College is often thought of as some of the best years of your life. And for good reason. From the academic experience to the recreational activities and, of course, the long-term career benefits, a four-year degree is undoubtedly very valuable.
Unfortunately, that once-in-a-lifetime experience often comes with a hefty price tag. In 2022, the average cost of a four-year college degree is $122,000. To pay for this, 70% of Americans take out student loans. Today, one in eight Americans have student-loan debt, with a staggering total of $1.74 trillion nationwide.
On the individual level, the average student loan-holder carries a balance of $38,792 with an interest rate of around 5.8%. Taking on a loan of that size in your late teens or early 20s is a daunting prospect, and many will not realize the weight of their debt until they graduate and have to begin making payments.
On average, it takes most people about 20 to 30 years to pay off their student loans. When you consider statistics like these, it can begin to feel like the financial investment isn’t worth it.
Investing: Start small with investing
Here’s the good news. If you take a focused approach to paying off debt, it doesn’t need to control your life or impede your financial future.
It’s important to begin early and attack the debt aggressively before interest starts to build up, even if it is something small. The monthly strain that debt puts on your budget greatly inhibits your ability to build long-term wealth through savings and investments.
Many young adults think that investing early should be a priority before paying off their student loans. The rationale behind this is that (hopefully) the investment returns will be higher than the interest rate on the loans.
But let me suggest an alternative.
What if student loan holders aggressively paid off student loans, pausing all other financial goals?
It’s not uncommon for those following this method to eliminate their student loan debt in just 18 to 24 months—a significantly better plan than making minimum payments and carrying the loan around for 20 to 30 years.
But I thought I could earn more by investing in the long run?
While you probably CAN earn more on your money by investing (in the long run at least), the difference isn’t that much. If you could earn 3% higher by investing (8.8% compared to 5.8%) with an average student loan balance of $38,000, the actual amount earned over 10 years is only about $19,000. That’s before tax without a guaranteed return.
What are the benefits of paying off early?
You can be done with it. You can be done with the debt and done with being tied to a required payment.
You can move on. You can move forward to building wealth and having the freedom to save, spend, invest, and give as you desire.
You can focus. You can have the single objective of providing for your family, being generous to others, and building wealth.
About 73% of Americans rank their finances as their number one cause of stress. The faster you pay off your debt, the sooner that burden is lifted from your shoulders, and you can focus on more exciting goals.
If this feels like a daunting task, remember, you can always start small. And if needed, you can reach out to an adviser to help assess your situation and help you get started on the path to financial freedom.
Hunter Yarbrough, CPA, CFP, is an executive vice president and financial adviser with CapWealth. He is passionate about taking a holistic view of personal finance, including investments, taxes, retirement, education, estate planning, and insurance. For more information about Hunter and CapWealth, visit capwealthgroup.com.
Mason Everett, a student of accounting and finance at the University of Mississippi, is a Tennessee native and served as CapWealth’s 2022 summer intern.
Three Rules For Successful Bear Market Investing – Forbes
The markets are ugly: through the first three quarters of 2022, the S&P 500 is down nearly 24%, and the bond market, usually a safe haven when stocks are dropping, has shed 13%. Plus, the US economy seems destined for recession (we might be in one already), inflation continues to be stubbornly persistent, and Russia’s invasion of Ukraine, in addition to being a humanitarian tragedy, is causing dire economic effects.
All this bad news and accompanying market volatility increases our fears of uncertainty making us feel anxious and stressed. It’s not fun. Yet, investors aren’t powerless in the face of uncertainty; we can control our behavior. Below are three rules to help weather the bear market (defined as a market decline of 20% or more) and have better investing practices.
Rule #1: Adopt a Big Picture Perspective
I vividly remember New Year’s Eve 2019 because I was on a ski vacation and attended a party at a beautiful condo in Vail, Colorado. At the party, I struck up a conversation with a college student interested in investing who, once realizing what I do for a living, asked what I thought the stock market would do in 2020. My answer was that it would probably be up, but it might also be down (that’s my prediction every year, which you can access here: 2020, 2021, 2022). The student thought my answer was hilarious (probably helped along by beer), and our conversation moved on to other topics.
I think about that conversation a lot. What if on that New Year’s Eve I had a crystal ball and knew that a pandemic was about to sweep across the globe, killing tens of millions, shutting down vast swaths of the economy, and creating supply chain disruptions that would last years? What if I knew that Russia would attack Ukraine, that inflation would spike to over 9%, and that the Federal Reserve would increase the Fed Funds Rate by 3% within six months? If I had known all that in advance, what would my prediction for the stock market have been? It probably wouldn’t be that even after a 24% decline in the first three quarters of 2022, the S&P 500 would still be up 16% compared to December 31, 2019! You read that right. Even with everything that has happened in the past (almost) three years, the market is up 16% (dividends reinvested). And the market is up 41% compared to December 31, 2018, and 164% since December 31, 2009. The lesson to draw is that even if you knew advance about what would happen in the economy, it wouldn’t tell you what the stock market will do.
Whenever you feel anxious about your investments, reflect on how well you’ve done over the past five, ten, 20, and 30 years. As I advised in a recent article, don’t focus on the high watermark of your portfolio. Instead, pull back and adopt a long-term perspective.
Rule #2: Don’t Look at Your Portfolio
Successful investing requires adopting a long-term perspective, but frequently checking your portfolio, especially when it’s down, makes that challenging; it’s like trying to see something in the distance while wearing reading glasses. Seeing the value of your investments drop can make it feel like you are under attack, making it seem like you need to take action. Yet making portfolio changes in response to emotions is not a best practice; numerous studies have found that trading activity leads to lower returns.
My advice? If you work with a financial advisor, let them monitor your portfolio and advise when you should take action. If you manage your own investments, only look at your portfolio at regular intervals, such as quarterly or semi-annually.
Rule #3: Just Keep Buying
Now is a better time to put money to work in the market than a year ago because prices are lower. Lower stock prices are welcome news if you are a long-term investor and plan on adding to your portfolio. Because market bottoms and tops cannot be called accurately, the best strategy is to keep buying as the market gyrates. Invest as the market declines and invest as it rebounds. It’s a simple concept but not so easy to execute when it feels like the worst is yet to come. Plus, the stock market often rebounds while economic news is dire, so don’t let bad financial news keep you from investing. History has shown that when markets are volatile, the best course of action is almost always to ignore both the markets and our portfolios.
An effective way to overcome emotion is to set up your accounts, so money is automatically invested (like how 401[k] plans work).
Unfortunately, suffering through bear markets is the cost of being an investor. You can’t reap the benefits of investing without paying the cost. For years, investors have worried that the stock market’s strong returns and high valuations aren’t sustainable and that a bear market must be looming. Now the bear is here. Take a deep breath, broaden your perspective, don’t look at your portfolio, and keep putting money into the market.
Targeted policies needed to boost investment in climate change fight – UNCTAD
Attracting international private investment is crucial to closing financing gaps to better respond to countries’ specific needs in climate adaptation and mitigation.
© Shutterstock/Michel luiz de Freitas | Policies to curb climate change through foreign direct investment have focused primarily on the renewable energy and electricity sectors.
Ahead of the next UN climate change conference (COP27), UNCTAD has underscored the growing urgency of shoring up investment to combat the existential threat facing humanity.
A special edition of UNCTAD’s Investment Policy Monitor released on 29 September calls for effective measures to mobilize private sector investment and foreign direct investment (FDI) in key sectors related to climate mitigation and adaptation.
“Innovative ways and means are needed to foster public and private partnerships, improve the enabling policy frameworks and build capacity for preparing pipelines of bankable and impactful projects in developing countries,” the report says.
Previous estimates indicate that annual climate adaptation costs in developing countries could reach $300 billion in 2030 and, if mitigation targets are breached, as much as $500 billion by 2050.
All climate measures need equal policy attention
The report analyses investment policy trends related to climate change sectors between January 2010 and June 2022, during which 103 policy measures were adopted worldwide.
It finds that policy initiatives to promote climate change mitigation and adaptation through FDI focused primarily on the renewable energy and electricity sectors, which account for 60% of the total measures.
Although renewables play a key role in the transition to a low-carbon global economy, the report emphasizes that other mitigation policies – such as energy and resource efficiency technologies and other environmental technologies – also need to be promoted.
“Moreover, climate change adaptation-related sectors need to be defined on a country basis as vulnerabilities and priorities differ nationally and locally,” the reported says.
Varying concerns among countries
The report highlights differing concerns between developing and developed economies.
In the developing world, 30% of the investment policy measures related to climate change sectors aimed to liberalize water and electricity sectors, mostly through the unbundling of the energy market or the privatization of state-owned enterprises.
An additional 43% of the measures sought to promote investments in those sectors through incentives and investment facilitation – such as incentive schemes aimed at reducing the carbon footprint of the energy sector and that of industrial and agricultural production.
Overall, developing economies adopted investment incentives to attract FDI primarily in renewable energy (42%), environmental technologies and green industries (37%) and electricity and water (21%) sectors.
Tighter FDI access to developed economies
The report shows that in developed countries, three out of four policy measures had to do with introducing or widening FDI screening mechanisms, confirming the trend towards heightened national security concerns observed by UNCTAD in recent years.
“The global environment for international investment changed dramatically as a result of the war in Ukraine, which occurred while the world was still recovering from the impact of the [COVID-19] pandemic,” the report says.
“This trend is likely to continue in light of the energy security concerns raised by the war in Ukraine and its impact on energy supply and prices,” it notes.
Tackling climate investment challenges
The report shines a light on the challenges of channeling mitigation investment into developing countries and upscaling adaptation investment through viable business models.
It advocates for strategies that comprehensively address energy issues such as security of supply, efficiency, affordability and environmental sustainability, while addressing the development of climate change mitigation and adaptation sectors and technologies.
“Climate change strategies should embed investment promotion as a key component and communicate the government’s priorities in the medium and long run,” the report says.
“In parallel, the targets arising from the comprehensive climate change strategy should be embedded in investment promotion strategies to inform the activities of the actors involved.”
To increase investment in climate change mitigation and adaptation key sectors, countries need to consider new instruments and targeted policies to attract low-carbon investment.
The report recommends that countries consider providing political-risk insurance to de-risk climate FDI, adopting climate impact assessments when reviewing investment projects and developing facilitation services that specifically target climate FDI.
Has private investment in renewable energy been adequately addressed in Ireland's TSG's budget papers? – International Tax Review
The TSG Budget 2023 papers were published on August 10 2022. The TSG is a government think tank chaired by the Department of Finance and the published papers cover everything from income tax to EU developments to climate change.
Various groups, including Deloitte, have called for several tax measures to promote private investment in renewable energy – be it through funding or technological advancements.
Whilst the TSG Budget papers on ‘Climate Action and Tax’ reflect the operation of various excise duties, carbon tax measures and fuel related provisions there has been little in the way of recommendations to government when it comes to the stimulation many people are calling for to aid Ireland in meeting its 2030 climate goals, and indeed reduce Ireland’s reliance on foreign gas and oil to meet Ireland’s energy demands.
What can Budget 2023 contain to address this?
Corporate tax relief
Irish legislation previously provided corporate tax relief for equity investment in companies involved in renewable energy generation. This relief was introduced in Finance Act 1998 but was withdrawn in 2014. The relief was given in the form of a deduction from a company’s profits for its direct investment in new ordinary shares in a qualifying renewable energy company.
Coupled with the participation exemption regime Ireland operates on the sale of qualifying shares, such an additional relief will provide real-time benefits for companies who help fledgling renewable energy companies who are crying out for investment to realise their pipeline of renewable energy projects.
Speaking of the participation exemption regime, Ireland is not in line with the UK when it comes to promoting investment in renewable energy companies, and this must be changed.
The sale of shares in a project company hosting an early-stage renewable project may not be in a position to claim the participation exemption as in Irish Revenue’s view the company may not be considered trading (broadly, that the project company should be trading is one of the conditions required for the participation exemption to apply). Revenue practice is to view trading as commencing when the project company commences producing electricity.
The participation exemption should be extended to the sale of companies that host early-stage development projects, i.e. that trading activities include activities for the purposes of a trade that a company is preparing to carry on. This will allow Ireland to be competitive when it comes to a jurisdiction for investors to deploy their capital when considering their green investment agendas.
As Ireland expands its onshore wind, offshore wind (both fixed and floating), solar and biofuel industries, there is likely to be significant investment in research, development and innovation. With the proper incentives, Ireland could become an innovation hub for renewable energy. The R&D regime should be reviewed to ensure that it is first in class.
Spending on green low consumption technology and buildings with recognised accreditation should be incentivised by way of super deductions or accelerated capital allowances.
The TSG Budget papers are simply a list of options and issues to be considered in the budgetary process and not binding on government decisions, however, it is disappointing that the incentivisation of private investment in renewable energy businesses and technologies are not to the forefront of the group’s recommendations to government.
If Ireland is to meet its climate goals, and also tap in to its expertise in technological advancement, it is important that the government take steps to kick-start investment.
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