. 

It’s enough to make me want to take all of my money out of my investments and put it somewhere safe, like my mattress.

But no matter how overwhelming a market fluctuation may be, I also know that pulling my money out of the market is the worst thing I could do when my portfolio is trending downward. That’s because the only way to guarantee that momentary losses become permanent is to sell. 

Of course, knowing that you should stay the course is a lot easier said than done. If you’re tempted to cut your losses when you hear gloom-and-doom financial predictions, it’s especially important to learn how to keep your cool. Here are some ways you can stay calm when the market is scary.

Remember that it’s okay to hide

Hiding your head in the sand gets a lot of flak, but there are times when it really is the best course of action. That’s because of a cognitive bias that prompts us to take action in response to fear. We feel as though doing anything, even if it is counterproductive, is preferable to sitting around doing nothing. But listening to the action bias is the reason why people sell when the market is at its lowest and buy when it’s at its highest. They’re afraid of doing nothing.

Since it’s nearly impossible to overcome the voice in our heads shouting at us to "Do something!" when the market is falling, the easier method of overcoming the action bias is to simply ignore your portfolio.

Of course, that doesn’t mean you should never check on your holdings. However, obsessively consuming financial news and checking your portfolio on a daily basis will lead you to making fear-based (or greed-based) decisions, rather than following your rational investing strategy. 

Instead, plan to check how your investments are doing on a regular schedule — either every month or every quarter. This will give you the information you need to keep your asset allocation balanced and make necessary changes, without falling victim to the action bias. (See also: 5 Ways to Invest Like a Pro — No Financial Adviser Required)

Take comfort in history

Although the phrase "past performance is no guarantee of future results" is all but tattooed on the foreheads of every stock market analyst and financial planner, there is good reason to look at the past performance of the market as a whole. If you study the long-term trends and overall historical returns, you’ll see that markets inevitably trend upwards.

Knowing that the market will recover does not make the short-term losses and volatility any more fun to live through, but it is easier to put any momentary losses you’re experiencing in context. Savvy investors who didn’t panic through the market corrections of 2000 and 2008 saw their portfolios recover over time. As stressful as any decline may be, trusting in a solid investment plan and the long-term historical trends of the market can help you stay the course and feel confident that you and your money will get to the other side. (See also: How to Prepare Your Money for the Coming Economic Slowdown)

Make a volatility plan

One of the reasons why we tend to overreact to volatility is because we forget that it’s a natural part of financial markets. Market downturns are normal, and we should expect to live through several of them in a long investing career. However, we often expect that markets will only go up. With that kind of expectation, even a minor dip can feel overwhelming.

A good way to counteract those expectations (and the resulting fear when they’re not met) is to create a plan for what you’ll do during a downturn.

Your volatility plan could be as simple as committing to your head-in-the-sand strategy for downturns. Knowing ahead of time that you’ll reduce your portfolio check-ins when things are looking grim can help you stick to that plan.

Your plan can also be proactive, rather than just reactive. Since you know that market downturns are normal and natural, decide ahead of time how you’ll incorporate these fluctuations into your investing strategy. You might decide to purchase more investments during a downturn, rather than see it as something to fear. (See also: 7 Easy Ways to Build an Emergency Fund From $0)

Don’t panic

Human beings are not wired to be rational investors, which is why we tend to be so bad at it. Our emotions can get the better of our rational strategies, especially when we’re feeling afraid. But selling your investments because of market volatility and scary headlines is using a permanent solution for a temporary problem.

Think through how to respond to frightening market changes before they happen. Then you know that you already have a plan to fall back on, and you’re less likely to simply react out of fear.

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Easy Guide to Cheap Business Currency Transfers

There might be many reasons why your small business isn’t thriving. One of them is the global economic crisis caused by the COVID-19 pandemic. However, for all that this recession is hitting all businesses hard, it also kicked e-commerce into high gear. Also, going global has become a necessity for businesses. After all, this gives you an opportunity to both cut costs and grow your customer pools.

But doing any kind of business internationally means you will need to send and receive money transfers from abroad. This itself is a costly endeavor. It’s costly enough that the cost of the transfer might eat up all your profit margin.

While you are developing a strategy for going global, you need to find a way to cut your currency costs. The good news is that today there are companies that allow you to reduce the cost of both the transfer and foreign currency exchange (FX or forex). But you’ll need to think carefully to pick the one that will benefit your business most in the long term.

How expensive are international money transfers?

The costs of foreign currency exchange and international money transfer fees are not the only issues you need to consider if you want to avoid being ripped off while traveling. As a business, making payments to suppliers or accepting them from customers also come with an FX price tag. And that price might be over 10 percent of the transfer volume.

Any small business trying to go global will know that the profit margin for this venture might be so small that 10 percent makes it unviable. But of course, the actual cost of international money transfers depends on many factors. The foremost is what financial institution you are using to make the transfer.

The traditional way to go is to use a bank wire transfer. That’s the safest method of international money transfers. However, it’s also one of the most expensive. For example, in the US the average outgoing international transfer fee is $45. Add to that the money lost during foreign currency exchange. Banks always use an unfavorable FX rate due to their high FX margins. Also, the fees (meaning your losses) might increase with the transfer volume.

Also, remember that some currency corridors to developing countries are far more expensive. There are still some African countries where a transfer can cost up to 20 percent!

Western Union and MoneyGram are hardly better in terms of fees—these services are sometimes more expensive than banks. PayPal is better. However, it will cost you about 5 percent of the transfer and it also doesn’t use the best FX rates.

All in all, the most common international transfer methods are expensive. But now there are FX companies created to solve this specific problem.

How to cut the cost of global business money transfers

While outrageous, transfer fees from banks and popular money transfer services don’t seem that bad for small transactions. However, as these losses grow with the transfer volume, a payment to a supplier or some international investment might end up costing you thousands. You need a specialized and affordable solution for large business transfers. Today such a solution comes from FX companies, also called online money transfer companies. These are companies like Moneycorp, WorldFirst, or OFX.

FX companies specialize in offering cheap and fast currency transfer services. Top providers among them have multiple offices in different parts of the world. The platforms are online-based, which means you can manage your account fully using nothing but a smartphone app.

The number of supported currencies varies depending on the provider. However, all these companies operate using the same principles. They all offer:

  • Low or no fees. In the majority of cases, FX companies don’t charge transfer fees at all. If they do, the cost of the transfer rarely rises over 1-3%.
  • Low FX margins. Foreign currency exchange rate margins are where banks make a lot of money. However, as FX companies run off the volume of transferred funds, they strive to keep the margins low. At the moment, WorldFirst has the lowest margins in the industry (0.25-0.15 percent for large business transfers).

FX companies can be used not only to help cut the costs of regular business payments, but they are also a great help to everyone who wants to invest overseas (in property, for example). They can also be used to pay salaries to remote workers.

But bear in mind that not all online money transfer companies are suited for businesses. Only the ones that offer corporate services are capable of handling the paperwork and other requirements that businesses might have.

FX companies: benefits beyond affordability

FX companies not only help you cut the costs of international money transfers, but they can also be used to mitigate currency exposure risk that every international business faces. This type of risk is unavoidable because currency exchange rates are fluid.

However, sometimes this fluidity turns into outright volatility. The COVID-19 pandemic caused a great surge of FX volatility. Tthis volatility will likely last for a while due to the global economic recession. Therefore, FX risks are now extremely high.

FX companies offer their business customers access to hedging tools. This means that you get a chance to minimize these risks with little effort. For example, you can use forward contracts, which allow you to get the FX rate fixed at a certain point for up to a year. So, even if the exchange rate changes unfavorably during this time, you will be protected.

For international business, currency hedging is essential for budgeting. In fact, without hedging against the currency risks in some manner planning a budget becomes almost impossible.

But, of course, one needs to be a financial expert with ample forex experience to use hedging effectively. Otherwise, you will not know exactly when to use which tool to achieve maximum long-term benefits for your company.

FX companies solve this problem as well because they offer not only a wide range of currency services but also guidance. Simply put, they can provide you with advice and information necessary to make good currency decisions. This means that your business won’t have to pay extra to outsource a specialist for this.

How to choose the right FX company for your business

The first thing you should consider when looking for an FX company for your business is its accreditation. These businesses operate within multiple jurisdictions and the industry itself is poorly regulated, so you need to choose companies that are audited by trustworthy authorities. For example, WorldFirst is monitored by the Financial Conduct Authority of the UK.

You should only work with companies that are transparent and certified to work in your country. This will limit your choices somewhat as these companies aren't yet found around the globe.

Another important factor is currency selection on offer. You need to be sure that the company you choose will be able to meet all your needs. However, as you can have more than one account, you can work with several companies simultaneously. But in this case, you will need to exercise extra caution when choosing these services.

Finally, be sure to study detailed reviews of every FX company you consider. Read both customer testimonials and professional reviews that highlight both the strengths and weaknesses of the company. This way, you will be able to make a choice that will help your own business prosper.

Who invented the index fund? A brief (true) history of index funds

Pop quiz! If I asked you, “Who invented the index fund?” what would your answer be? I’ll bet most of you don’t know and don’t care. But those who do care would probably answer, “John Bogle, founder of The Vanguard Group.” And that’s what I would have answered too until a few weeks ago.

But, it turns out, this answer is false.

Yes, Bogle founded the first publicly-available index fund. And yes, Bogle is responsible for popularizing and promoting index funds as the “common sense” investment answer for the average person. For this, he deserves much praise.

But Bogle did not invent index funds. In fact, for a long time he was opposed to the very idea of them!

John Bogle did not invent index funds

Recently, while writing the investing lesson for my upcoming Audible course about the basics of financial independence, I found myself deep down a rabbit hole. What started as a simple Google search to verify that Bogle was indeed the creator of index funds led me to a “secret history” of which I’d been completely unaware.

In this article, I’ve done my best to assemble the bits and pieces I discovered while tracking down the origins of index funds. I’m sure I’ve made some mistakes here. (If you spot an error or know of additional info that should be included, drop me a line.)

Here then, is a brief history of index funds.

YieldStreet Review for 2021

YieldStreet is an alternative investment platform that is designed to give accredited investors somewhere to put their money other than the stock market. The company was founded in 2015 by CEO Milind Mehere. Traditionally, investing…

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