bUSINESS & FINANCE
Many people are in the dark about what makes their credit scores rise and fall.
That’s the takeaway from a new survey by the Consumer Federation of America and VantageScore Solutions, which found that consumer knowledge about credit scores is at the lowest level in the past eight years.
“Consumers know less about credit scores but think they know more,” said Stephen Brobeck, a senior fellow at the Consumer Federation of America.
The standard advice for a healthy credit score is to avoid paying your bills late or letting your balances get too high. Yet other moves — some seemingly positive — can actually lower your score, experts say.
Paying off an old debt
It seems like you’re doing something good: An old, unpaid bill resurfaces and you make a partial payment on it.
However, sometimes these debts are already so old they’re not legally enforceable, said Katherine Lucas McKay, who focuses on consumer debt at the Aspen Institute.
Once the debt collector makes a record of your active payments, it’s legal in many states for the debt to be treated as new, Lucas McKay said.
Often the easiest thing to do, she said, is to pay off the balance completely. “Your score will start to rise again once that record is closed,” she said.
Sticking with one type of credit
If you believe the collection agency is acting inappropriately, file a public complaint through the Bureau of Consumer Financial Protection. For the debt collectors, she said, it’s often easier to just resolve the issue “rather than have their regulator look into the situation.”
Ten percent of your score is about the variety of your debt, said Matt Schulz, credit expert at CompareCards.com.
“If you’ve had a car loan, a personal loan, a credit card and a mortgage and handled them all well, you’re probably going to have a higher score than someone who has just had a credit card — all other things being equal,” Schulz said.
That’s because lenders have more data points to pull from to make their decisions.
You shouldn’t go out and get a loan you don’t want or need just to bump your score a bit, he said, but, “it is worth considering in some circumstances.”
Closing a line of credit
After you’ve paid off a credit card, you might close the line of credit.
Keep in mind that doing so will lower your overall credit limit, and therefore may increase your utilization rate — how much credit you’re using versus what’s available to you.
“There is some data from FICO that reveals people with credit scores above 800 commonly maintain a credit ratio below 10 percent,” said Bruce McClary, vice president of communications at the National Foundation of Credit Counseling.
To offset the smaller credit limit, you should have a strategy for paying down the remaining balances as quickly as possible and bringing the utilization ratio back within an acceptable range, McClary said.
Also: Don’t rush to open a bunch of new cards at once. Doing so can lower your score.
Failing to check your credit report
Errors on your credit report can drag down your score, Schulz said. “It’s absolutely essential to review your credit report at least once a year to make sure that it is accurate,” he said.
If you see a potential problem — be it a reporting issue or sign of identity theft or fraud, let the credit reporting company know as soon as possible. “The resolution process probably won’t be fast or simple,” Schulz warned. “But it’s all worth it.
“You should never let someone else’s mistake damage your finances.”
The three big firms that generate credit reports for consumers are Experian, Equifax and TransUnion. You are allowed one free report from each of the three companies each year, according to the Federal Trade Commission.
You can also freeze your credit with these agencies for free to protect yourself from identity theft and other types of fraud.
I’m originally from Alabama, so a lot of folks I know have been watching intently in recent weeks as legislative bodies took their cues from religious faith in passing a new law on abortion. Some have been floored that a holy mantra could impact laws and the penal code, while others have cheered the developments as a sign of a new spiritual alignment.
You don’t have to relocate to Alabama, Georgia or Ohio to get your investment life in line with your personal faith, however. Believe it or not, there’s a fund for that.
Whether this segment of the Responsible Investment universe, generally referred to as Socially Responsible Investing or SRI, can beat the market is another matter.
Catholic-focused funds: There are a variety of Catholic-values funds available for individual investors. The $250 million Global X S&P 500 Catholic Values ETF CATH, +0.76% tracks the S&P 500 SPX, +0.85% with a faith-based overlay dictated by the Conference of Catholic Bishops, who have determined that Catholics should “never invest in businesses engaged in abortion, contraception, embryonic stem cell research, racial and gender discrimination, pornography, arms production or other morally wrong business activities.”
Likewise, the LKCM Aquinas Catholic Equity Fund AQEIX, +0.93% with a longer track record but only $50 million in assets under management, uses the same definition to exclude certain industries and businesses from its portfolio.
Ave Maria, which offers a variety of mutual funds from growth AVEGX, +1.11% to value AVEMX, +0.75% to bonds AVEFX, +0.18% is likely the largest Catholic fund complex available to investors, with north of $1 billion under management. The firm relies on advice from the funds’ Catholic Advisory Board for investment screening advice, resulting in a “pro-life and pro-family approach to investing.”
Jewish-focused funds: Investors who wish to align with their Jewish faith don’t have the wealth of opportunities of their Catholic brethren. In fact, the one fund offering available, the Six Thirteen Core Equity Fund both launched and closed in 2018. The fund was intended to “invest alongside Jewish Values, promoting the development and growth of the Israeli economy, while recognizing the importance of tzedakah.” The fund was to donate 10% of its profits to charitable causes.
For now, investors who want to focus integrating their Jewish faith into portfolios can do so only through the AMIDEX35 Israel Mutual Fund AMDAX, +0.39% which invests in listed Israeli companies.
Shariah-compliant funds: Funds that are Shariah-compliant will avoid alcohol, tobacco, pork-related products, conventional financial services, weapons and defense as well as entertainment stocks like hotels, casinos, cinema, pornography and music. Investment options include The Imam Fund IMANX, +1.08% and the Amana group of funds focusing on growth AMAGX, +0.99% income AMANX, +0.82% and the developing world AMDWX, +0.64% There are also ETFs listed on the London Stock Exchange, including iShares MSCI World Islamic ETF ISWD, -0.05% and the iShares MSCI USA Islamic ETF ISUS, +0.27%
With the exception of Amana’s funds — its growth and income funds have assets in the $1 to $2 billion range — most Shariah-complaint funds remain fairly small, however. The Imam fund boasts $121.78 million in assets under management, while the iShares products have $115 million and $72 million, respectively.
Bible- and Christian-focused funds: For those that may not affiliate with any of the specific religions above, there are additional faith-based fund options. For example, the Timothy Plan family of funds, which has a variety of funds in broad investment categories including U.S. equity and fixed income, offer investors screens that exclude businesses with ties to abortion, gambling, pornography, tobacco, non-family entertainment, alcohol, and non-traditional marriage. Within this framework, the fund family offers everything from small-cap value TPLNX, +1.32% to growth and income TGIAX, +0.40% to Israel Common Values TPAIX, +0.06%
Likewise, Guidestone, with over $12 billion in assets under management, offers a range of fund options, including real assets GREZX, +0.69% and target-date funds (such as GuideStone My Destination 202 GMWZX, +0.40% and screens for abortion, human trafficking, gambling, tobacco, and alcohol.
Eventide (Gilead Fund ETILX, +2.03% is its largest offering) and Crossmark Steward Funds (with a global equity income fund SGISX, +0.82% and another focused on bonds SEACX, -0.04% ) are additional variations on the theme. Among the ETF options is the Inspire Global Hope Large Cap ETF BLES, +0.92%
Of course, the big question is what does performance look like if God is on supposedly your side?
One of the most common assertions made against Responsible Investments in general and SRI, which utilize negative screening as described above to exclude companies or sectors based on a value or belief system, is that, while it may be good for your conscience, it may not good for your wallet.
The evidence shows that increasingly isn’t the case for indexes and funds focused on Environmental, Social and Governance (ESG) issues, which generally do not eliminate potential investments wholesale. Instead ESG funds look for “best of breed” companies across sectors where strong ESG characteristics could enhance a firm’s sustainability or profitability.
Performance for faith-based funds, however, has been mixed. For example, the LKCM Aquinas Catholic Equity Fund AQEIX, +0.93% has underperformed its benchmark index and 90% of its peers, and Global X S&P 500 Catholic Values ETF CATH, +0.76% has underperformed its index since inception. Ave Maria’s growth and bond funds have consistently outperformed the S&P 500, while the value, world equity and rising dividend funds have underperformed since inception and produced mixed results in intervening years.
In 2019, Guidestone won Lipper’s award for Best Overall Small Fund Family based on risk adjusted returns, while the Inspire Global Large Cap ETF has underperformed the MSCI ACWI Large Cap Index since inception.
One relatively recent academic study on the performance of religious-themed investment funds found “that faith-based funds do not systematically underperform similar secular SRI or conventional funds. Faith-based funds tend to be small and share with similarly-sized conventional funds the challenge of attaining sufficient size to fully exploit economies of scale in investing.”
It’s certainly true that many of these funds are relatively new to the market, and it remains to be seen what long-term performance might look like. In fact, the study on faith-based fund performance was based on only 24 funds with less than 10-year histories.
Equally, restricting investment in and access to birth control, for example, may have macroeconomic repercussions that impact more than just a single fund. The World Economic Forum has estimated that “[f]or every dollar invested in reproductive health services, $2.20 is saved in pregnancy-related health-care costs. Moreover, the longer a woman waits to have children, the longer she can participate in the paid labor force, thereby boosting the economic health and prosperity of poor communities.”
But for those investors who do want Jesus (or the religious figure of their choice) to take the wheel of their investment portfolio, they generally won’t be short of options.
When it's several decades away, you might categorize saving for retirement as a back-burner concern.
And when you're younger, contributing to an individual retirement account might seem like an impossible stretch. Yet people who made the leap generally say they're sorry they didn't start earlier.
Millennials seem particularly drawn to Roth IRAs, which are showing an across-the-board uptick from all age groups.
Drawing on investor data, Fidelity found more than half of IRA contributions going into Roth IRAs, and especially from people age 23 to 38. "Millennials opened 41 percent of new Roth IRA accounts in 2018, and 74 percent of their contribution dollars are going into Roths," said Maura Cassidy, vice president of retirement at Fidelity.
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Ashley Sproul, 40, started her Roth IRA when she was 34 and wishes she'd started sooner. "My dad said to start right away, but I didn't get the importance of tax-free growth."
Sarah Lindsay Miller, 29, maxes out her Roth IRA every year. "I would have funded mine in high school and college if I had known about it," said Miller, an office manager in Estes Park, Colorado.
The accounts are especially valuable when they are the sole source of retirement savings. Miller's employer does not provide a 401(k). However, she put in the maximum savings possible even when she was contributing to a workplace retirement plan with a former job.
Roth IRA advantages
For younger people, 30 or 40 years seems like a very long time to not be able to touch the money. Since Roth contributions are made with after-tax dollars, that's not a concern.
"The benefits of the Roth are that you can tap into the contributions you've made tax-free and penalty-free," Cassidy said. "People are finally really understanding that."
You have to forgo the tempting, immediately available tax break, but you get something better in return, says Mike Hoffman, a director at Verdence Capital Advisors in Maryland: "The contributions and, most importantly, the 30-plus years of earnings, will be tax-free in retirement," Hoffman said.
"This is the year that millennials are estimated to be a larger population than boomers," Fidelity's Cassidy said. "The older millennials are in their 30s, stable in their careers, saving for multiple goals.
"It's great to see them saving for their future," she added.
For her part, Roth owner Sproul said that, although she loves "that it grows tax-free," she's less enthusiastic about the annual contribution limit.
Since the IRS has raised IRA contribution limits, you can contribute $6,000 annually. If you are over age 50 and making catch-up contributions, you can put in an additional $1,000, for a total of $7,000 per year.
"Those are great little bump-ups to take advantage of additional savings," Cassidy said.
You can also earn more and still contribute to a Roth IRA – the income cut-off is $137,000 for single filers, up from $135,000 for single filers in 2018.
If you're still deciding which type of IRA to go with, Hoffman says the traditional IRA is a form of instant gratification because of the upfront tax refund.
"But if you're truly thinking long-term, and what will be better for you and your family many years from now, then you would pick the Roth IRA in most cases," Hoffman said.
Source: Yahoo Finance
Three years ago, I hit financial rock bottom.
Rent was due and, once again, I didn’t have it. I did, however, have three maxed-out credit cards, a negative account balance, and a closet full of useless junk I’d bought during a 2 a.m. online shopping binge a few weeks prior.
I wasn’t financially illiterate. I knew how credit scores can be damaged and interest charges accumulate over time thanks to my mom, a single parent who taught me to prioritize financial independence and frequently references the teachings of financial expert and lesbian style icon Suze Orman.
I fully understood what I was supposed to be doing with my money, and that I didn’t have much of it. As a freelance writer, I don’t make the kind of money to support a fun, quirky shopping addiction a la ”Confessions Of A Shopaholic.” I wasn’t trying to live out a broke-but-fabulous Carrie Bradshaw fantasy, and I was way past the point in my 20s when being broke stops being cute.
My credit tanked as I kept racking up online shopping debt I knew I couldn’t pay off, and I couldn’t stop. I also couldn’t sleep, but I didn’t need to. Sitting in front of my computer all night impulse-buying clothes, shoes, gimmicky skincare products, or a high-end espresso machine gave me an undeniable rush. It didn’t matter what I bought, only that I wanted this stuff because this stuff would make me feel better, and somehow the details of how I would pay for it would all work themselves out.
I felt unstoppable, untouchable, until the rush died down, and I’d crawl into bed for the next five days terrified by the depth of the financial hole I’d dug myself into—an exhausting cycle that started in my early 20s and seemed like it would never end until I ruined myself financially.
Around this time, I started seeing a therapist to help me cope with the constant anxiety of my mounting money problems. I told her about my ongoing financial problems, and the euphoria I sometimes felt that seemed to come in waves before an eventual crash into severe depression that lasted for weeks until the cycle began again. But most of the time I could barely get out of bed.
After a few sessions, she referred me to a psychiatrist who explained that drastic and unpredictable mood shifts like mine—periods of high energy, hyperactivity, and loss of touch followed by depressive episodes—are typically associated with bipolar disorder.
Not only that, but the feelings of impulsivity, restlessness and delusion that often accompany these manic periods can lead some people with bipolar toward risk-taking behaviors like self-harm, unsafe sex, and in some instances, shopping binges and spending sprees. I learned that most people who live with bipolar manage their symptoms through a combination of medication and talk therapy, and fortunately, I was able to start a course of treatment.
Though classic symptoms of a bipolar disorder can include what some people might describe simply as “highs” and “lows,” or what pop culture portrays as a “split personality,” getting a diagnosis and learning to live with these symptoms is much more complex.
Compulsive shopping isn’t typically discussed in relation to bipolar, and “financial destruction” doesn’t typically show up on the lists of common symptoms. However, chronic overspending is fairly common among people living with bipolar disorder, and it can be just as destructive to long-term health and wellbeing as any other behavioral symptom left untreated.
Before I was formally diagnosed, I never suspected I could be experiencing symptoms of bipolar disorder. Instead, I told myself I was just bad with money, bad at relationships, terrible at my job, and that my fluctuating moods were just bad PMS (that somehow lasted for months on end.) I believed recklessness and impulsivity were just part of my personality, rather than a symptom of a common and highly treatable mental illness.
I do occasionally behave in ways that could be described as reckless, impulsive, and financially irresponsible that have nothing to do with having bipolar, but before I sought treatment, these impulses were much more difficult to control.
Bipolar disorder can complicate work, relationships and other aspects of everyday life in a variety of ways, but the financial consequences can be some of the most devastating and most stigmatized.
Living with mental illness of any kind is shockingly expensive. The cost of therapy, medications and missed work days can add up, fueling the cycle of depression and instability. The double stigma of struggling with both mental illness and financial instability can feel embarrassing or shameful.
I not only live with a bipolar disorder, which itself is highly stigmatized and stereotyped, I’ve also made some remarkably irresponsible financial decisions that had substantial, long-lasting consequences. Credit and debt can take years to rebuild and pay off, not to mention how long it can take to set aside money for a savings account.
After experimenting with a few different combinations of medication with the help of my psychiatrist, my symptoms are generally under control. I still see my therapist for regular visits to help me cope and stay focused on my progress, financial or otherwise. I still feel the urge to spend when I’m anxious, stressed, or even feeling exceptionally good, but now those compulsions feel more like background noise I can easily tune out. I also deleted the shopping apps from my phone and unsaved my credit card information from the websites I visited regularly, so I’ll be less tempted the next time I hit a rough patch.
I’m steadily making progress toward improving my credit score, paying bills on time, spending far less and adding to my savings. The impact of my mental illness on my financial health security will likely follow me into future financial decisions and possibly my personal relationships, but I’m not ashamed to admit that I’ve struggled with mental illness, or that living with bipolar disorder complicates my financial present and future.
Money talk can be embarrassing, but it also sheds light on the complexities of bipolar beyond a surface-level understanding of “highs” and “lows.” Radical transparency is critical to eliminating shame and stigma surrounding both mental illness and financial instability.
I am one of 582 million people, almost 8% of the global population, who have devoted their lives to entrepreneurship. This means that for the past decade I have been in the process of either starting or running my own business. But what are the implications of this identity as an entrepreneur on my psychological well-being - and the well-being of the global community?
An entrepreneur has been described as someone who passionately and creatively pursues an idea from concept to actualization as a result of a discovered need or challenge in the market. Or in the words of the iconic Steve Jobs: "The people who are crazy enough to think they can change the world are the ones who do."
Thought leaders around the world, including those who gathered in Davos earlier this year, recognize the extraordinary value that entrepreneurship adds to job creation, economic growth and the commercialisation of innovation. The largest global data set on entrepreneurship from the World Bank shows a statistically highly significant and positive effect of start-ups on GDP per capita, exports per GDP, patents per population and job creation.
In the US alone, start-ups create approximately 43% of new jobs annually based on data released by the Census Bureau’s Business Dynamic Statistics (BDS). The Small Business Administration has calculated that from 2000 to 2017, small businesses created 8.4 million net new jobs as opposed to 4.4 million jobs created by large corporations. In 2015 there was a total of 30.2 million small businesses, representing 99.9% of all firms.
But while the data sets have historically focused on the macro wellbeing of local and global economies, they have failed to measure the pernicious impact that mental health disorders have on the micro well-being of founders. Fortunately, the focus of the value analysis has begun to change.
The mental health crisis in start-ups
According to Dr Paul Hokemeyer, an expert in elite identity constructs: “Given the extraordinary impact entrepreneurs have on our world economy, it’s critically important they operate in a state of optimum emotional and relational health. Unfortunately, in our current zeitgeist of founder burnout as a benchmark of entrepreneurial excellence, such has not been the case.”
A recent study by the University of San Francisco researcher Michael A. Freeman focused on the mental health crisis that is raging, acknowledged but ineffectively addressed, among the men and women who comprise the entrepreneurial community.
According to this study, approximately one half (49%) of entrepreneurs suffer from at least one form of mental health condition during their lifetimes. These include ADHD, bipolar disorder and a host of addictive disorders.
Freeman’s research has shown that start-up founders are:
- Twice as likely to suffer from depression
- Six times more likely to suffer from ADHD
- Three times more likely to suffer from substance abuse
- 10 times more likely to suffer from bipolar disorder
- Twice as likely to have a psychiatric hospitalization
- Twice as likely to have suicidal thoughts
These findings are actually conservative in the clinical experience of Dr Hokemeyer: “In my clinical practice, I see percentages in the range of 80% of entrepreneurs who struggle with a host of personality disorders such as narcissism, sudden wealth syndrome and the impostor syndrome.
“These conditions erode not just the effectiveness of start-up founders; they also have a negative impact on the endeavours that these highly intelligent human beings have risked their financial, relational, intellectual and emotional capital to pursue.”
When asked to explain why he thought that is, Dr Hokemeyer explained: “Entrepreneurs are trained to ignore the qualitative needs of their well-being measured in meaningful and authentic relationships, overall life satisfaction and happiness. The message they have internalised from the field’s most celebrated entrepreneurs is the outdated prescription of 'no pain, no gain' and a pernicious message that success is purely measured in quantitative returns, return on investment and profit.
“For these highly intelligent individuals, quantitative returns trump qualitative considerations. Unfortunately, in this paradigm entrepreneurs crumble, struggling to calibrate the dissonance between their internal awareness that their physical and emotional distress compromises their performance with the industry standard of cutthroat competitiveness that has defined the field for centuries.”
Fortunately, there is a solution. At this year’s World Economic Forum meeting in Davos, thought leaders and luminaries such as the UK's Prince William, the CEO of Kaiser Permanente Bernard Tyson, and John Flint, CEO of HSBC, among others, have begun discussing mental health issues in a curative and non-stigmatising light. But while awareness is important, concrete steps are critical to minimising the mental health risks while maximising the social and cultural benefits of entrepreneurial endeavors.
Our action plan
To build on the momentum of Davos, Dr Hokemeyer and I have come up with tangible steps to mitigate the damage caused by founder burnout and other mental health challenges.
1. Destigmatisation: Investors need to lead by example, by showing founders that it’s OK to be vulnerable and open up about their mental health challenges. The process of openly communicating and showing support for founders can start as early as in the due diligence process of start-ups. A great way for investors to support this initiative is to take the Investors Pledge developed by Erin Frey and Ti Zhao. It is a public commitment to take an active role in mental health.
2. Wellbeing resources: The global investment community must change their mindset by expanding their horizon beyond financial and other key performance indicators by also taking into account the mental and physical wellbeing of their most important asset, the founders. Just because a start-up has raised $2 million or more doesn’t mean that the founders have the means to seek support and help. It is the investor’s responsibility to allow founders to spend a fraction of the investment on their personal wellbeing.
3. Investor support: Investment funds need to include mental health professionals in their organizational ecosystem to serve as support systems and to implement empirically proven, enhancing and curative strategies for the leadership of the human beings who are stewarding their investments.
Given the volatile state of the geopolitical climate within which entrepreneurs are striving to create social and economic value, it is critically important that their valuations of success include qualitative measures of mental health in addition to quantitative measures of financial return on investment. To do this we need to work as a global community to incorporate established tools such as the WHOQOL to measure the psychological and relational health of individuals and communities.
The stage was set for this expansion in Davos. We now need to populate this stage with activists who will expand the traditional boundaries of valuations from the purely quantitative to a mixture of quantitative and qualitative returns.
Source: World Economic Forum
It’s a familiar scenario: A service provider fails to live up to your expectations and you feel some restitution may be in order. Yet, when you call customer service to voice a complaint, you’re faced with an automated voice menu, put on hold, or told that the agent is not authorized to refund your money.
American consumers spend, on average, 13 hours per year in calling queue. According to a 2010 study by Mike Desmarais in the journal Cost Management, a third of complaining customers must make two or more calls to resolve their complaint. And that ignores the portion who simply give up out of exasperation after the first call. In fact, according to a 2017 survey by Customer Care Measurement and Consulting the Carey School of Business at the Arizona State University, over three quarters of complaining consumers were less than satisfied with their experience with the given company’s customer service department.
These accounts seem at odds with the pledges by many companies that they are committed to great customer service. Consider United Airlines, among the lowest ranked of major airlines on customer service, which claims to offer a “level of service to our customers that makes [United] a leader in the airline industry”. This is in line with surveys over time that indicate that consumers consistently perceive that customer service is generally bad and even possibly becoming worse. Despite promises companies make to treat people well, customers don’t seem to be buying it.
There’s some evidence that customer queues may be unavoidable at times. Caller complaints tend to arrive randomly, making it impossible to staff agents to handle unpredictable fluctuations in call volume. But our research suggests that some companies may actually find it profitable to create hassles for complaining customers, even if it were operationally costless not to.
Since 2015, we examined the incentives structures within customer service departments at over a dozen companies in finance, technology, and travel services to understand why customers perpetually experience hassles. We found that these companies screen complaining callers by using a hierarchical organizational structure. This structure, we argue, keeps a lid on the amount of redress customers are willing to seek. In other words, by forcing customers to jump through hoops, the organization helps curb its redress payouts.
As part of our research, described in a forthcoming article in the journal Marketing Science, we interviewed managers of call centers to understand how their customer service organization is structured, and the way it contains redress payouts. We found that most involve at least two levels of agents.
The Level 1 agents take all incoming calls and hear each customer’s complaint first. These agents are typically limited in the amount of redress they are authorized to offer to the caller. For example, one Indian call center that serves the seller of language learning products forbade Level 1 agents from offering any monetary refunds. These agents could only offer replacement items or provide information on the status of an order. Any caller insisting on a refund was told to call the U.S. headquarters during normal business hours, generating additional tasks for any customer seeking more compensation from the call center manager, or Level 2 agent. This design relies on the fact that some consumers are not willing to incur this hassle. When this happens, the company is off the hook for the additional payout.
There may be a hidden layer of discrimination at play here as well. Studies and surveys have shown that some segments of consumers, such as women, African Americans, and Latinos, may experience higher hassle costs when dealing with customer service. We find that if the firm’s target market is more likely to experience hassles, then its customers are less likely to escalate claims. As a result, a tiered structure suggests that these consumer groups will receive lower payouts and refunds, on average.
So what about the idea that frustrating customers has consequences on customer retention and long term reputation? For example, some experts advise companies with upset customers to reach out to them directly to win them back. But, some companies have little regard for their reputation, especially those who control a large market share. This is reflected by the fact that the Carey School of Business survey respondents said they’re most frustrated with airlines, internet, cable, and telephone service providers. Most of us, for example, remember seeing the video of a bumped passenger being violently removed from a United Airlines flight in the spring of 2017. While the airline incurred a few payouts for the mess it created, it remains highly profitable with no noticeable loss in market share. Unfortunately, this means companies with few competitors may find worthwhile to alienate angry customers in order to save on redress costs.
Of course, there may be other advantages of a hierarchical structure. For one, it can aid in screening out illegitimate refund claims. Forcing the customer to endure the hassle of bringing the laptop to the retailer to prove that it is defective essentially stops a lying customer from acquiring an illegitimate refund. But overall, our research shows that the benefit of curbing redress costs can explain the wide-spread use of hierarchical call centers at many customer service departments. This may help us understand why some of the most hated companies in America are so profitable and why customer service, unfortunately, remains so frustrating.
Source -Havard business School
How do angel investors and angel groups work? Where do you find them as an entrepreneur?
Angel investing has not only become trendy and highly profitable, it has emerged into being a powerful source of fuel for the national economy, jobs, and new innovation. For entrepreneurs, angels have become a primary source of funding, and for many startups, a vital part of their existence. How do angels and groups work? How is this type of fundraising different? How can founders connect with this money?
As described in my book, The Art of Startup Fundraising, high net worth individuals make up the bulk of the ranks of start-up investors. These individuals are often referred to as ‘Angel Investors’ or ‘Accredited Investors’. The term angel investor actually was born out of investors that financed the broadway shows back in the day.
While an angel is normally an accredited investor, this isn’t always true. And not all accredited investors are angels. Together, these individuals both have the finances and desire to provide funding and for many reasons, they are among the most appealing sources of funding for start-up founders.
While there are various levels and definitions of ‘high net worth’ individuals; accredited investors are defined as those with a net worth of $1M in assets or more (excluding personal residences), or they have $200k in income for the previous 2 years, or a combined income of $300k for married couples. This is all according to the definition established by the Securities and Exchange Commission (SEC).
Angel investors are individuals who invest in start-up businesses; normally in the early stages. This tends to be on Seed rounds of financing and also Series A rounds. Super Angels are those that invest checks north of $500K on Series A and up.
Angel investors also invest via family offices if they are ultra high net worth individuals. Family offices often go unnoticed or unrecognized by many entrepreneurs and start-ups. But they are a very significant force in the investment world and capital markets. So much so that they effectively lobbied Congress to provide family offices exemption under the Dodd-Frank Act. We’re talking about Rockefeller money.
Angel investors fill the gap between friends and family, and more formal venture capital funds. Some invest purely for profit. Others look to make an impact with their funds by investing in causes and industries they are really passionate about. This can range from sustainable farming to education and healthcare start-ups.
Angel investors invest their own money, where the typical amount raised ranges from $150,000 to $2,000,000. According to Richard Branson’s VirginStartups.org angels invest around $1B in startups in the UK each year.
Since angel investors are very often individuals that have held executive positions at large corporations, they can often provide fantastic advice and introductions to the entrepreneur, in addition to the funds. A Harvard reportprovided information on how angel funded start-ups had a higher chance of survival.
Angel investments are high-risk, which is why this strategy normally doesn’t represent over 10% of the investment portfolio of any given individual. What angel investors look for is a great team with a good market that could potentially return 10 times their initial investment in a period of 5 years. The exits, or liquidity events, are for the most part via an initial public offering or an acquisition.
According to the Halo Report, angel investors particularly like start-ups operating in the following industries: internet (37.4%), healthcare (23.5%), mobile and telecom (10.4%), energy and utilities (4.3%), electronics (4.3%), consumer products and services (3.5%), and other industries (16.5%).
Data collected by the Kauffman Foundation shows that the best estimate for angel investor returns is 2.5 times their investment even though the odds of a positive return are less than 50%, which is absolutely competitive with venture capital returns.
Reaching nearly $23 billion, angel investors are not only responsible for funding over 67,000 start-up ventures annually, but their capital also contributed to job growth by helping to finance 274,800 new jobs, according to the Angel Market Analysis by the Center for Venture Research at the University of New Hampshire. On the contrary, venture capital firms only invest in 1,000 new companies per year.
While angel investors contribute about five times less capital to start-ups than VCs, individual investments in start-ups grew by 36 percent from 2008-2012, while venture capital investments dropped by 8%, according to Dow Jones VentureSource. Thanks to the JOBS Act, need for new investments following the 2008 financial crisis, increasing awareness and new technology there were over 750,000 active angel investors by 2013 when the new regulations were starting to be implemented.
The dominating geographic area, in terms of number of angel investments, is Silicon Valley, however, Silicon Alley (New York City) is catching up quickly.
Six reasons these high net worth investors are an attractive source of capital for you:
Note that a Stanford study reports that 90% of all seed and start-up capital comes from angel investors.Once you know who to pitch, it’s all about perfecting the pitch deck to close your round of funding. For a winning deck, take a look at the pitch deck template created by Silicon Valley legend, Peter Thiel that I recently covered. Thiel was actually the first angel investor in Facebook with a $500K check that turned into more than $1 billion in cash. Moreover, I also provided a commentary on a pitch deck from an Uber competitor that has raised over $400M .
Angel Investor Groups
Angel investors are increasingly combining to form and join angel groups. According to historical data and the Angel Capital Association the number of angel groups multiplied by from just 10 in 1996 to over 330 in 2013.
During the last 15 years, angel investors have joined different angel groups in order to get access to quality deals. If you are not a Reid Hoffman, a Ron Conway, or connected somehow to one of the founding members of the start-up, it was certainly very hard to gain access and participate unless you were affiliated with one of the angel groups.
Some of the biggest angel groups that are most active include the New York Angels, Houston Angel Network, Alliance of Angels, Golden Seeds, Launchpad Venture Group, Robin Hood Ventures, or Tech Coast Angels amongst others.
There are a variety of reasons for this groups to come together, including:
These groups can give individuals more confidence in investing, which in turn can result in better terms for entrepreneurs.Angel groups are typically organized by geographic region. Top angel groups appear to incorporate around 100-200 members. Some focus on a specific group of industries, while others are more open. Collectively these groups have invested in over 60,000 US based startups.
Finding Angel Investor Groups
There are a variety of ways to find angel groups, including:
The Angel Capital Association has an extensive online directory of regional angel groups around the US.CB Insights’ algorithms were used to identify these top angel groups:
With a successful exit for your own startup, you may even become an angel yourself one day. The Angel Capital Association and Kauffman even offer guides on creating your own angel group.Choosing the Right Angels for Your Fundraising Needs
Angels are individuals. Along with that comes an enormous variety of unique personalities and perspectives. Angel groups can help create more consistency, structure and organization in investments, while streamlining and simplifying the fundraising process for entrepreneurs.
Still, it is important to find the right fit. Factors to consider include:
True to their name, angels have really done wonders for many entrepreneurs and the startup ecosystem. Over the last decade the number of these investors has grown immensely as many individuals look to capitalize on the successes of their friends and peers. Many have organized as angel groups to learn, lower risk, and make more impactful investments.Today, founders are almost spoiled for choice with such a variety of groups to approach. The key to success is finding the right matches, and presenting your pitch well.
I am a serial entrepreneur and the author of the The Art of Startup Fundraising. With a foreword by ‘Shark Tank‘ star Barbara Corcoran, and published by John Wiley & Sons, the book was named one of the best books for entrepreneurs. The book offers a step-by-step guide to...
Alejandro Cremades is a serial entrepreneur and author of best-seller The Art of Startup Fundraising, a book that offers a step-by-step guide to today‘s way of raising money for entrepreneurs.
Each person's individual investing strategy may be different, but there are things every investor should avoid. Many individuals start investing with little to no education about the markets and learn the hard way by losing money. Instead, take note of these four investing mistakes.
1. Trying to time the market. Popularized by film and social media, day trading appeals to many because of the high rate of returns. Not only that, it's been personified as a get-rich-quick method when, in reality, that is far from the truth. Day trading or trying to time the market is highly risky and typically results in loss of principal and even more.
Instead of trying to time the market, you should aim to slowly add to your portfolio and dollar cost average over time to let your money grow. Certainly, there are successful active managers, but risking your retirement to try to make extra money is not worth it. Instead, look for mutual funds and exchange-traded funds that suit your investing goals, and use them to create an investing strategy that fits your needs and allows the overall market to build your wealth over time.
2. Failing to properly assess risk. It is easy to get caught up in the glamour and returns of investing. But don't forget that just as quickly as the market built your wealth, the market can take it away. Unfortunately, many investors fail to see the downside risk and only focus on upside potential. If you invest over the long term, there will inevitably be a period of time when you lose money. It is how you mitigate the risks and insulate your portfolio that matters.
Another purpose of risk management is to implement a buffer between your investments and your emotions. The human mind can be your own worst enemy, because investing is a long-term game and the human mind is geared for instant gratification. Irrational thoughts tend to enter the mind in times of elevated levels of stress.
Risk management will allow you to detach emotionally and stick to your game plan through the ups and downs of the market.
3. Not diversifying your investment portfolio. Putting all of your eggs in one basket is not a good investing strategy. You can make a lot of money if the technology and entertainment sectors do well and that's where your money is, but putting all investments into one area will likely not perform well long-term.
Instead, you should look to diversify your holdings across a few different assets that have different correlations. The goal with diversification is if the market should take a hit in a certain sector or a certain market cap, your portfolio will not suffer as a whole.
4. Not understanding your investments. Lastly, it is critical that you understand what you are buying.
Understanding how a company and its stock work has two major benefits. First, you'll know what to expect out of the stock or fund. If you enjoy technology and know a lot about it, you'll know if what a company is saying is good or bad. Many times the market reacts as a pack, but if you truly understand a company, you may realize some market moves are irrational.
Second, you can talk about your portfolio with confidence. Individuals sometimes buy investments because a family member said it was a good idea. Ultimately it is your decision and your money that is on the line. Having the ability to talk about your investments not only will make you more aware but also show you have confidence in your plan of attack.
The stock market can be an intimidating place to the untrained eye, but it can provide you with wealth-building potential. Avoid trying to time the market. Instead, ride the waves and let your money grow slow and steady.
Do not take on unnecessary risk unless you absolutely must. Diversify, diversify and diversify some more, ensuring your investments are not all in one basket. Finally, understand what you are investing in. These actions will put you on the right path to building your wealth.
KENNETH R. HARNEY
It’s the gender gap you don’t hear so much about: Single women are buying homes and condos at what may be more than twice the rate of single males, and the trend appears to be accelerating.
• Single women accounted for 18 percent of all home purchases last year compared with just 7 percent by single males, according to survey data from the National Association of Realtors. This makes single women the second largest segment in the entire home-purchase marketplace, behind married couples.
• Citing data from the most recent U.S. Census Current Population Survey, which covered 60,000 households, Ralph McLaughlin, chief economist for consulting firm Veritas Urbis Economics LLC, found that the share of home purchases by single women in 2017 — including never-married individuals, widows and divorcees — hit 22.8 percent, the highest on record. The gap between single females and single men was not as dramatic as in the Realtor study, however.
• Home builders have picked up on the trend and increasingly are designing homes and subdivisions to appeal to women’s preferences, including singles. Pat McKee, president of McKee Homes, a builder active in four North Carolina markets, has found that in some of the company’s developments, significant percentages of the homes — upward of 50 percent in one case — were purchased by single women in their 30s, 40s and older, so this is not just a phenomenon limited to younger singles. Many of these buyers, he told me, “are tired of living in apartments and now feel confident enough to buy a new home.”
• Single female purchasers tend to be more likely to see buying a home as an investment, according to Jessica Lautz, director of demographic and behavioral insights for the National Association of Realtors. Single women pay slightly more on their purchase on average than single men — $185,000 compared with $175,000 — and are more likely to have children under 18 in their households.
• Rising rents appear to be a hotter button for single women than for men. In a recent tracking study conducted by research and publishing firm Builders Digital Experience, 23 percent of single women cited rising rents as a “trigger” motivation behind a home purchase, well above the 16 percent average for all recent buyers.
Colleen Fleming of Chicago illustrates some of the aspects of the single-female buyer trend. She’s an instructional design program manager for the American College of Surgeons and, working with a RE/MAX broker in the city, recently bought her first home — a two-bedroom, two-bath condo with parking space in an uptown neighborhood. The condo cost $307,000 — more than she had originally planned — but far below what comparable units would command in the hyper-expensive San Francisco Bay area, where she previously lived.
“I found it more feasible to buy” than expected, Fleming said in an interview. She “definitely looked at it in investment terms,” but most important of all, “I had gotten to the point where I wanted having a place that’s really mine, where I could make the changes I wanted. Now financially it was a possibility.”
Shoshana Godwin, who is single and works as a real estate agent for brokerage company Redfin in Seattle, bought a condo close to downtown -- a two-bedroom, one bath unit that cost her $285,000 two years ago. Comparable units in her building are now selling for $500,000 in Seattle’s crazy-hot market, confirming her impression that buying instead of renting would be a good investment. She says she encounters “lots of other” single women who are actively seeking the same: A place they can call their own that also will prove to be a productive use of their financial resources.
So what’s with the single guys out there? Why aren’t they doing what smart single women are doing? There appears to be less survey research available on that subject compared with women, but builder Pat McKee says that at least anecdotally from discussions he’s had, “planting roots just doesn’t seem to have the same priority” for single men as for single women.
Godwin, who works extensively with singles of both genders, notes that in markets like Seattle, where job transfers at high-tech companies are commonplace, single men appear to be “more concerned” than women about having to relocate. “They are a little more afraid” to make commitments in real estate but seem to be fine with living in a nice, well-located rental.
What To Do If You Find Out The Person You’re Dating Is Deep In Debt
If you’re dating these days, you’re very likely to meet some folks who are dealing with serious debt.
One in five Americans say they have more credit card debt than emergency savings, according to a recent survey from personal finance company Bankrate.
And then there’s lingering student loans. Nearly 6 million Americans owe $50,000 or more in student debt, according to analysis from researchers with the Brookings Institution.
You’re probably not going to discuss a person’s debt on the first date, but at some point, you’ll find out about it and the ensuing conversation is bound to be a little awkward. The good news for both of you? Financial experts say personal debt shouldn’t necessarily be a dealbreaker. Below, they share seven tips for handling the conversation.
1. Recognize that not all debt is created equally.
“This has to be an open discussion without judgment. Talk to them and find out how much the debt is, and more importantly, how the debt was accumulated. Sometimes how the person got into debt is more important than how much debt they’ve accrued. For example, there’s a big difference between a person who has $50,000 in credit card debt because they used the money for vacations and fun, and a person who has $50,000 in school debt. In the latter case, they may be serious about money and their future. Remember not all debt is bad debt. I’d much rather have a spouse who used their credit on education rather than fun. That says a lot about them.” ― Samuel Rad, a certified financial planner at Affluencer Financial and an instructor at UCLA
2. Keep an open mind, even if it is credit card debt.
“According to a recent survey from Marcus by Goldman Sachs, nearly 70 percent of Americans say a partner’s credit card debt would be the most bothersome type of debt when compared to student loans, a car loan, or medical-related debt. That said, it’s important in this situation to keep an open mind: Credit card debt doesn’t necessarily mean your partner has an excessive spending problem. A series of unexpected life moments such as a car accident, emergency vet bill or home repair may have contributed to the debt. Identifying the underlying issues allows you to help your partner overcome any potential bad habits and assess strategies to pay it off faster. To get the conversation started and make your partner feel comfortable, open up about your own financial situation. Talk about any debt you may currently have or have paid off before focusing the attention to their situation.” ― Andrea Woroch, a personal finance expert and Marcus by Goldman Sachs ambassador
3. If you feel uncomfortable broaching the subject, frame it as a conversation about your future together.
“These conversations aren’t going to be easy, especially if the person you are dating is in serious financial trouble. Try and frame the conversation in terms of things you want to do together like have kids, buy a house or travel. What will this debt mean for your life together or your financial goals? You may need to put some of these goals on hold until your partner gets their debt under control.” ― David Rae, a certified financial planner with DRM Wealth Management in Los Angeles
4. Have an honest conversation about your relationship with money growing up.
“Your partner needs to be willing to talk about their upbringing around money. What messages did they get from their parents about spending, saving and what money meant to them? Are they really different than yours? If so, this lays the foundation for regular check-ins with each other about money issues as there is more chance of problems. If you both come from a family where saving was part of the expectation, then perhaps you can help get them back on course.” ― Linda Lubitz Boone, certified financial planner and president of the Lubitz Financial Group
5. Ask yourself: Am I OK being in a relationship with someone who has accumulated debt?
“Like any other quality, money should not be discounted when choosing a partner, especially one that you intend to spend your life with, and possibly, a bank account. You need to ask yourself if you are OK walking into a relationship owing money to others, because once you are in a long-term relationship, your partner’s problems inevitably become your own.” ― Roxana Maddahi, a wealth adviser at Steel Peak Wealth Management
6. If you are moving ahead with the relationship, do everything you can to be a supportive partner.
“If you are really into the person that you are dating, and being financially savvy is important to you, become a source of solutions and support. Identify ways that you are able to help without it costing you financially. For instance, instead of expensive date nights, encourage and embrace ways to curb spending by creating a list of free or low-cost events you can attend as a couple. Also, attend financial wellness events together. Many cities offer events geared toward educating communities on the importance of financial education. (You can easily find some of these for free on Meet Up.) Personal finance is extremely personal; remember to avoid any conversations that can be perceived as judgmental or belittling. The more insight you have around the how, why and when of someone’s financial situation, the easier it will be to have an honest dialogue around this topic.” ― Marsha Barnes, a personal finance expert and founder of The Finance Bar
7. Don’t assume your partner wants you to pay off their debt.
“Ask if your partner wants you to help in repaying the debt. This question will help you gain a better understanding of the kind of person you are dating. It’s best to find out early on if your partner wants you to help them out financially to avoid unpleasant surprises down the road. If they don’t want your help in climbing out of their debt, then don’t insist on providing assistance. If that’s the case, let the person you’re dating act from a place of strength and take responsibility over their life by allowing them to resolve their financial issues on their own. ” ― Courtney Cleman, a relationship coach at The V Club and a former financial analyst
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