Magazine

Ask Us Your Money Questions. We Answer Them Here. (Part 2)

By Ellevest Team

This list of questions from our community picks up where the first part left off.

Jump to a question:

Can I ask credit card lenders to reduce their interest rates now to help me pay down debt?
Is it an OK time to switch jobs (voluntarily)?
Is now an OK time to buy a car?
Should I divide my investment deposits up weekly instead of monthly?
Does Ellevest automatically rebalance my portfolio in response to market changes?
I’ve had a very atypical career path and I’m feeling stuck. What should I do?
With interest rates low, should I take out a personal loan to pay off credit card debt?
If my bank is cutting savings account interest rates, should I move the money to a CD?
Should COVID-19 affect how I job search?
Can I ask my credit card company to pause my minimum payments if I lose my job?
I’m discouraged in my career search. What should I do?
Any advice on finding remote jobs?
Should we use a cash-out refinance to invest in the stock market, since it’s so low?
If I have no other choice but to draw from my retirement accounts, what’s the best way to do it?
Is the deadline to max out my 2019 IRA extended? What’s the best way to do it?
Is now the right time to start my new business?
Is it OK to lower my retirement contributions if my income has taken a hit?
Should I save my money in a savings account, money market account, or CD?
Should I try to keep paying extra on my credit card even though I lost my job?
What are the tax implications of rebalancing?
How can I invest now for a hopeful, ethical future?
What are your thoughts on investing in a single company’s stock?
Is it possible to lose all my money by investing?
Should I invest in REIT stocks?
If you have extra money, what’s the best thing to invest in right now?
Are we headed for a depression?
I have extra money in my budget. What should I do with it?

We’re still not done with questions! Read part three here.

Can I ask credit card lenders to reduce their interest rates now to help me pay down debt?

This is a great question, and the answer is yes! You can absolutely call your credit card company to see if they will lower your existing interest rate. Minimizing how much you have to pay in interest will help you make progress on paying down the debt as fast as possible. If you have more than one card, we recommend the debt avalanche method.

This may also be a good time to check out credit card offers with 0% promotional rates for balance transfers with your current or new cards. Just note that the 0% rate usually lasts for a limited time, after which the interest rate can be pretty high — and may even be charged retroactively. (Read the fine print or call the card company to confirm these details.) So if you decide to use a balance transfer, calculate how much you would have to pay each month to pay down the balance by the date the 0% rate expires. For example, if you have a $12,000 balance and the 0% rate lasts for 12 months, you would want to pay $12,000/12 = $1,000 per month.

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Is it an OK time to switch jobs (voluntarily)?

Question: After interviewing for a few months, I was just offered a new position at a great place. I’m a bit hesitant to make the move considering the state of the economy and what that might mean for companies in general. Is there anything that I should be specifically looking for at the new company to influence my decision?

From Stephenie Girard, lead career coach: I appreciate how thoughtful you’re being about this decision. Career moves are a big deal under normal conditions. Navigating this during unprecedented and such uncertain times brings the decision-making process to a whole new level.

So first, I congratulate you on your job offer! Woohoo — very well done!

As you weigh the opportunities and risks with this decision, I encourage you to talk with several people in the organization. This might include the hiring manager and other team members. Ask questions about culture, leadership, and outlook during these very unique times. Interviewing for a role at this time gives you a lens into the organization during potentially its most incredible interruption. Get curious and don’t hold back. It’s so important that you are well informed and have many data points to evaluate.

Don’t forget to also trust your instincts. Often in times of crisis, these are loud and clear. Feel which path you’re being drawn to, do you due diligence, and the answer will become clear.

Wishing you great success now and throughout your career!

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Is now an OK time to buy a car?

From Rachel Sanborn Lawrence, lead financial planner: Since the Federal Reserve has cut interest rates to nearly zero, this can be a great time to get a lower interest rate on a new car loan. Also, many car dealers may be looking for business and offering incentives on new cars, plus ways of avoiding the showroom, such as bringing cars to you to test drive. Rules about whether dealerships can remain open, however, vary state to state right now, though, and may change quickly.

If you need a new car, have planned ahead for it, and are allowed to where you live,I don’t see any reason not to proceed as long as you have a few financial fundamentals covered. First, pay off any high-interest debt you have — any debt with interest rates over 10%. Then build your emergency fund if you don’t have one yet. We typically suggest 3–6 months’ of take-home pay.

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Should I divide my investment deposits up weekly instead of monthly?

When you invest regularly over time, you’re following a strategy called dollar-cost averaging. This allows you to invest without having to guess when the best day to do it might be. If you’re investing a little bit consistently, you’ll be in on some up days and some down days, and pay an average price over time.

If you invest more often (like weekly rather than monthly), then you’ll be spreading your risk out more evenly over time. But ultimately, how often you do it is up to you.

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Does Ellevest automatically rebalance my portfolio in response to market changes?

Yes. The market volatility means that your portfolio may have drifted from its target asset allocation (the recommended amount of stocks vs bonds vs other types of investments that you own).

At Ellevest, we monitor your portfolio and automatically “rebalance” it back to its recommended target whenever your stocks or bonds drift by 2–3%, depending on your investing goal.

Rebalancing often means buying into asset classes that have declined (and gotten less expensive) and selling those that are relatively more expensive to get you back to your target. When that happens, you’re automatically “buying low” or “selling high” — the holy grail of investing — without having to do a thing. That’s a plus when emotion has overtaken the market.

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I’ve had a very atypical career path and I’m feeling stuck. What should I do?

From Stephenie Girard, lead career coach: There are two immediate steps I encourage you to take. The first step is to craft a concise narrative, including your skills, experience, and unique magic. In your narrative, connect who you are today to what you want to do (aka your career goals). Update your resume, LinkedIn profile, and cover letters to reflect this.

The second step is to start researching organizations, leaders, and roles that inspire you. Don’t simply apply to opportunities online. Become a bad-ass networker! Even remotely — a video coffee chat can be a lot of fun and just as effective. Reach out to those people and organizations you want to work with. Don’t hesitate, be bold, and connect with as many people as you can in your authentic way.

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With interest rates low, should I take out a personal loan to pay off credit card debt?

It’s true that with the Federal Reserve cutting interest rates to nearly 0%, now could be a good time to get a low rate on a personal loan. Personal loans can be a useful tool for paying off credit cards — but we strongly recommend not spending any more money on your credit card while you’re paying off that loan (and while you’re paying off credit cards in general).

But personal loans aren’t the only option available. Here are a couple of other strategies you may want to explore as alternatives:

Call your credit card company to see if they will lower your existing interest rate. Minimizing how much you have to pay in interest will help you make progress on paying down the debt as fast as possible. If you have more than one card, we recommend the debt avalanche method.

This may also be a good time to check out credit card offers with 0% promotional rates for balance transfers with your current or new cards. Just note that the 0% rate usually lasts for a limited time, after which the interest rate can be pretty high — and may even be charged retroactively. (Read the fine print or call the card company to confirm these details.) So if you decide to use a balance transfer, calculate how much you would have to pay each month to pay down the balance by the date the 0% rate expires. For example, if you have a $12,000 balance and the 0% rate lasts for 12 months, you would want to pay $12,000/12 = $1,000 per month.

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If my bank is cutting savings account interest rates, should I move the money to a CD?

It depends on whether you need to be able to access the money at any time. When you put your money in a certificate of deposit (CD), you will earn a higher interest rate, but you won’t be able to withdraw your money without penalty until the time you’ve agreed to is up — often months or years from now. Early withdrawal penalties can be high, sometimes even more than any interest that you’d earn.

So if you are absolutely sure that you won’t need the money for that length of time, a CD could be right for you. But if you might need it (especially if that money is your emergency fund), a savings account is probably a better option.

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From Stephenie Girard, lead career coach: In the event you lose your job during these unprecedented times, I do encourage you wholeheartedly to pursue a job search as if under normal conditions — with a few tweaks.

Because many of us are practicing social distancing, be very clear to your network that you’re seeking a job. Don’t assume that anyone knows you’re out of work. Use multiple channels, including Linkedin, recruiters, your connections, etc to inform as many people as possible that you’re currently unemployed and looking forward to finding a role that aligns with your skills, experience and career goals.

Now is a better time than ever to network authentically (and yes, this can be done remotely!). Research organizations and leaders that inspire you. Reach out to them by way of email or Linkedin and let them know why, and that you would be interested in speaking about opportunities that might exist now or in the future, on their team or within the organization.

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Can I ask my credit card company to pause my minimum payments if I lose my job?

Fortunately, in response to the crisis, many credit card issuers are offering assistance to those who are experiencing financial hardship. Some issuers are waiving late fees, lowering interest rates, or even allowing some customers to skip payments. Each company is offering their own specific program and has their own guidelines about who qualifies. You can check in your online account or call the customer service line for your company to find out what you may qualify for. Also good to know: The recent stimulus bill made it so that your credit can’t take a hit for arrangements like this during the coronavirus pandemic.

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I’m discouraged in my career search. What should I do?

Question: I’m in my late 20s and have been in transition since I got laid off last fall. I then put job hunting on the back burner to care for a sick family member who passed away. While my emergency fund is fine, my emotions are not. I’ve been rejected so many times, and now my interviews are on hold due to the coronavirus. Should I put my search for a job in my field on hold for now, and look for part-time work, like at a grocery store? I know they need people.

From Stephenie Girard, lead career coach: First, I think it is important to acknowledge that you have been dealing with major loss in your life by way of losing your job and a family member. You may be feeling a mix of emotions from frustration to sadness to acceptance.

A foundation for any effective job search process is your emotional and physical well-being. I encourage you to stay productive and busy during these uncertain times. This may mean taking part-time work that is less aligned to your career goals. This may mean doing some type of virtual volunteer work. This might also mean finding part-time, remote, freelance work.

I also encourage you to find a schedule or routine that works well for you on a daily basis. Simple things like getting up at the same time during the week, dressing for the day, and designating certain hours to job search, with certain hours for exercise, meals, etc, is very important.

When you start to feel better holistically, you can share your narrative about who you are, your talents, and skills (and gap in resume), in a way that is authentic and professional.

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Any advice on finding remote jobs?

From Stephenie Girard, lead career coach: There are a lot of online resources for those interested in working remotely. We’ve listed a few here.

Of course, Indeed and Linkedin are also excellent search tools for remote work in your specific field. I also recommend connecting with a few recruiters who are successful at making placements in your field and seeking their advice and expertise as it relates to your qualifications and current landscape of opportunities.

Also, don’t forget that companies are still hiring for positions that are not remote. I encourage you to apply to those jobs that most interest you. While the job search, interview process, and on-boarding might look different under these current circumstances, organizations are still hiring for long-term, in-office talent.

And a final reminder to keep networking. Use this time to develop connections at organizations you are keen to work for now and maybe further into your future. That activity is more likely to land you a role than simply applying online.

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Should we use a cash-out refinance to invest in the stock market, since it’s so low?

While a cash-out refinance (aka refinancing your home but borrowing more than you need so that you have cash on hand) is one way many people fund home improvement projects. That being said, we don’t recommend that you use the equity in your home to invest in the stock market.

First, the larger your mortgage payment, the greater the risk of foreclosure, especially in an uncertain economic climate like this one. Second, you’d be taking out a new mortgage, which will likely involve having to pay closing costs again — and those can be 2–5% of your home's value. Third, investing with borrowed money, particularly when the market is so volatile, tends to be risky since gains are uncertain. You only would be increasing your risk.

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If I have no other choice but to draw from my retirement accounts, what’s the best way to do it?

From Emilie Archambeault, financial planner: A lot of people are facing tough decisions like this right now — so first of all, know you’re not alone. The answer to your question depends on your situation, but there are a couple of things to keep in mind when weighing your options.

Leaving the money in your investment accounts over time could be the best opportunity for it to grow toward reaching your retirement goal. That’s why we typically recommend leaving your money invested if you can — but as you said, in some situations, there may be no other choice available to you.

If you must withdraw from your retirement accounts, you may want to start with your Roth IRA, if you have one. You can withdraw up to the amount of money you’ve contributed without owing any taxes or paying penalties, as you would with other types of retirement accounts. (Taxes and penalties typically would apply if you withdraw any of the money your investments have earned, though, so be careful before you drain the account.)

Next, before you tap your other retirement accounts, I would recommend tapping any taxable investment accounts you may have. This may or may not cost you some additional money when you file your return next year (depending on whether your investments have earned money), but there are no additional penalties. Plus, if your situation improves, you can replace the money from a taxable investment account any time. Retirement accounts (including Roth IRAs) have annual contribution limits, so it could be harder to catch up later.

If you don’t have either of those types of accounts or you’ve already tapped them, only then would I turn to your other retirement accounts, like a 401(k) or traditional IRA. There are typically extra fees for withdrawing your money early from these types of accounts. The recent stimulus bill made it so that you can withdraw up to $100,000 early without penalty, but you’d still have to pay tax on that money, and it’s still good to leave it as a last resort.

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Is the deadline to max out my 2019 IRA extended? What’s the best way to do it?

The deadline to make an IRA contribution for 2019 was extended to July 15, 2020.

We would typically recommend investing smaller amounts between now and July 15, up to your $7,000 max. This allows you to invest without having to guess when the best day to do it might be. If you’re investing a little bit consistently, you’ll be in on some up days and some down days, and pay an average price over time.

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Is now the right time to start my new business?

From Stephenie Girard, lead career coach: Without knowing the details about the type of business you’re starting and where you are in your business plan and launch progression, it’s hard to say. However, I think that any sound entrepreneur should be weighing the pros and cons of starting a new business during these times. For some business owners, there may be more challenges and complications than for others who see very unique business and market opportunities given the current landscape. Get clear with your challenges and opportunities and be very honest with yourself about answering the questions “why” and “why now?”

If you’re considering leaving your current job to start this business, Ellevest recommends having two years’ worth of the salary you’d like to pay yourself saved up ahead of time. That will help you get the business off the ground while it might not be profitable yet.

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Is it OK to lower my retirement contributions if my income has taken a hit?

Usually, we don’t recommend changing your investment plan when the markets are volatile. And we definitely don’t recommend withdrawing money from your retirement accounts unless you have truly no other options. Continuing to invest (and leaving the money invested) can give it the best chance to grow over time, which is more likely to help you reach your retirement goal.

But if you lose some or all of your income, it’s understandable that you might need to hit pause on adding more to your retirement accounts. If you find you really do need the extra cash flow right now — to avoid going into debt or eating up too much of your savings — you can definitely put your contributions on hold. It’s also a good idea to take a close look at your budget and cut back on other expenses that aren’t absolutely essential right now.

Also, if you or someone in your household loses their job, file for unemployment ASAP. You can find more info on each state’s process for filing here.

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Should I save my money in a savings account, money market account, or CD?

Keep any money that you are going to need in the next year or two in a liquid (aka easy-to-access), guaranteed (FDIC- or NCUA-insured) account — like a savings account.

We don’t recommend putting money you’ll need — especially your emergency fund — in a certificate of deposit (CD) or any other type of account that doesn’t let you make withdrawals whenever you want.

If you’re considering a money market account, you want to be sure that it’s FDIC-insured (these are usually available through a bank). This is different from a money market fund, which is a type of mutual fund that invests only in cash and cash alternatives. While money market funds are generally thought to be pretty safe, there’s still a chance you could lose money.

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Should I try to keep paying extra on my credit card even though I lost my job?

Question: I lost my contract job on Friday and am anticipating being unemployed for the next two months. This morning, I calculated all of my monthly expenses. Luckily, my tax return hit my account right before I was laid off, and I have one last check coming in. As long as I keep my spending to essentials only, I should have enough money in my checking to cover all my bills through May. My question is this: I have a credit card balance of nearly $2,000. Do you suggest I try to pay it all off during this time, or just pay the minimum and wait to pay it off when I have an income again?

From Rachel Sanborn, lead financial planner: I’m so sorry to hear that you lost your job. A team member who recently joined us went through it too and described for us all the feelings — anxiety, anger, grief, and not knowing what to do next. Please be kind to yourself during this time and know that you will get through this.

I applaud you in taking inventory of what you’re spending, what you have, and what you owe. Alongside filing for unemployment, an inventory like that is one of the first steps we recommend.

Since it sounds like you don’t have extra cash other than what will get you through May, I think you may be better off paying the minimum on your credit cards for now until you have income again. You might want to call your credit card company to see if they will lower the interest rate or work with you on the minimum payments due. They might not, but it’s worth asking — actually, it’s worth pushing for. This may also be a good time to check out credit card offers with 0% promotional rates for balance transfers. With these, you typically transfer the balance of your current card to the new one. Just note that these promotional offers last for a limited time, after which the interest rate can be pretty high.

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What are the tax implications of rebalancing?

At times, your Ellevest investment portfolio will drift away from its target asset allocation (the recommended amount of stock vs bonds vs other types of investments that you own) — that’s a normal part of investing, but it’s more likely to happen more frequently during market volatility like this.

We monitor your portfolio and automatically “rebalance” it back to its recommended target whenever your stocks or bonds drift by 2–3%, depending on your investing goal. That means selling the investments you have too much of, and using that money to buy more of the investments you have too little of. All this is an important part of how we help manage the investment risk of your portfolio.

Because you can incur taxes when you sell investments, rebalancing may create a tax liability — but not always. Plus, when Ellevest rebalances your account, we’ll do what we can to minimize how much you might owe.

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How can I invest now for a hopeful, ethical future?

Question: What might be a good industry or company to invest in now that you anticipate will only grow or thrive once we return to the new normal? In other words, I would love to put my money in a hopeful, ethical future. And I invest for the long run. What industry or company do you think might flourish as a result of COVID-19 that is also ethical and forward looking?

We don’t recommend investing in individual stocks because it’s risky. Instead, we invest Ellevest clients’ portfolios in a diversified mix of stock, bond, and alternative ETFs and mutual funds.

That being said, you can invest in a diversified investment portfolio while supporting women — this is called gender-lens investing, and it’s what Ellevest Impact Portfolios were built for.

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What are your thoughts on investing in a single company’s stock?

We don’t consider ourselves to be experts at picking stocks — or even industries. History and research has proven that nobody can do that reliably, which is why most mutual funds underperform year after year.

We recommend investing in a diversified investment portfolio that includes stock, bond, and alternative ETFs and mutual funds. History has shown that this has been a more reliable way to grow your money by investing.

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Is it possible to lose all my money by investing?

If you were to invest in just a handful of stocks, it’s possible that your investments could go to zero.

The investment portfolios we offer at Ellevest are diversified across stock, bond, and alternative investment funds. This means your portfolio is exposed to stocks and bonds of literally thousands of companies. With the level of diversification that we provide our clients, losing all your money is a very, very remote possibility.

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Should I invest in REIT stocks?

Question: Is it a wise investment to get a REIT stock that pays 10–20% twice a month, especially when the market is down? I would love to know the best way to invest with a limited amount of money.

At Ellevest, we recommend investing in a diversified investment portfolio that includes stock, bond, and alternative ETFs and mutual funds. History has shown that this has been a more reliable way to grow your money by investing.

REITs are a type of alternative investment — they stand for “real estate investment trusts.” Rather than investing in individual REITs as part of your portfolio, Ellevest invests in REIT ETFs. These provide even more diversification because they include many individual REITs, which helps to reduce risk.

Don’t worry about how much you have to invest — just getting started is the key. We recommend investing a bit at a time, regularly. This allows you to invest without having to guess when the best day to do it might be. If you’re investing a little bit consistently, you’ll be in on some up days and some down days, and pay an average price over time.

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If you have extra money, what’s the best thing to invest in right now?

We recommend investing in broadly diversified investment funds like exchange-traded funds, aka ETFs. These have a lot of benefits, and you can read about them here. The recommended mix of stock, bond, and alternative funds in your portfolio depends on how long you have to invest — generally, the longer your timeframe, the more exposure to the stock market you can “afford.”

We also recommend investing a bit at a time, regularly, rather than making a large deposit all at once. This allows you to invest without having to guess when the best day to do it might be. If you’re investing a little bit consistently, you’ll be in on some up days and some down days, and pay an average price over time.

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Are we headed for a depression?

Question: I’ve been limiting my news intake to just a few sources that I trust, and Ellevest is one of those sources. Another one is listening to Marketplace in the evenings when I’m done with work for the day. Last night, a listener asked about the difference between a recession and a depression. I know that during the last recession we had an unemployment rate around 10%, and during the Great Depression unemployment was around 24%. I know that a recession is upon us — but with the intense layoffs we’ve seen this week, are we on track for a depression? For context, I live in Oregon and this state is forecasting 20% unemployment.

The Great Depression of the 1930s was a once-in-a-generation event. There has only been one depression in the last 100 years, and it lasted for a long time. There’s a small possibility that we get another one, but economists are not expecting a prolonged contraction to the economy this time around: Current economic forecasts are expecting declines this quarter and next, but a rebound in the second half of the year. The estimates are changing fast, but so far there are no signs of a depression.

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I have extra money in my budget. What should I do with it?

From Rachel Sanborn Lawrence, lead financial planner: Great question, and I’m glad to hear you’ll have extra to save right now. Here are a few suggestions, in order of priority:

First, pay off any high-interest debt you have — any debt with interest rates greater than 10%. That’s the most urgent. (For debt between 5% and 10%, still work on paying it off, but you can focus on other goals at the same time. And just pay the minimum on anything less than 5%.)

Then build your emergency fund. If you’re self-employed, we generally recommend saving more — an extra three months’ worth of your average expenses set aside, beyond your emergency fund, to help buffer months that have inconsistent income.

Then work on maxing out your retirement savings. Note that you now have until July 15, 2020 (the new tax filing deadline for this year) to make contributions for 2019 to an IRA.

If you’ve maxed out your retirement savings, you can consider other ways to invest. While it’s true that some investments are said to be “on sale” right now because of the dip in the stock market, it’s important to think about the timeline for your goal. If you’d like to use those extra funds within the next year or two, you may want to keep that money in a liquid account — like you do with your emergency fund — rather than invest it. If you think you’d rather wait more than two years or so, Ellevest has several different goals that can help you invest your money according to the timeframe you’re looking at. The shorter the time frame, the more conservatively we would invest the money. If you do decide to invest, we suggest investing the money incrementally, over several weeks or months. That way, with all the current market volatility, you won’t have to guess when the best time to buy might be.

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We’re still not done with your questions! Read part three here.


Disclosures

Calculated by Ellevest using data from Yahoo Finance.

© 2020 Ellevest, Inc. All Rights Reserved.

All opinions and views expressed by Ellevest are current as of the date of this writing, for informational purposes only, and do not constitute or imply an endorsement of any third party’s products or services.

Information was obtained from third-party sources, which we believe to be reliable but not guaranteed for accuracy or completeness.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Forecasts or projections of investment outcomes are estimates only, based upon numerous assumptions about future capital markets returns and economic factors. As estimates, they are imprecise and hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities, and should not be considered specific legal, investment, or tax advice.

The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person.

Investing entails risk, including the possible loss of principal, and there is no assurance that the investment will provide positive performance over any period of time.

Ellevest Team

The Ellevest team is working to help women reach their financial and professional goals.