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What is “Good Debt”?

Good Debt House and debt balance on the scale

 

Debt is something that is talked about frequently. There are many types of debt and they could include a mortgage, credit card, auto loans, student loans, and personal loans. This not a fully exhaustive list, but covers some of the more widely used types of debt. It is fairly common for most people to incur some type of debt over their lifetime and we want to explore whether or not “good debt” exists.

In my view, there certainly is a line of demarcation between “good debt” and “bad debt” and not all debt should be treated equally. Good debt would be debt that allows you to purchase something that over time will increase in value or be valuable over time by taking on the debt. Let’s focus on a few examples of good debt.

Obtaining a mortgage would be one of the most well-known forms of good debt. The mortgage will allow you to purchase a property or piece of real estate that you ordinarily would not be able to purchase without a loan. Most of us cannot simply pay cash for a home and a mortgage presents an opportunity for us to buy a large asset that we could not afford without and benefit from having a home, and an appreciable asset. It is important to make sure that you are not overusing leverage and taking out a mortgage that you cannot afford or one that is not the right loan for you and your family. Good debt can turn to bad debt if you have not planned appropriately for the loan amount you can afford.

A home equity loan or line of credit can be a good form of debt too. This is very similar to a mortgage and should be treated similarly. Using a home equity loan or line of credit to improve your home and its value is a good form of debt. You will want to analyze how the improvements will impact the value of the home at the cost of borrowing the money. Loans and lines of credit become troublesome when you tap into them and use the proceeds for things that will not increase in value, such as buying cars and consolidating credit card debt. You can certainly use this as a tool for these items, but you will want to be careful and be sure that you will be able to make the payments over time.

Student loans, if used properly, can be good debt as well. There are many instances where education can lead to higher-paying careers that otherwise would not be in reach. Taking on student debt for a career and pursuit of the right degree could be an excellent way to receive a better education and graduate with an opportunity to earn significantly more than you would have without it. It is important here to make sure that you are not taking on mounds of debt in order to graduate with a general degree with no path to a career with a significant income. This is where good debt can certainly turn bad and you can read about the Three Main Contributors to The Student Debt Crisis. It would be important to do a cost-benefit analysis of taking the loan versus a less expensive path to another career choice.

Debt is a financial tool that can be used for good or could be evil for your financial future. We discussed some of the more prevalent ways to use debt in a good way and we would be remiss in mentioning some of the biggest contributors to bad debt. Credit cards, auto loans, and personal loans can be some of the biggest examples of bad debt. These methods are either buying assets that have really no value or ones that will decrease in value the minute you purchase them. You should also read about the 5 Credit Card Myths Hurting Your Financial Future as this will also help you manage your debt appropriately.

Debt is something we will all need to utilize and manage at some point in our financial lives. It is key to learn how to appropriately use it and leverage good debt to your benefit. The earlier this is learned, just like many other financial concepts, the better off you will be financially. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time to review your own personal use of debt.

Be sure to share this article with friends, family and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

What is the Nasdaq Composite Index?

 

 Nasdaqphoto

The Nasdaq is an index that gets referred to daily on television, in the papers, and on social media. It is typically one of the main indices that people who follow the markets look to for guidance on the overall markets.   There is a good deal of discussion about this index and we wanted to take a minute and explain “What is the Nasdaq?”

The Nasdaq Composite Index, or the Nasdaq in short, tracks the more than 2500 stocks that trade in its index. This index is much bigger than its counterparts, the S&P 500 and Dow Jones Industrial Average, which track 500 and 30 companies respectively. The companies listed on the Nasdaq cover a wide range of industries, however, the largest percentage of them are technology-related. The index is composed of over 50% technology companies. One other differentiator of the tech-laden Nasdaq is from other indices is the fact that includes companies that are incorporated both within and outside of the United States.

Due to its significant weighting in technology companies, the Nasdaq is an index that is used to track this sector. The large concentration of companies in tech provides investors with a better indication of performance for that sector than many of the other benchmarks available, such as the Dow or S&P. Although this index is one of the largest, we have discussed thus far, keep in mind it still will not give you a full picture for your portfolio as a whole.

Having a diversified portfolio means having assets in many different industries, sectors, countries, and company size. This is not an exhaustive list by any means and diversification can take place in many ways and these are just a few. Keep in mind, assuming proper asset allocation, many of the assets in your portfolio will not benchmark well to the Nasdaq. The Nasdaq is not generally a benchmark that is looked at to guide investors on how the overall markets are performing, like the S&P may be relied upon by some. Its tech-heavy composition does make it a good candidate to evaluate the performance of your technology holdings, making a good benchmark for that.

Knowing the composition of your portfolio will assist you in building a benchmark(s) that would be best suited to evaluate your portfolio and how your assets are performing to the markets in general. The Nasdaq Composite is one benchmark that could be used in this evaluation, in addition to others. It is key to make sure that you are comparing this benchmark to the correct assets in your portfolio.

We would be happy to discuss your situation regarding the benchmarks being used to evaluate your portfolio and what indices would be most relevant to you. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time for this review. Be sure to share this article with friends, family, and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

What is the S&P 500?

SP500

 

The S&P 500 is spoken about on every media outlet you can think of from print to online. No matter where you turn you are bound to hear something about it.  There is a lot of focus placed on this index and we wanted to take a minute and explain “What is the S&P 500?”

The S&P 500, or S&P for short, tracks the 500 largest publicly-traded companies in the United States. Although this is a broader index than the DJIA it still only tracks 500 companies that are large-cap in nature. Does following the ups and downs of the S&P make sense for you, your portfolio, or the markets in general? This certainly is a better way to gauge things than looking at the Dow Jones Industrial Average, but it still does not provide any insight into how companies other than large-cap are faring. This may give you a good idea of how that portion of your assets are performing, but depending on your allocation it still will not provide a full picture. We also discussed this recently in our Mitlin Minute, What is the S&P?. This index is regarded as the best gauge of large-cap US equities available, a much better indicator than the Dow.

Hopefully, you have a diversified portfolio, and if you do there will be many assets in your portfolio that will not benchmark well against the S&P 500. Assets invested in companies that are considered small-cap, mid-cap, and international markets will not be represented well by this index. The S&P is a good indicator of how large-cap US equities are performing, but may not give a clear picture of the broader markets as a whole. When evaluating your portfolio, it is important to have appropriate benchmarks to compare your portfolio. The S&P will certainly provide a good benchmark for some of your holdings, but certainly not all of them. You may need to use several benchmarks to gauge your whole portfolio. It will be important to review the right holdings with the right benchmarks to get an accurate picture, otherwise, the data may be meaningless. As an example, you would not want to gauge a mutual fund or ETF that is made up of small companies from an emerging economy against the S&P 500. This does not provide any assistance whatsoever. It the proverbial comparison of apples vs. oranges.

Make sure you understand how your portfolio is positioned and the best ways to benchmark how your assets are performing. The S&P 500 has very little correlation with a portfolio that has a vast majority of assets not in large-cap companies and will not provide you with a good indication of how your portfolio is performing during bull or bear markets.

We would be happy to discuss your situation regarding the benchmarks being used to evaluate your portfolio and what indexes would be most relevant to you. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time for this review. Be sure to share this article with friends, family, and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

Campus Closed, College Refunds and My 529 Plan

529planRefunds

 

Did the recent coronavirus outbreak close your educational institution? Did you pay for your expenses with funds from a 529 plan? It is important to understand how you will be affected if this applies to you.

The recent Covid-19 outbreak has forced the closure and move to online classes for many educational institutions. They are going to be processing reimbursements for room and board, tuition, and other expenses due to the closure of their campuses. This complicates things for those that may have paid for these expenses by using their 529 plan. Typically, you can only use funds from your 529 to pay for expenses incurred in the current year. Funds withdrawn in excess of the expenses incurred would be considered a non-qualified distribution. This type of distribution would be taxable plus a 10% penalty at the beneficiary’s tax rate.

Families that have or are expecting to receive a refund should understand what options they have to avoid an unnecessary tax. In most instances you would have 60 days, from the point you receive the refund, to return the unused portion of the funds that have been withdrawn from the account to avoid the tax. The IRS has recently issued guidance under the CARES Act that although the 60 days window still applies, a beneficiary that received a refund after February 1, 2020, will have until July 15, 2020, to return the funds to their 529 plan.

It is important that you do not return more than the refund to the plan. The additional amount will be considered a new contribution. You must also return the funds to an account for the same beneficiary, so make sure you are returning it to the right account. The option to keep the refund is possible, but it will then be considered a non-qualified distribution which will be taxed as mentioned above.

You will want to make sure that you have an accurate accounting of what has taken place. It is advised that beneficiaries and account owners document all the transactions that have happened with the 529 plan if you need to justify how the refund was handled. Having this documentation could ultimately help you avoid unnecessary tax and penalties.

It is highly recommended that you contact your 529 plan provider and accountant to learn the steps needed for returning the funds to your account. This will assure that you handle it the right way and your tax advisor is aware you have returned the funds. Both will also know that you are returning these funds and it should not be treated as a new contribution.

We would be happy to discuss your situation regarding refunds you have received back from your qualified educational institution if you had paid them with assets from a 529 plan. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time for this review. Be sure to share this article with friends, family, and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

What is the Dow?

DowJonesstock

The markets have been in focus recently due to the coronavirus pandemic and its impact on the economy. There is much focus place on what the media outlets call the “Dow” and we wanted to take this opportunity to clarify “What is the Dow?”

The Dow Jones Industrial Average (DJIA), or Dow for short, is an index that tracks 30 large publicly traded companies that trade on the New York Stock Exchange (NYSE) and the NASDAQ. Yes, you read that right, this index tracks only 30 companies. Does following the ups and downs of the Dow make sense for you, your portfolio or the markets in general? I would argue that it simply gives you a good view of large companies and it is not a broad enough index to benchmark most portfolios that take a true asset allocation approach. We discussed it recently in our Mitlin Minute, What is the Dow?.

Those that have a diversified portfolio will have exposure to assets that will not benchmark well against the Dow. As an example, companies in the small-cap, mid-cap and international markets will not be represented well by this index.

The Dow is a good indicator of how a small number of the largest publicly-traded companies are performing, but not of the broader markets as a whole. It is important to have appropriate benchmarks to compare your portfolio to and the Dow may provide that for a portion of your holdings, but not all of them. We use several benchmarks to compare portfolios and each one needs to be reviewed and compared to the holdings that are most like the benchmark, otherwise, it is meaningless data.

Make sure you understand how your portfolio is positioned and the best ways to benchmark how your assets are performing. The Dow has very little correlation with a portfolio that has a vast majority of assets not in large-cap companies and will not provide you with a good indication of how your portfolio is performing during bull or bear markets.

We would be happy to discuss your situation regarding the benchmarks being used to evaluate your portfolio and what indexes would be most relevant to you. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time for this review. Be sure to share this article with friends, family and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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