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Could the Bulls Still Run Without the Fed?

June 24th, 2013 | No Comments | Posted in Financial News

If the central bank ceased easing, could stocks continue their ascent?

shutterstock_111533954Could this bull market last with less help from the Federal Reserve? Is it propped up by the Fed’s stimulus, or strong enough to sustain itself if the central bank reduces its efforts? Some factors hint that the economy and the market may have a bit more strength than assumed, even with Q2 GDP projections being tempered.

The real estate comeback is real. Housing is a catalyst in the recovery and demand for new and existing homes is not waning. According to the National Association of Realtors, listings remained on the market for an average of only 46 days in April; the norm is between 90-120 days. New home sales were up 2.3% in April, which also brought a 0.6% improvement in residential resales. The year-over-year numbers speak loudly: new home sales, +29.0%; existing home sales, +9.7%. Another nice note: the market share of foreclosures fell from 25% to 18% between April 2012 and April 2013.1,2,3

Many S&P 500 firms met EPS expectations. Q1 earnings season showed two-thirds of companies surpassing earnings per share forecasts; slightly better than the historical average of 63%. The downside, as cited by Thomson Reuters, is that less than 50% of these firms met revenue forecasts. So belt-tightening turned out to be a bigger factor than growth. Still, increased profits generate interest in and confidence in stocks.4

Hiring, buying & spending are holding up. In the past year, the economy has generated an average of 169,000 new jobs per month. (The jobless rate did fall from 8.1% to 7.5% in that 12-month interval.) We know that consumer spending increased by 0.7% in February and 0.2% in March – some of that was attributable to higher fuel and energy costs, but the increases still topped economists’ expectations. Overall retail sales ticked up 0.1% in April (and core retail sales 0.6%) following a 0.5% March setback, but the usual spring buying patterns don’t seem to have been hampered – April saw a 1.0% jump in auto sales, a 1.2% rise in clothing and accessory sales, and a 1.5% sales gain for home and garden products. Gasoline sales dropped 4.7% last month, and further price descents could free up disposable income for other consumer wants.5,6,7

Wall Street withstood a global hiccup last week. On May 23, the Nikkei 225 dropped 7.3% and the key flash purchasing manager indices for China and the Eurozone came in under 50 (announcing factory activity contraction). What did the S&P 500 do on this unnerving day for global markets? It only retreated 0.29%, with good news on new home sales and initial jobless claims reversing losses. Stocks have proven resilient again and again, and here was another example; it would seem to take something really momentous to shake Wall Street’s core confidence.8,9

Regardless of what happens, the Fed should remain accommodative. That factor alone might reassure bulls in case of a pullback, and encourage the belief that we will see further gains for the U.S. benchmarks as the rest of 2013 proceeds.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – cnbc.com/id/100758136 [5/22/13]
2 – csmonitor.com/Business/new-economy/2013/0523/New-home-sales-rise-but-market-still-a-long-way-from-normal [5/23/13]
3 – mortgagenewsdaily.com/05222013_existing_home_sales.asp [5/22/13]
4 – fool.ca/2013/05/time-to-buy-mining-stocks/ [5/21/13]
5 – ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [5/3/13]
6 – takingnote.blogs.nytimes.com/2013/04/30/consumer-spending-without-consumer-confidence/ [4/30/13]
7 – latimes.com/business/money/la-fi-mo-april-retail-sales-20130513,0,3299874.story [4/30/13]
8 – forbes.com/sites/steveschaefer/2013/05/23/feds-tapering-talk-chinese-factory-slowdown-smack-stocks/ [4/30/13]
9 – cnbc.com/id/100761216 [5/23/13]

Understanding the Markets

June 24th, 2013 | No Comments | Posted in Financial News

What the acronyms signify & what affects investors.

shutterstock_80589910Dow. NASDAQ. S&P 500. Fear index. NYSE. Commodity prices. Earnings. Economic indicators. These are the gauges and signposts of investing, but if you stopped most people on the street, you’ll find they have only a hazy understanding of what these terms signify or reference. If you’ve ever been left dizzy by the jargon of the financial world, here is a brief article that may help clarify some of the arcana. Let’s start on Wall Street.

The major U.S. indices. The Dow Jones Industrial Average tracks how 30 publicly owned companies trade on a market day – the “blue chips”, 30 titans of U.S. and global business chosen by the Wall Street Journal, most not actually industrial. The NASDAQ Composite records the performance of 3,000+ companies on the NASDAQ Stock Market (see below), including many technology firms. The S&P 500 logs the performance of 500 leading publicly traded companies across ten different sectors (business/industry categories), as determined by financial research giant Standard & Poor’s (there was actually a Mr. Poor, hence the name).1,2

At the end of the trading day, these indices settle or “close” at a price level. The Dow is a price-weighted index – that is, its value each trading day rides up or down on the price movements of its 30 components. By contrast, the S&P 500 and NASDAQ (and most other stock indices) are cap-weighted, meaning the index value reflects the total market value of the companies in the index and not simply the prices of individual components. The S&P 500 has both a price return and a total return (the total return includes dividends).1,2

While the nightly news tells everyone what the Dow did today, many seasoned investors pay more attention to the S&P 500, which represents about 70% of the value of the U.S. stock market. There are other indices that also grab Wall Street’s attention. Investors watch the Russell 2000 (which lists the “small caps”, usually newer and younger firms than found in the predominantly “large-cap” S&P 500) and the Wilshire 5000, which tracks stocks of almost every publicly owned company in America (6,000+ components). Eyes are also on the “fear index”, the CBOE VIX (Chicago Board Options Exchange Volatility Index), which measures investors’ expectations of volatility (read: market risk) in the S&P 500 for the next 30 days. Important multinational indices (the MSCI World and Emerging Markets indices, the Global Dow, the S&P Global 100, and many more) and foreign indices (Japan’s Nikkei 225, Germany’s DAX, China’s Shanghai Composite and many others) also get a look.2,3,4,5

The stock exchanges. Stocks trade on exchanges, with the most prominent in America being the New York Stock Exchange (NYSE), the “big board” at which celebrities are seen ringing the opening or closing bell. Other notable U.S. stock and securities markets include the American Stock Exchange (AMEX), the CBOE and the NASDAQ Stock Market. While the NYSE trading day runs from 9:30am-4:00pm EST, pre-market and after-hours trading also occurs as investors respond to earnings announced after or before the bell or overseas developments.

The NYMEX, the COMEX & the forex market. The CME Group of Chicago owns and operates the New York Mercantile Exchange (NYMEX), the biggest physical commodities exchange on the planet. The NYMEX tracks energy futures such as oil and natural gas and it also has a COMEX division for metals such as gold, silver and copper futures. (Platinum and palladium futures actually trade on the NYMEX instead of the COMEX.) Agricultural commodity futures and options are traded on the CME Group’s Chicago Mercantile Exchange. Over-the-counter currency trading occurs via the worldwide, decentralized forex (foreign exchange) market. Short-term movements in exchange rates do influence stocks. 6,7

The bond market. Further decentralized trading occurs here, conducted by institutional and individual investors, governments and traders buying, selling and issuing government, corporate and mortgage-linked securities (and other varieties). Bond prices fall when bond yields rise, and vice versa. Interest rate changes affect the bond market more than any other factor; credit rating adjustments and changes in the appetite for risk (i.e., a race to or retreat from stocks by investors) can also play roles.

What moves the markets up and down? Information – or more precisely, the way large institutional investors respond to it. Things really move when the equilibrium of the market is upset by either positive or negative breaking news – it could be a geopolitical development, a natural disaster, a central bank decision, a comment from a Federal Reserve official or the Treasury Secretary, it could be many things. It could be earnings reports – corporate earnings are sometimes called the “mother’s milk” of stocks, and when two or three big companies beat estimates, Wall Street may see big gains that day.

The markets also respond to an ongoing stream of economic news releases from the federal government and other organizations. Federal Reserve policy announcements (interest rate adjustments, the implementation or cessation of stimulus efforts) get the most attention, and the Labor Department’s monthly employment report finishes second. Other critical monthly releases include the Commerce Department’s consumer spending report, the Bureau of Labor Statistics Consumer Price Index measuring consumer inflation, and monthly reports on existing home sales (from the National Association of Realtors), new home sales (from the Census Bureau) and home values (via the S&P/Case-Shiller Home Price Index).

There are other key reports: the occasionally contradictory consumer confidence surveys from the University of Michigan and the Conference Board (the CB poll is more respected, as it surveys 5,000 people; the Michigan poll surveys only 500, but asks many more questions) and the Institute for Supply Management’s monthly purchasing manager indexes assessing the health of the manufacturing and non-manufacturing sectors of the economy (these are simply surveys of purchasing managers at businesses, minus hard data).8,9

Hopefully, this makes things a little less mysterious. It takes a while to get to know the financial world and its pulse, but that knowledge may reward you in tangible and intangible ways.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – investorguide.com/article/11617/introduction-to-stock-indexes-djia-and-the-nasdaq-igu/ [1/25/13]
2 – fool.com/school/indices/sp500.htm [6/6/13]
3 – fool.com/school/indices/russell2000.htm [6/6/13]
4 – fool.com/school/indices/Wilshire5000.htm [6/6/13]
5 – investopedia.com/terms/v/vix.asp [6/6/13]
6 – investopedia.com/terms/n/nymex.asp [6/6/13]
7 – cmegroup.com/trading/agricultural/ [6/6/13]
8 – foxnews.com/us/2012/05/29/how-2-us-consumer-confidence-surveys-differ/ [5/29/12]
9 – briefing.com/Investor/Calendars/Economic/Releases/napm.htm [6/3/13]

How Do You Know When You Have Enough to Retire?

June 24th, 2013 | No Comments | Posted in Financial News

minority_familyThere is no simple answer, but consider some factors.

You save for retirement with the expectation that at some point, you will have enough savings to walk confidently away from the office and into the next phase of life. So how do you know if you have reached that point?

Retirement calculators are useful – but only to a point. The dilemma is that they can’t predict your retirement lifestyle. You may retire on 65% of your end salary only to find that you really need 90% of your end salary to do the things you would like to do.

That said, once you estimate your income need you can get more specific thanks to some simple calculations.

Let’s say you are 10 years from your envisioned retirement date and your current income is $70,000. You presume that you can retire on 65% of that, which is $45,500 – but leaving things at $45,500 is too simple, because we need to factor in inflation. You won’t need $45,500; you will need its inflation-adjusted equivalent. Turning to a Bankrate.com calculator, we plug that $45,500 in as the base amount along with 3% annual interest compounded (i.e., moderate inflation) over 10 years … and we get $61,148.1

Now we start to look at where this $61,148 might come from. How much of it will come from Social Security? If you haven’t saved one of those mailers that projects your expected retirement benefits if you retire at 62, 66, or 70, you can find that out via the Social Security website. On the safe side, you may want to estimate your Social Security benefits as slightly lower than projected – after all, they could someday be reduced given the long-run challenges Social Security faces. If you are in line for pension income, your employer’s HR people can help you estimate what your annual pension payments could be.

Let’s say Social Security + pension = $25,000. If you anticipate no other regular income sources in retirement, this means you need investment and savings accounts large enough to generate $36,148 a year for you if you go by the 4% rule (i.e., you draw down your investment principal by 4% annually). This means you need to amass $903,700 in portfolio and savings assets.

Of course, there are many other variables to consider – your need or want to live on more or less than 4%, a gradual inflation adjustment to the 4% initial withdrawal rate, Social Security COLAs, varying annual portfolio returns and inflation rates, and so forth. Calculations can’t foretell everything.

The same can be said for “retirement studies”. For example, Aon Hewitt now projects that the average “full-career” employee at a large company needs to have 15.9 times their salary saved up at age 65 in addition to Social Security income to sustain their standard of living into retirement. It also notes that the average long-term employee contributing consistently to an employer-sponsored retirement plan will accumulate retirement resources of 8.8 times their salary by age 65. That’s a big gap, but Aon Hewitt doesn’t factor in resources like IRAs, savings accounts, investment portfolios, home equity, rental payments and other retirement assets or income sources.2

For the record, the latest Fidelity estimate shows the average 401(k) balance amassed by a worker 55 or older at $150,300; the Employee Benefit Research Institute just released a report showing that the average IRA owner has an aggregate IRA balance of $87,668.2

Retiring later might make a substantial difference. If you retire at 70 rather than at 65, you are giving presumably significant retirement savings that may have compounded for decades five additional years of compounding and growth. That could be huge. Think of what that could do for you if your retirement nest egg is well into six figures. You will also have five fewer years of retirement to fund and five more years to tap employer health insurance. If your health, occupation, or employer let you work longer, why not try it? If you are married or in a relationship, your spouse’s retirement savings and salary can also help.

Can anyone save too much for retirement? The short answer is “no”, but occasionally you notice some “good savers” or “millionaires next door” who keep working even though they have accumulated enough of a nest egg to retire. Sometimes executives make a “golden handshake” with a company and can’t fathom walking away from an opportunity to greatly boost their retirement savings. Other savers fall into a “just one more year” mindset – they dislike their jobs, but the boredom is comforting and familiar to them in ways that retirement is not. They can’t live forever; do they really want to work forever, especially in a high-pressure or stultifying job? That choice might harm their health or worldview and make their futures less rewarding.

So how close are you to retiring? A chat with a financial professional on this topic might be very illuminating. In discussing your current retirement potential, an answer to that question may start to emerge.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – bankrate.com/calculators/savings/simple-savings-calculator.aspx [5/30/13]
2 – marketwatch.com/story/how-to-know-if-you-have-enough-to-retire-2013-05-25 [5/25/13]

June – Monthly Economic Update

June 24th, 2013 | No Comments | Posted in Monthly Economic Update

June-MonthlyEconomicUpdate

The Smartest Way to Save Big on Your Mortgage

June 21st, 2013 | No Comments | Posted in Lifestyle
Is the length of your mortgage getting you down? Consider the benefits of refinancing to a shorter loan term.

refitoshorttermloanforsavings

Despite claims that slow and steady will win the race, we all know that if you’re speedy, you’ll have the best chance of crossing the finish line as the victor. And while paying off your mortgage isn’t a competition, there are major advantages to getting a home loan that you can pay down faster.

Shorter-term home loans – such as 10-year, 15-year, and 20-year mortgages – typically come with lower interest rates and higher monthly payments. But before you decide shelling out additional money each month isn’t doable, consider the benefits that could come along with paying even a little more each month.

So if you’re thinking of refinancing so you can reach the proverbial finish line a little faster, keep reading to find out what you could stand to gain with a shorter loan term.

You Won’t Lose as Much Money on Interest

One of the best arguments for refinancing and obtaining a shorter-term loan is that you can snag a lower interest rate – which means you’ll pay significantly less interest over the lifetime of your loan. And if you’re wondering why shorter mortgages come with lower rates, Fannie Mae’s guide, “Taking the mystery out of your mortgage”, notes that lenders consider shorter-term mortgages to be less risky.

So, just how big of a difference in rates are we talking about? According the “Primary Mortgage Market Survey” conducted by Freddie Mac, the average 15-year mortgage rate for 2012 was 2.93 – compared with a 3.66 average interest rate for a 30-year fixed-rate mortgage.

A lower interest rate, combined with a shorter loan term, is a combination that could save you a lot of money in interest. For example, let’s use the average monthly interest rates for April 2013, according to Freddie Mac, to compare two mortgage term scenarios for a homeowner with a $250,000 loan.

chart1

If you opt for the 15-year fixed rate mortgage in the example above, you will you finish paying off your mortgage more than a decade sooner, and you’ll also spend $98,176 less in interest by the time you pay it off. Not too shabby.

Reap the Benefits When You Sell Your Home

And besides being the sole owner of your home, paying off your mortgage can also have a positive effect on your monthly cash flow. How? Consider the fact that, on average, housing costs amount to 33.8 percent of household annual expenditures, according to the U.S. Department of Labor. Eliminating your mortgage payment can cut out a significant chunk of that cost.

Plus, the Federal Deposit Insurance Corporation (FDIC) also points out that a homeowner who has paid off their mortgage will be in possession of a valuable asset – their home. This value can come in handy if you decide to sell your home or leave it to a family member, since you – or your family member – will profit from the sale, versus having to fork some of it over to the bank if you haven’t paid it off yet.

Of course, don’t forget that owning your home free and clear doesn’t mean you won’t have to pay anything else on it. Homeowners who have paid off their mortgage will still have to shell out money for insurance, real estate taxes, homeowner association fees, and the cost of any updates, notes the FDIC.

Build Equity to Reverse an Underwater Mortgage

According to J.P. Morgan Chase & Co., approximately 7 million people were underwater on their mortgages in 2012. This essentially means that 7 million people owed more on their mortgage than the current value of their home.

Fortunately, some underwater homeowners are taking advantage of government programs and refinancing to shorter-term mortgages, which are helping them get their heads above water.

The Federal Housing Administration (FHA) offers two programs – the FHA short refinance and the Home Affordable Refinancing Program (HARP) – that can make it easier for homeowners to refinance and obtain more favorable loan terms.

In fact, the Federal Housing Finance Agency (FHFA) reports that an increasing number of people are using these programs to refinance to 15-year or 20-year mortgages that will help them regain equity more quickly and reverse their underwater mortgages sooner. They’ll do this by making higher monthly payments, a majority of which will go towards paying the principal, rather than interest.

For example, let’s say you took out a $200,000 loan in 2013. We’ll compare the amount of interest and principal you’ll pay by the year 2025 for both a 15-year and 30-year fixed-rate mortgage with a 4 percent interest rate. (Keep in mind that the interest rate for a 15-year mortgage is typically lower than that of a 30-year mortgage, but we’ll keep it the same for the purpose of this comparison.)

chart2

Based on this example, if you decide to take out a 30-year mortgage, you’ll only have 28 percent equity in your home in 12 years. But, if you had a 15-year mortgage, you would own a whopping 80 percent of your home instead.

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Never Give Stores Your Zip Code. Here’s Why

June 21st, 2013 | No Comments | Posted in Lifestyle

Consumer SpendingWhy do merchants sometimes ask us for our ZIP code when we buy something?

I recently visited the Mob Museum in Las Vegas, an interesting addition to Sin City’s attractions. I paid my admission with a credit card, prompting the museum ticket seller to ask me: “What’s your ZIP code?”

When I paused for a moment, she added: “It’s for marketing purposes.”

As much as I had heard good things about the museum, I was unlikely to return soon as I live far from Las Vegas, so I was not anxious to receive subsequent marketing. She said it was okay not to give the ZIP code, and then addressed me by name in wishing me a good visit.

Jo Anna Davis remembers one ZIP code request that did not end well. A California victim of domestic violence who works at a group to help other victims, she guards her privacy carefully. Over the years she became a loyal customer of Ulta, the beauty care company. On one occasion she purchased a skin care kit which caused an unpleasant reaction. She brought the kit back to the store for a refund, and the clerk asked for Davis’ ZIP code to process the transaction.

Concerned about her privacy, she declined to provide the information, prompting the clerk to remark that no one had ever refused before. The clerk called the manager, who showed irritation. Davis asked for her receipt back, the manager refused, so she took it herself. An argument ensued. The manager locked the store’s door and demanded it back. “It was absolutely insane.  I’m sure I looked rather crazy myself,” Davis says.

The whole scene emerged only because Davis did not want to share her ZIP code.  Why make such a big deal over five digits that only records that someone lives in the same area as many thousands of others? Because along with other information, the ZIP code may provide the final clue to figuring out your address, phone number and past purchasing details, if a sales clerk sees your name while swiping your credit card.

How does this work? In one of their brochures, direct marketing services company Harte-Hanks describes the GeoCapture service they offer retail businesses as follows: “Users simply capture name from the credit card swipe and request a customer’s ZIP code during the transaction. GeoCapture matches the collected information to a comprehensive consumer database to return an address.”  In a promotional brochure, they claim accuracy rates as high as 100%.

Fair Isaac Corp., a company best known for its FICO credit scores, also offers a similar service which they say can boost direct marketing efforts by as much as 400%. “FICO Contact Builder helps you overcome the common challenges of gathering contact information from shoppers—such as complicating or jeopardizing the sales process by asking for an address or phone number, or complying with regulations,” it says. “It requires minimal customer information captured at point-of-sale, just customer name or telephone number and the customer or store ZIP code.”

Mr. ZIP promoted the use of ZIP codes for the USPS during the 1960s and 1970s. (Photo credit: Wikipedia)

Mr. ZIP promoted the use of ZIP codes
for the USPS during the 1960s and 1970s.
(Photo credit: Wikipedia)

Because customers are usually not told that stores are building a marketing database from the transactions, some object.

In one high-profile case, the home furnishings and cookware chain Williams-Sonoma matched names from its credit card sales and ZIP codes with a database to obtain addresses and other information for future marketing. One woman sued, saying she provided her ZIP code thinking it was necessary to complete the credit card transaction. In the resulting case the Direct Marketing Association and privacy groups showed sharply different outlooks on the practice. The case eventually made its way up to the California Supreme Court, which ruled in 2011 that stores cannot require patrons to furnish their ZIP code. California later confirmed the ruling in a law that bars firms from collecting personally identifying information during credit card transaction. Courts in other states such as Massachusetts earlier this year have reviewed the issue.

As for Ulta, I contacted Cynthia Payne, the company’s senior vice president of store operations, to ask about Jo Anna Davis’s experience. “It is extremely disappointing for me to know that we have lost a valuable customer and that the service in any one of my stores was less than stellar,” Payne said. She added the company seeks to provide an exceptional guest experience and she offered to contact Davis to undo the damage from that visit.

Just because businesses ask for a ZIP code does not necessarily mean that they will append data to their files to know where you live, your phone number, email and other information. The process costs money, and unless they have a way to market off the data, there would be no reason to do it.

Ashley Misko, the Mob Museum’s director of marketing, did not observe to the code of omerta when I asked what the year-and-a-half old museum does with its customer ZIP codes. She said they do not cross reference names and ZIP codes with other data, but just try to understand where their visitors are coming from.

“Ultimately, understanding how our patrons are finding out about us, which marketing/advertising efforts are affecting them, will give us the ability to make important decisions about our advertising resources and ZIP codes play a huge role in identifying that source,” she said. “We strictly utilize the information we receive to better understand the demographics of the market of those specific ZIP codes.”

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Consumer’s Guide to Home Energy Upgrades

June 21st, 2013 | No Comments | Posted in Lifestyle
A weatherization worker drills holes to blow cellulose insulation in the interior walls of this home. | Photo courtesy of Dennis Schroeder, NREL

A weatherization worker drills holes to blow cellulose insulation in the interior walls of this home. | Photo courtesy of Dennis Schroeder, NREL

A comfortable home is an energy-efficient home. The steps below outline the process for making your home more comfortable through energy upgrades and highlight the importance of choosing certified home energy professionals to do the work.

Step 1: Start with the Right Contractor

Not all contractors are the same. Some concentrate on kitchens, some on bathrooms. Some concentrate on home energy upgrades — focusing on ways to make your home comfortable, energy efficient and healthy. Look for companies that employ workers who carry the national Home Energy Professional Certifications. A home performance contractor will have a certified auditor either on staff or under contract to evaluate your home.

Step 2: Get a Thorough Home Energy Audit

A home performance evaluation, or energy audit, requires specialized equipment and trained individuals — called energy auditors — to operate that equipment. Energy auditors who carry a Home Energy Professional Certification have met the required professional and educational prerequisites and are certified to the highest standard in the industry, proving they are qualified to conduct a home performance evaluation.

The most important piece of equipment an energy auditor operates is called a blower door, which is used to determine where air is leaking out of your home. If you followed the auditor around while the blower door is running, you might be surprised at what you’d find. Air leaking through face plates on switches and outlets, and escaping around doors, windows, pipes, and under sinks … and all of these places add up. Put them all together and you could have a space the size of a bathroom window — maybe even bigger — that’s constantly open. The blower door test is a good way to learn why your house isn’t comfortable.

In addition to the blower door, certified energy auditors use tools — such as gas leak detectors, carbon monoxide detectors, kill-a-watt meters and lead-safe testing kits — to give your home a thorough evaluation.

Be sure to ask if your auditor is certified and what equipment will be used for the evaluation. If your auditor is just going to walk through your house and estimate what work needs to be done, you don’t have an experienced home performance contractor. Ask if you can shadow the auditor during the evaluation — most will welcome the chance to teach you about your home.

Step 3: Ask the Right Questions

While all homes are different and need to be evaluated based on their own unique characteristics, most dwellings can benefit from similar types of improvements. Before your energy audit begins, be sure to ask your home energy upgrade contractor about the following things. Some of the upgrades you could do yourself, like replacing a refrigerator or installing a programmable thermostat, provided you know those are significant sources of energy loss.

Air Sealing
Remember that space in your house that’s the size of a bathroom window and constantly open? Using the reading from the blower door, an auditor can figure out just how much air is moving through that gap at any given time. This is usually the biggest source of energy loss in a home, and sealing those gaps is one of the quickest ways to make your home more comfortable and efficient. Reducing air flow can pay off in as little as five years. It is also the baseline by which all other energy efficiency upgrades are measured (the absolute energy savings will vary by your climate). Read more about air sealing.

Reset Water Heater Thermostat
Most water heaters heat water to a set temperature and then hold it there. This means that all day and night, the water heater cycles on and off, just maintaining that set temperature. Lowering the setting a few degrees can often save half as much energy as air sealing would. And chances are turning down the temperature won’t even be noticeable. Read more tips for efficient water heating.

Programmable Thermostat for Heating System
It seems obvious but just like the water heater maintains a set temperature even when it isn’t being used, a thermostat does the same thing for the entire house. Just letting it cool off (or warm up) when there isn’t anyone awake can save energy and money as well. Without sacrificing comfort, it can also be close to half of what air sealing would save you. This change usually pays for itself in about three years.

Attic and Wall Insulation
The greater the difference between the indoor and the outdoor temperatures, the more energy it will take to maintain a comfortable temperature in your home. Adding insulation between the indoors and the outdoors reduces that energy demand. Depending on where you live, the savings from insulating your walls and the attic could be almost double the savings of air sealing. This procedure also pays back in 3 1/2 to 12 years. Learn how to estimate the payback period of insulation.

Replace Refrigerator
Much like a water heater, a refrigerator holds a set temperature that is very different from the air outside of it. It makes sense that a better sealed, better insulated refrigerator with better mechanical systems would save more energy. Depending on your previous model, a new ENERGY STAR® refrigerator can save up to $150 per year. One way to test the seal on your refrigerator is to close a dollar bill in the door. If the bill drops when you close the door, you may want to consider fixing the seal or getting a new one. Depending on the refrigerator and the savings, this can pay for itself in 10 years — well under the average lifespan of the appliance.

Water Heaters and Furnaces
The savings from water heaters and furnaces depend a lot on where the house is and what the fuel is. Generally, natural gas is going to be much cheaper than electricity, provided it’s available. The newer high efficiency gas furnaces will often be worth installing, even if the gas furnace in your home is relatively new. Depending on if you live in a cold climate or a warmer one, a new high efficiency furnace will rival or exceed air sealing for its potential savings. In warmer areas, a high efficiency heat pump may replace a gas furnace as the best choice for the home.

Step 4: Enjoy

In the end, your home is as unique as you are. It will take a certified home energy professional to evaluate your home and your family’s specific needs. It will also take a certified specialist to make those upgrades to your home. It’s not rocket science, but it is building science. Ask for certified home energy professionals because they have the ability to educate you on all of the cost-saving alternatives for your home. Then, you can begin living comfortably.

The U.S. Department of Energy, with support from its National Renewable Energy Laboratory and the Building Performance Institute, Inc., recently concluded its pilot testing period for the new Home Energy Professional Certifications. The purpose of the pilot testing period is to scrutinize and evaluate the proposed exam questions, practical/field components, and overall exam processes prior to achieving American National Standards Institute (ANSI) accreditation. ANSI accreditation indicates high quality and diligence. After the accreditation process is completed, the new Home Energy Professional Certification exams will be available at a national level. Interested individuals should visit the Building Performance Institute, Inc. website for more details.

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