6 Top Robo-Advisers for Investing

Getting started on retirement saving can be daunting when there are so many confusing options. There are thousands of stocks, not to mention other complex-sounding things to buy: bonds, mutual funds, exchange-traded funds, futures. And when you start reading about them, you’re liable to run into an impenetrable wall of investment jargon. So do you go it alone, taking shots in the dark with your…

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Starting a Business With a Friend: 4 Things to Consider

The ultimate question: Could you and your friend make the perfect business duo? The answer may be more complicated than you think. You love spending time with your friend and the idea of becoming entrepreneurs together. Why not fulfill your dreams with each other? Companies like Airbnb and Ben & Jerry’s had success in this area — they all started from friendships.

But much more goes into starting a business with a friend. You may make great business partners, or you could wish you had taken your venture solo. Before making any financial decisions, analyze the pros and cons and ask hard questions. For example, will you equally invest? Who will take on which tasks and responsibilities? Sift through the easy and hard questions to see where your business friendship lies.

To help you and your friend make a confident and informed decision, skip to our flowchart or keep reading.

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Questions to Ask Before Going Into Business With a Friend

Before jumping into your business plan, ask the hard questions. These can be tough to ask and answer, but they could save your friendship from a business relationship gone sour.

Question 1: Do You Share the Same Values?

Depending on your life stage and goals, your values could differ greatly from those of your potential business partner. You may appreciate living a relaxed lifestyle that gives you the financial freedom to do what you love, while others may value a fast-paced lifestyle filled with activities and long workdays. Differences in values could spark tension in your business relationship.

Ask yourself: Do you and your potential business friend have the same values? If so, great! If not, note your differences and if they’re worth working through.

Question 2: Do You Share the Same Business Goal?

To make sure you’re on the same page, schedule a brainstorming session with your friend. Map out your one-month, six-month, one-year, and five-year goals for your startup. Is your goal to make a certain amount of revenue? To hire a certain number of full-time employees? Or to take your business idea global?

If you have the same intentions, move on to question three. If any of your goals contrast, there may be trouble in paradise. See if you can work through your differences before investing your time and money.

Question 3: Do Your Skills Complement Each Other?

You and your friend each have your own strengths For example, you may be good at time management while your friend is better at sales. For skills you’re both lacking, think about how you’ll fill in the gaps. If you and your friend’s startup plan has a budget for hiring freelancers, or one of you has the dedication to learn something new, this may not be a concern. No matter what, especially if you’re bootstrapping your business idea, it’s essential to talk through it.

If you don’t compliment each other’s needed skills, who will step up and learn them?

Question 4: Do Your Career and Lifestyle Habits Align?

Depending on your business goals, this could be a make or break question for a professional partnership. For instance, one friend may be a morning person while the other’s a night owl. One can take over morning meetings and emails while the other’s responsible for evening website development and customer service.

If one friend’s lifestyle habits don’t suit the other, it may be best to opt for other business opportunities. While starting a business could adjust your habits, it’s easy to fall back into old ones from time to time.

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The Pros and Cons of Doing Business With Friends

Before entering any business arrangement, it’s reassuring to weigh the pros and cons. Could your new business idea benefit or hinder your future relationship and career?

Pros: You Have a Friend Through the Ups and Downs

Starting a business with a friend is similar to marriage — you’re there for each other through the good and bad. Whenever you’re having trouble, you know who you can go to for help. And you’ll be able to do most tasks together. For example, approaching investors as a team vs. going solo could put your nerves at ease.

Cons: You Know the Same People

Instead of getting together for your weekly catch-ups, you could spend all day together! While this can be exciting, it can also be hard to leave work at work. When you both hang out with the same people, there may be little room to disconnect from each other and your business.

Pros: You Understand Each Other’s Strengths and Weaknesses

You likely already know how each other operates and your strengths and weaknesses. Instead of learning the way a new business partner functions, you already have the upper hand. On day one, you and your partner could delegate tasks that fit everyone’s strengths best.

Cons: Your Friendship Could Turn Strictly Business

Your current friendship can be hard to separate from your new work partnership. Taking your work too seriously could stiffen your current relationship. Even after your work’s done, “friend” time may slow down. To have the best of both worlds, over-communicate throughout your entrepreneurial adventures.

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Pros: You Feel Comfortable Communicating

You may have been friends for months, years, or even decades. Having a strong friendship foundation helps bolster your communication in the workplace. Plus, you most likely know how your friend may react to a situation gone wrong. Take note of your friends’ communication habits and foster them throughout your business relationship.

Cons: It’s Easy to Let Emotions Get the Best of You

Be careful not to let your emotions dictate your business decisions. A situation could happen in your friend group that makes its way into the office. To avoid any personal matters in the workplace, come to an agreement — no drama. If situations arise, take some time off to clear your mind, rest, and come back more motivated and inspired.

Pros: You Get to Spend More Time With Each Other

You get to spend countless hours talking and doing business activities together. You could spend all day tackling business tasks and wrap up the workday chit-chatting about your lives. It’s an amazing opportunity to spend more time with your friend without letting other responsibilities slip through the cracks.

Cons: Friendship Failure Could End in Financial and Business Failure

When tension builds in the workplace, it could damage your business outcomes. Not wanting to attend a meeting with your partner could halt business productivity, or worse, end it. To avoid losing profits on your friendship and investments, you should both outline an exit plan if things go wrong.

Tips for Starting a Business With Your Friend

Before toasting to your other half and investing in your passions, properly prepare yourself. Show up to your new business like you would a new job. Have your plan documented before building your business empire.

1. Nit-Pick Your Business Plan

Small issues could grow months or years after starting your business. To avoid future problems, talk through small and large inconsistencies with your partner. Having different lifestyle habits may not be an issue now, but could be difficult after a year of working together.

2. Communicate Often

About one third of projects lack proper communication. Avoid project or business failure by finding a communication method that works for you and your partner. Daily catch-up meetings or weekly email updates are a few examples. Make it enjoyable by sipping your favorite coffee or eating your lunch while playing catch up.

3. Establish and Honor Boundaries

Eliminate tension in the workplace by setting a rubric for working hours. Avoid talking about personal matters until you step away from your work tasks. If you and your partner need to establish additional boundaries, clearly outline them as they come up.

4. Make it Official With Contracts

Once you’ve worked through any complications, put it all in writing. If things were to go wrong, documents and written statements can be referenced in court. To do this, contact a lawyer and draft up a business plan. Any business promises you make should be in writing for any miscommunications. Compensation rates, profit shares, investment contributions, and business accounts are a few things that should be listed on this document.

Before investing your time, energy, or money into your startup dreams, make sure you’re fully prepared. Could you and your friend be great business partners? Take our quiz below to find out. Don’t forget to keep track of your budget and investments throughout the startup process.

Starting a Business With a Friend: 4 Things to Consider appeared first on MintLife Blog.

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What Is a Clearinghouse?

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A clearinghouse is a financial institution that acts as a middleman between buyers and sellers in a market, ensuring that transactions take place even if one side defaults.

If one side of a deal fails, a clearinghouse can step in to fill the gap, thus reducing the risk that a failure will ripple across financial markets. In order to do this, clearinghouses ask their members for “margin”–collateral that is held to keep them safe from their own actions and the actions of other members.

While often described as the “plumbing” behind financial transactions, clearinghouses became high profile after the 2008 financial crisis, when the collapse of Lehman Brothers Holdings Inc. exposed the need for steady intermediaries in many markets.

Regulations introduced by the Dodd-Frank Act demanded greater clearing requirements, turning the handful of clearinghouses in the country into some of the most systemically important entities in today’s financial system.

Here’s a closer look at them.

How Clearinghouses Work

Clearinghouses handle the clearing and settlement for member trades. Clearing is the handling of trades after they’re agreed upon, while settlement is the actual transfer of ownership–delivering an asset to its buyer and the funds to its seller.

Other responsibilities include recording trade data and collecting margin payments. The margin requirements are usually based on formulas that take into account factors like market volatility, the balance of buy-versus-sell orders, as well as value-at-risk, or the risk of losses from investments.

Because they handle investing risk from both parties in a trade, clearinghouses typically have a “waterfall” of potential actions in case a member defaults. Here are the layers of protection a clearinghouse has for such events:

1. Margin requirements by the member itself. If market volatility spikes or trades start to head south, clearinghouses can put in a margin call and demand more money from a member. In most cases, this response tends to cover any losses.
2. The next buffer would be the clearinghouse’s own operator capital.
3. If these aren’t enough to staunch the losses, the clearinghouse could dip into the mutual default fund made up from contributions by members. Such an action however could, in turn, cause the clearinghouse to ask members for more money, in order to replenish the collective fund.
4. Lastly, a resolution could be to try to find more capital from the clearinghouse itself again–such as from a parent company.

Are Clearinghouses Too Big to Fail?

Some industry observers have argued that regulations have made clearinghouses too systemically important, turning them into big concentrations of financial risk themselves.

These critics argue that because of their membership structure, the risk of default in a clearinghouse is spread across a group of market participants. And one weak member could be bad news for everyone, especially if a clearinghouse has to ask for additional money to refill the mutual default fund. Such a move could trigger a cascade of selling across markets as members try to meet the call.

Other critics have said the margin requirements and default funds at clearinghouses are too shallow, raising the risk that clearinghouses burn through their buffers and need to be bailed out by a government entity or go bankrupt–a series of events that could meanwhile throw financial markets into disarray.

Clearinghouses in Stock Trading

Stock investors have already probably learned the difference between a trade versus settlement date. Trades in the stock market aren’t immediate. Known as “T+2,” settlement happens two days after the trade happens, so the money and shares actually change hands two days later.

In the U.S., the Depository Trust & Clearing Corp. handles the majority of clearing and settling in equity trades. Owned by a financial consortium, the DTCC clears on average more than $1 trillion in stock trades each day.

Clearinghouses in Derivatives Trading

Clearinghouses play a much more central and pivotal role in the derivatives market, since with derivatives products are typically leveraged, so money is borrowed in order to make bigger bets. With leverage, the risk among counterparties in trading becomes magnified, increasing the need for an intermediary between buyers and sellers.

Prior to Dodd-Frank, the vast majority of derivatives were traded over the counter. The Act required that the world of derivatives needed to be made safer and required that most contracts be centrally cleared. With U.S. stock options trades, the Options Clearing Corp. is the biggest clearinghouse, while CME Clearing and ICE Clear U.S. are the two largest in other derivatives markets.

The Takeaway

Clearinghouses are financial intermediaries that handle the mechanics behind trades, helping to back and finalize transactions by members.

But since the 2008 financial crisis, the ultimate goal of clearinghouses has been to be a stabilizing force in the marketplace. They sit in between buyers and sellers since it’s hard for one party to know exactly the risk profile and creditworthiness of the other.

For beginner investors, it can be helpful to understand this “plumbing” that allows trades to take place and helps ensure financial markets stay stable.

Want to start investing but don’t know where to start? SoFi Invest® has financial planners ready to answer any questions. Investors can also choose between the Active Investing or Automated Investing platforms, depending on how hands-on or hands-off they want to be.

Check out SoFi Invest today.



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Worthy Bonds Review: Earn 5% Interest on Your Money

This page may include affiliate links. Please see the disclosure page for more information. Bonds are often an integral part of a diversified investment portfolio. In our Worthy Bonds review, we’ll introduce you to a unique type of bond investment open to all investors. If a 5% interest is attractive to you, you’ll want to learn about…

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What Is a SEP IRA and How Does It Work?

SEP IRA stands for Simplified Employee Pension Individual Retirement Account. (Many people mistakenly think “SEP” stands for “Self-Employed”.) It’s a retirement plan that an employer or self-employed individuals can establish. This account is primarily for…

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How To Get Free Stock: 10 Companies That Will Give You Free Shares

There are quite a few ways to get free stock. This article will look at 10 companies that are offering free shares and cash bonuses to new investors.

The post How To Get Free Stock: 10 Companies That Will Give You Free Shares appeared first on Bible Money Matters and was written by Lorraine Smithills. Copyright © Bible Money Matters – please visit biblemoneymatters.com for more great content.

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