#and he saves up and has his Roth IRA and investment portfolio and so on

[eats-the-stars]

being an adult who makes my own income is also realizing i can actually buy some of the pretty art i see online. some day i might even be bold enough to directly commission an artist.

[mostlysignssomeportents]

How Goldman Sachs's "tax-loss harvesting" lets the ultra-rich rake in billions tax-free

Tomorrow (Apr 25) I’ll be in San Diego for the launch of my new novel, Red Team Blues, at 7PM at Mysterious Galaxy Books, hosted by Sarah Gailey. Please come and say hi!

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With the IRS Files, Propublica ripped away the veil of performative complexity disguising the scams that the ultra-rich use to amass billions and billions (and billions and billions) of dollars, paying next to no tax, or even no tax at all. Each scam is its own little shell game, a set of semantic and accounting tricks used to gussy up otherwise banal rip-offs.

If you'd like an essay-formatted version of this post to read or share, here's a link to it on pluralistic.net, my surveillance-free, ad-free, tracker-free blog:

https://pluralistic.net/2023/04/24/tax-loss-harvesting/#mego

The finance sector has a cute name for this kind of complexity: MEGO, which stands for "my eyes glaze over." If you're trying to rip off a mark, you just pad out the prospectus, make it so thick they decide there must be something good in there, the same way that any pile of shit that's sufficiently large must have a pony under it...somewhere.

Propublica's writers haven't merely confirmed just how little America's oligarchs pay in tax - they've also de-MEGO-ized each of these scams, like the way that Peter Thiel used the Roth IRA - a tax-shelter for middle-class earners to help save a few thousand dollars for retirement - to make $5 billion without paying one cent in tax:

https://pluralistic.net/2021/06/26/wax-rothful/#thiels-gambit

One of my favorite IRS Files reports described how Steve Ballmer - the billionaire ex-CEO of Microsoft - laundered vast fortunes into a state of tax-free grace by creating hundreds of millions in "losses" from his basketball team, the LA Clippers. Ballmer paid 12% tax on the $656 million he took out of the Clippers - while the players whose labor generated that fortune paid 30-40% on their earnings:

https://pluralistic.net/2021/07/08/tuyul-apps/#economic-substance-doctrine

That was Propublica's first Ballmer story, back in the summer of 2021. But they ran a followup last February that I missed (it came out while I was on a book tour in Australia), and it's wild: a tale of "loss harvesting," a form of fuckery involving Goldman Sachs that's depraved even by their own standards:

https://www.propublica.org/article/irs-files-taxes-wash-sales-goldman-sachs

Loss farming is a scam that was invented in the 1920s, whereupon it was promptly banned by Congress. But Goldman and other plutocrat Renfields have come up with tiny modern variations on this century-old con that the IRS is either unable or unwilling to address.

Here's how it works. Say you've got a stock portfolio where some of the stocks have gone up and others have gone down. You want to sell the high stocks and hang onto the low ones until they bounce back. But if you sell those stocks that have gone up, you have to "realize" the profit from them and pay 20% capital gains tax on them (capital gains tax is the tax you pay on money you get from owning things; it's much lower than income tax - the tax you pay for doing things).

But you pay tax on your net capital gains - the profits you've made minus the losses you've suffered. What if you sold those loser stocks at the same time? If you made a million on the good stocks and lost a million on the bad ones, your net income is zero - and so is your tax bill.

The problem is that selling stocks when they've gone down is a surefire way to go broke. Every investing book starts with this advice: you will be tempted to hold onto your stocks that are going up, because they might continue to go up. You'll be tempted to sell your stocks that are going down, because they may continue to go down. But if you do that, you'll only sell the stocks that have lost money, and never sell the stocks that have made money, and so you will lose everything.

Back when the pandemic started, your shares in movie theater chains were in the toilet, while your stock in tech companies shot through the roof. If you sold the tech stocks then and held onto your movie stocks and sold them now, you'd have cleaned up - today, tech stocks are down and movie theater stocks are up. But if you sold the cinema shares when they bottomed out, and held onto your tech stocks when they were peaking, you'd be busted today.

So selling your loser stocks to offset the gains from your winners is a bad idea. That's where loss-farming comes in: what if you sold your tech stocks at their peak, and sold your bottomed-out cinema stocks at the same time, but then bought the cinema stocks again, right away? That way you'd have the "loss" from selling the cinema stocks, but you'd still have the stocks.

That's called "wash trading," and Congress promptly banned it. If you've heard of wash-trading, it's probably something you picked up during the NFT bubble, which was a cesspit of illegal wash-trading. Remember all those eye-popping NFT sales? It was just grifters with multiple wallets, buying NFTs from themselves, making it seem like there was this huge, white-hot market for monkey JPEGs. Wash-trading.

Turns out that crypto really did democratize finance...fraud.

Wash-trading has been illegal for a century, but brokerages have invented modern variations on the theme that are legal-ish, and the most lucrative versions of these scams are only available to billionaires, through companies like Goldman Sachs.

There are a bunch of these variations, but they all boil down to this: there are lots of ways to sell an asset and buy it again, while making it look like you bought a different asset. Like, say you're invested in Chinese tech companies through an exchange-traded fund (ETF) that bundles together "all the Top Chinese tech stocks."

Maybe you bought this fund through Vanguard, the giant brokerage. Now, say Chinese stocks are way down, because the Chinese government is doing these waves of lockdowns on the factory cities. If you could sell those Chinese stocks now, you'd get a massive loss, enough to wipe out all the profits from all your good stocks.

But of course, China's going to figure out the lockdown situation eventually, so you don't want to actually get rid of those stocks right now, especially since they're worth so much less than you paid for them. So right after you sell your Vanguard Chinese tech ETF shares, you buy the same amount of Schwab's Chinese tech-stock ETF.

An ETF of "leading Chinese tech companies" is going to have basically the same companies' stock in it, no matter whether it's sold by Vanguard, State Street or Schwab. But as far as the IRS is concerned, this isn't a wash-trade, because you sold a thing called "Vanguard ETF" and bought a thing called "Schwab ETF" and these are different things (even if the main difference is the name on the wrapper, and not what's inside).

There's other ways to do this. For example, lots of companies have different "classes" of stock. Under Armour sells both Class A (voting) and Class C (nonvoting) stocks. Though voting stock is worth a little more than nonvoting stock, they both rise and fall together - if the Class A shares are up 10%, so are the Class C shares. So you can dump your Under Armour Class A's, buy Under Armour Class C's and own essentially the same amount of Under Armour stock - but as far as the IRS is concerned, you just sold your interest in one company and bought an interest in a different company, and you can take a big loss and write down your profits from other stock trades.

The IRS does prohibit wash-trading, but only in the narrowest sense. Brokerages are obliged to report trades in which a customer buys and sells exactly the same security, with the same unique ID (the CUSIP number), within 60 days. Beyond that, IRS guidance is extraordinarily wishy-washy, calling on filers to "consider all the facts and circumstances" of their transactions. Sure, that'll work.

Propublica found zero instances of the IRS targeting any of these trades, ever, for enforcement. That's especially true of the most egregious version of loss-harvesting, a special version that only the ultra-rich can take advantage of, called "direct indexing." You might know about "index funds," where a brokerage sells a single fund that tracks a broad index of stocks - for example, you can buy an S&P 500 index that goes up and down with the total value of the top 500 stocks in America.

Direct indexing is something that giant banks like Goldman Sachs offer to their very richest clients. The brokerage buys a mix of stocks that are likely to track the whole index, and puts those shares directly into the client's account. Rather than owning shares in a fund that owns the stocks, you own the stocks directly. That means that when you want to harvest some losses, you can sell just a few of the stocks in the index, rather than your shares in the whole fund.

Here's how that works. In 2017, the US index was up 20%; global indexes were up even more. Steve Ballmer made a bundle. But Goldman Sachs, acting on Ballmer's behalf, sold s few of the stocks in the portfolio and harvested a $100,000,000 loss, that Ballmer could use to trick the IRS into treating his massive profits as though he'd made very little taxable income.

Goldman uses a whole range of tricks to keep billionaires like Ballmer in a lower tax-bracket than the janitors who clean the floors after his team's games. They not only buy and sell different classes of stock in companies like Discovery and Fox; they also buy and sell the same company's stock in different countries. For example, they sold Ballmer's shares in Shell in one country, and then immediately bought the same amount of shares in another country. The IRS doesn't treat this as a wash-trade, despite the fact that the shares have the same value, and, indeed, companies like Shell routinely merge their overseas and domestic shares with no change in valuation.

Thanks to Goldman's ruses - and the IRS's willingness to accept them - Ballmer's wealth has swollen to grotesque proportions. He generated $579 million in losses from 2014-18, and as a result, got to keep at least $138m that he'd have otherwise had to pay to the IRS.

Goldman's not the only one in on this game: Iconiq Captial - a firm that also offers marriage partner scouting for its richest clients - has $13.2 billion under management on behalf of just 337 people. Among those high-rollers: Mark Zuckerberg, whose $88m in gains from Iconiq investments were offset by $34m in imaginary losses that the company manufactured with wash-trades.

In theory, the simplest form of wash-trading - selling your Vanguard China fund and buying a Schwab China fund - is available to any investor. Leaving aside the fact that the top 1% of Americans own most of the stock, this is still a deceptive proposition. This kind of wash-trading only benefits investors who hold their shares outside of a sheltered retirement account, which is a vanishing minority indeed.

Instead, the primary beneficiaries of this activity are the usual suspects: convicted monopolists like Ballmer, or useless scions of wealthy families, like the kids of Walmart founder Sam Walton, who emerged into this world through very lucky orifices and are thus effectively exempt from the need to work or pay tax for life.

Jim Walton is Sam Walton's youngest orifice-lottery-winner. Young Jim saw a $10 billion increase in his wealth from 2014-18, making him the tenth richest person in America. Thanks to wash-trading, he declared only $111 million of that $10 billion on his taxes, and paid $0.00 in tax on that $10 billion gains.

One way that the rich are especially well-situated to exploit loss-harvesting is in converting short-term gains - which are taxed at 40% - into long-term gains, which are taxed at 20%. For people who make a lot of money buying and selling shares as pure speculation, flipping them in less than a year, wash-trading can create the appearance of long-term holdings. Analyzing their trove of leaked IRS files, Propublica showed that Americans who report over $10 million in income almost never report short-term gains. Instead, two-thirds of the richest Americans report short-term losses.

One fascinating wrinkle is that rich people may not even know this is going on. Whatsapp co-founder Brian Acton, managed to "lose" $2.9 million  when he sold $17 million in shares - the same day he bought $17 million in shares in nearly the same companies from another brokerage. Then, a few months later, he reversed those transactions, selling his new fund and buying the old one and harvesting another $600,000 in losses.

When Propublica asked Acton about this, he told them he was "not really aware of any events like that...Broadly my wealth is managed by a wealth management firm and they manage all the day to day transactions."

This is completely believable and consistent with the extraordinarily frank account of how elite money-management works that Abigail Disney described in 2021, where the ultra-rich are insulated from the scams, tricks and wheezes that lawyers and accountants dream up to keep their fortunes steadily mounting with no action needed on their part:

https://pluralistic.net/2021/06/19/dynastic-wealth/#caste

Could the IRS block this kind of wash-trading? Yes, but they'd need action from Congress. The most effective way to do this would be to force shareholders to "mark to market" the value of their holdings, taxing them each year on the fluctuations in their portfolio.

Propublica notes that this is incredibly unlikely to happen, though. As an alternative, Congress could change the rule that blocks investors from claiming losses when they buy and sell "substantially identical" shares with a rule that applies to "substantially similar" stocks. This proposal comes from Columbia Law's David Schizer, who says the law "ought to be updated to reflect how people invest today instead of how they invested 100 years ago."

But for any of that to have an effect, the IRS would have to change its auditing and enforcement practices, which currently see low-income earners (who can't afford fancy tax-lawyers who'll tie up the IRS for months or years) being disproportionately targeted, while America's super-rich, ultra-rich, and stupid-rich are allowed to submit the most hilariously, obviously fictional returns and get away with it.

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Catch me on tour with Red Team Blues in San Diego, Burbank, Mountain View, Berkeley, San Francisco, Portland, Vancouver, Calgary, Toronto, DC, Gaithersburg, Oxford, Hay, Manchester, Nottingham, London, and Berlin!

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[Image ID: A dilapidated shack. A sign reading 'Internal Revenue Service Building' stands next to it. From its eaves depends another sign, reading 'Internal Revenue Service' and bearing the IRS logo. From the window of the shack beams the grinning face of billionaire Steve Ballmer. Behind the shack is a DC avenue terminating in the Capitol Dome.]

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Image: Matthew Bisanz (modified) https://commons.wikimedia.org/wiki/File:NYC_IRS_office_by_Matthew_Bisanz.JPG

CC BY-SA 3.0 https://creativecommons.org/licenses/by-sa/3.0/deed.en

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Ted Eytan (modified) https://commons.wikimedia.org/wiki/File:2021.02.07_DC_Street,_Washington,_DC_USA_038_13205-Edit_%2850920473547%29.jpg

CC BY-SA 2.0 https://creativecommons.org/licenses/by-sa/2.0/deed.en

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Bart Everson (modified) https://www.flickr.com/photos/editor/1287341637

Eric Garcetti (modified) https://commons.wikimedia.org/wiki/File:Steve_Ballmer_2014.jpg

CC BY 2.0 https://creativecommons.org/licenses/by/2.0/

[trylkstopocket]

How this 41-year-old went from ‘living on credit cards’ to retiring early with $3 million in California

When Jeremy Schneider graduated from college in 2002, the FIRE movement — short for financial independence, retire early — wasn’t really a thing.

But the computer engineering student, who went on to get his master’s in computer science the following year, couldn’t help but notice that his peers were finding ways to retire well before turning 65.

During the dotcom boom, “I would see these young people just a few years older than me who were making millions with tech startups,” Schneider tells CNBC Make It. Though he hadn’t heard of financial independence, “I definitely heard of selling an internet company for a lot of money and being financially set.”

Jeremy Schneider, now 41, retired at 36 with a net worth of $3 million.

That’s exactly what he ended up doing. In 2004, he founded RentLinx, an advertising network for rental properties. He’d sell the firm 11 years later — a transaction that netted him about $2 million.

Schneider quit his 9-to-5 job not long after, but found that while he had the financial flexibility to retire, he enjoyed the fulfillment of working on projects he was passionate about. Today, the 41-year-old lives in San Diego, has a net worth of $4.4 million and runs a small business selling financial literacy courses online.

Here’s how he did it.

When he graduated from college, Schneider decided to bet on himself. Instead of taking a $74,000-a-year gig with Microsoft, where he’d interned as a software developer, he started his firm. “I preferred to start my own company where if I worked 10 times harder, maybe I would get 10 or 100 times more money,” he says.

Between a track scholarship and help from his parents, Schneider graduated with no student debt, and had about $6,000 in savings from summer jobs. But that, combined with the $14,000 in revenue his website brought in during its first year, wasn’t enough to pay the bills.

“I was living on credit cards,” he says. “I accrued about $10,000 of credit card debt in my first year. And the second year that $10,000 became $12,000.”

But things turned a corner in year three, and profits began taking off.

Today, 41-year-old Jeremy Schneider lives in San Diego, has a net worth of $4.4 million and runs a small business selling financial literacy courses online.

For the next eight years, even as the company continued to grow, Schneider kept his salary at $36,000 per year. “For basically the entire time I was running my company, I was as frugal as possible. I wasn’t even really budgeting because I had no money to budget,” he says.

That meant driving a paid off 1999 Ford SUV, spending as little as he could on food and living in a converted garage to keep his rent low.

Even with his restricted income, Schneider still managed to stash some money away, contributing $5,000 to $6,000 per year to his Roth IRA. By 32, he says, he had about $120,000 in his account, a mix of contributions and investment gains.

In 2015, Schneider fulfilled his goal of selling a company when a competitor offered to buy his business for just over $5 million. Because he owned about 70% of the firm at the time, his take after taxes was about $2 million.

Schneider worked for another two years for the company that acquired his, pulling in a six-figure salary and helping integrate his former employees at the new firm.

But he noticed that the profits in his portfolio, composed almost entirely of index funds, were outpacing his salary. “My $2 million had grown to $3 million just from the growth of the market,” he says. “It dawned on me that I don’t need to work anymore.”

Following the so-called ��4% rule,” which says that retirees can withdraw 4% of the value of their portfolio per year in perpetuity without running out of money, Schneider could live on $120,000 annually — “twice as much as I’d ever spend in a year.”

So, did Schneider, then 36, take his money and ride off into the sunset? For the first year after he quit in 2017, he tried, splitting his time between playing video games and going on trips. But the novelty wore off quickly.

“As the year dragged on, I found that, there’s something missing in my life. There’s no tension,” he says. “I wasn’t working towards a goal or any progress. And it started to feel a little bit empty.”

In 2019, Schneider started an Instagram account where he shared daily personal finance and money tips. Soon, the excitement was back.

“Some people like kite surfing or paragliding or skydiving, and I like Roth IRAs and index funds,” he says. “If I can talk to someone for 30 minutes and change their financial future, it’s still pumps me up every single day.”

“I don’t really see retirement as the goal. I think financial independence is the goal,” Jeremy Schneider says. “I want to be able to direct my time as I see fit and do the things that I feel passionate about.”

By mid-2020, the account had grown to 90,000 followers, and Schneider found many of them were sending in the same basic finance questions. In response, he made a video course, which he began selling later that year for $79. Within a week of launching, he’d made $110,000.

“It took me four years of my first company to make $110,000,” he remembers thinking. “So this might actually be a real business.”

That business, The Personal Finance Club, has brought in about $1 million in sales since it began generating revenue in October 2020. Schneider and his two full-time employees on the project each bring in $70,000 per year, plus additional payouts in the form of bonuses and profit sharing.

For Schneider, continuing to work despite having reached financial independence beats laying on a beach somewhere.

“I don’t really see retirement as the goal. I think financial independence is the goal,” he says. “I want to be able to direct my time as I see fit and do the things that I feel passionate about.”

[ericvick]

America’s retirement savings system is deeply flawed—can it be fixed? Here are some ideas

America’s retirement savings system is a mess (that’s a technical economic term). “System” is actually too grand a word for the ad hoc retirement savings plan edifice that has been built up over years.

To be sure, the system works reasonably well for those on the payroll of an employer with a retirement benefit plan and a relatively stable job. Employees at larger companies typically have 401(k)s with automatic enrollment, automatic contribution increases and a target-date default option that provides a well-diversified portfolio for those unable or uninterested in managing their portfolio.

But for most people, the system is too opaque, too difficult to navigate and too often failing too many workers in providing economic security in their retirement years.

“I think the most important takeaway is that the American retirement system is too complex and confusing,” David John, deputy director of the Retirement Security Project at the Brookings Institution think tank, told me in a recent interview. “It needs to be simpler for people to operate and to understand.”

What the ‘Wealth After Work’ authors say

Amen to that.

John, who’s also a senior strategic policy adviser at the AARP Public Policy Institute, is one of three editors of “Wealth After Work,” an intriguing new Brookings book on improving the nation’s retirement savings system. They’re not quite ready to blow up the current retirement savings system, but have some smart ideas on what could make it much more equitable and helpful.

Also see: Planning to retire? Here’s a list of at least 14 things to account for first

The other two editors are William G. Gale (a former senior staff economist under President George H.W. Bush) and J. Mark Iwry (a former deputy assistant secretary for retirement and health policy at the Treasury Department under President Barack Obama). It’s hard to think of three smarter experts about retirement security policy.  

The policy-driven — OK, wonky — book covers a wide range of challenges, such as:

Worrisome retirement savings prospects for millennials

How women are shortchanged with retirement savings and what to do about it (their suggestion: start with a robust paid family-leave and medical program)

Turning retirement plan account balances into a stream of dependable income in retirement (create a default “decumulation” strategy option, they say)

Bringing the roughly half of the private-sector workforce without an employer-sponsored retirement savings plan into the retirement system (begin by expanding state-sponsored retirement savings plans, they advise; more on those shortly)

Despite the neutral tones of the veteran, bipartisan researchers, in the aggregate the essays are toss-the-book-across-the-room maddening: Why are the deep flaws in America’s retirement savings system allowed to persist?

A pressing need for retirement reform

Every day that the current system continues is an intolerable injustice to working people who will eventually retire and should be able to anticipate a comfortable standard of living. Many can’t, now.

The need for reform is pressing, at least partly driven by the interaction of four main factors, not counting the demographics of an aging population.

The first and best-known factor is corporate America’s retreat since the 1980s from offering employees traditional “defined benefit” pension plans in favor of “defined contribution” plans like 401(k)s.

More: This is how we could solve the retirement crisis

With a defined-benefit pension plan, the employer bears all the investment risk and commits to a fixed payout of money for the remaining life of the retiree, typically based on a salary and years-of-service formula. In sharp contrast, with the 401(k), employees bear the risk of deciding how much to invest and where to invest (within regulatory and plan limits). And, of course, they need to find the money to do it.

Trouble is, living standards of near-retirees and the recently retired counting on their 401(k)s are extremely vulnerable to an unexpected market swoon. What’s more, the 401(k) and other retirement plans like it offer little guidance on how to turn accumulated assets into a steady stream of reliable income in retirement.

The second drawback is that the U.S. relies on companies to choose to offer their workers a retirement benefit. Larger companies usually do, but many smaller and midsize businesses don’t.

“If an individual doesn’t have access to payroll-deduction, auto-enrollment and auto-escalation retirement plan, they are out of luck,” says John.

Research from the nonprofit Employee Benefit Research Institute bears this out year after year, with huge disparities in retirement savings between people with 401(k)-type plans and those without them.

Workers left out of the current retirement savings system

Third, the traditional employer-based retirement plan excludes contingent workers, such as independent contractors, gig economy workers, freelancers, security guards and maintenance professionals. Part-time workers are often left out, too.

Related: Retirement security ‘is shakier than ever’ and ‘Americans are not saving enough’ for old age

Contingent workers and others with alternative work arrangements comprised almost 13% of the workforce or 20 million people in 2018. Those numbers have almost certainly increased since then.

“However well or poorly it serves the needs of traditional workers, the current retirement system does not meet the needs of contingent workers, who plausibly have less job stability than traditional workers,” write Gale, John and Sarah Holmes Berk, research project director at the National Bureau for Economic Research in “Wealth After Work.”

And, they add, “It is also inadequate for those who switch back and forth between contingent and traditional jobs.”

Most important, the current system not only excludes or disadvantages contingent workers, but also minorities and women. The cumulative impact is to contribute to widening wealth inequalities between whites and minorities — particularly Blacks —in recent decades.

“If this trend continues, wealth inequality will continue to increase, which will make it that much harder for minorities to save adequately for retirement,” the book’s editors write.

Taken altogether, the current situation is deeply wrong. Still, the “Wealth After Work” editors steer clear of calling for radical reform. Instead, they embrace evolutionary change by elucidating the best policy ideas they’ve seen to deal with particular retirement savings problems.

Two proposals worth considering

I think two proposals are especially worth highlighting, since both would broaden access to retirement savings plans.

One is to greatly expand the auto-IRA (individual retirement account) state-sponsored retirement savings plan idea to more workers without employer-sponsored plans. Three states currently offer this type of plan — Oregon, California and Illinois. Many more are considering creating their own version.

“State-sponsored retirement savings plans offer the best chance in the near term to increase the number of Americans with access to payroll deduction retirement savings plans,” write Gale and John in their chapter on the plans. “In the absence of a comprehensive federal program, they could provide the most significant improvement in coverage for many decades.”

OregonSaves, which started in 2017, is a good example of this idea. It’s an automatic-enrollment Roth IRA retirement savings program for private-sector workers in Oregon lacking access to workplace retirement plans.

Don’t miss: Why is it so hard to save for retirement? Is evolution to blame?

Firms in the Beaver State lacking retirement plans are required to enroll their employees in OregonSaves. Every account is tied to the individual — not to their employer — ensuring easy portability when changing jobs. To keep costs down for employers, there is no company match. The default after-tax contribution rate for employees is 5% of gross pay. Workers can opt out if they don’t want to participate (about one-third of eligible workers opt out).

A complementary approach is targeted at contingent workers. Here, the basic idea is to create “employer-facilitated” accounts where contingent workers would have a retirement savings account that travels with them from job to job. Employers would be required to provide contingent workers with the ability to make payroll-deduction contributions to their accounts (and withhold state and federal taxes).

The version the authors seem to favor would have such an account conform to the employer’s plan (if offered). In other words, if a contingent worker gets a job at a company with a 401(k), the account would be subject to its 401(k) rules. If a firm doesn’t have a retirement benefit, the contingent worker account would be treated as a payroll-deduction IRA.

Going through the various essays, I couldn’t help but think, “Isn’t it time to just blow up the nation’s retirement savings system and start over?”

Certainly, that’s what Martin Wolf, the estimable chief economics commentator at The Financial Times, believes. “The old is dying. But the new is miserable,” he writes, adding that “policy makers must first dare to think more boldly.” (His series of Financial Times essays is focused on the British pension system, but his analysis and suggestions apply to the U.S.)

Like so much in the American economy and society, retirement policies end up reinforcing inequities rather than combating them.

America vs. other countries

Frustrated, I called up Kurt Winkelmann, a senior fellow at the Heller-Hurwitz Institute at the University of Minnesota and co-founder of the investment research firm Navega Strategies. He noted that any broad-based solution has to take into account that we live in the U.S.

“We don’t live in Canada or the Netherlands — countries with a more communitarian spirit,” he told me. “Any pension change has to respect that.”

I get it. History matters. So do institutions and political cultures. Still, the lure of sweeping, impatient reform is strong.

In another interview, with Zvi Bodie, a financial economist and professor emeritus at Boston University, he suggested a time-tested possible solution: Put everyone into something like the traditional TIAA variable annuity founded in 1918 by the Carnegie Foundation for teachers. (TIAA stands for Teachers Insurance and Annuity Association).

Participants in the fund are guaranteed at least 3% a year on their money; they can earn more if the vast portfolio does better.

Another similar universal-retirement option favored by seemingly strange bedfellows — New School for Social Research liberal economics professor Theresa Ghilarducci (a Next Avenue Influencer in Aging) and Kevin Hassett, chairman of the Council of Economic Advisers under President Donald Trump — is to put everyone into the federal government’s giant low-cost Thrift Savings Plan.

Put it this way: People with retirement savings have more choice in their elder years and less need for government services during them. Offering low-cost, broad-based, simple-to-understand retirement savings plans for all workers should be the kind of deal liberals, conservatives and independents alike would race to embrace.

See: I’m 66, get $26,300 a year in Social Security and want to live in a small city by the ocean — so where should I retire?

When (if?) you finally retire, it isn’t too much to expect that your standard of living won’t drop sharply. If turning that insight into a retirement savings plan system is a radical goal, let the revolution begin.

Chris Farrell is senior economics contributor for American Public Media’s Marketplace. An award-winning journalist, he is author  of “Purpose and a Paycheck: Finding Meaning, Money and Happiness in the Second Half of Life” and “Unretirement: How Baby Boomers Are Changing the Way We Think About Work, Community, and The Good Life.” 

This article is reprinted by permission from NextAvenue.org, © 2021 Twin Cities Public Television, Inc. All rights reserved.

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[szomoruvagyok]

Huge selection Building With Real Estate

When it comes to saving for retirement, expenditure of money advisors generally recommend that one contribute regularly to an Man or women Retirement Account (IRA) or a company 401(k) plan. Reliable growth can be achieved, they suggest, by diversifying one's account with a mix of stocks and bonds. Rarely, however , perform they recommend adding real estate to the investment portfolio. Through neglecting to invest in whistler grand condo, one could be missing out on the many many benefits afforded by this asset class. Advisors and purchasers may shy away from this investment for many reasons. Experts might avoid it possibility because they are not licensed selling it. Thus, they have no incentive to decrease the amount of money they have under management. Also, investors often avoid real residence because often they don't understand it. Even if they achieve, they don't feel that they have enough capital to make an initial investment decision. But if they became better educated in the benefits of properties, they would find that it offers some advantages not seen in other sorts of investments. Often , advisors recommend utilizing investments such as common funds to achieve risk-adjusted, long-term appreciation when saving pertaining to retirement. By utilizing qualified retirement vehicles such as an IRA or 401(k) accounts, investors can often receive a tax reduction to offset income, reducing their current tax bill. Some might also use Roth accounts to forego the upfront tax deduction enabling them to receive retirement account distributions tax free. Real estate may also provide long-term appreciation, because seen in stock and bond mutual funds. In addition to attaining up-front tax advantages just as qualified plans do, realty investments may add other tax advantages when the real estate is liquidated. Many might be surprised to learn that during the last ten years, despite the "real estate meltdown, " real estate deals have outperformed the Standard and Poor's 500 stock market list by a wide margin. As of May 2011, data supplied in the Standard and Poor's Case Shiller index (CS) showed that real estate prices, based on a 10-region upvc composite, advanced 30. 1% over the latest ten year stage. During that same time the Standard and Poor's 500 (S&P500) stock market index advanced just 7. 1%. This is even when over the past two years, stock prices nearly doubled off of most of the March 2009 lows. During this same period, bond and also commodity prices have also moved dramatically higher, causing a large number of to worry about future market corrections. Only real estate rates have not performed and remain 32% below than his or her peak. The S&P 500 was just 13% as a result of its all-time high based on May data. This is a worth that an investor might look upon as a good occasion based on current prices. Both qualified retirement plan many benefits and real estate investments offer tax incentives. When one particular contributes to a qualified retirement plan, the investor can normally deduct the contribution from gross income, reducing the tax liability. Real estate, even when purchased outside of a qualified plan, offers you tax deductions, sometimes as great as a qualified prepare contribution. Individuals who own their own home can deduct property loan interest and property taxes paid if they itemize the tax deductions. If they don't itemize, they can still deduct their property taxes to receive some tax relief. Investors what person purchase real estate investment property do even better. In addition to the mortgage plus property tax deduction that home owners receive, real estate buyers also receive deductions for property maintenance and accounting allowance. If this investor is not generating positive cash flow within the property and the investor has an income of less than $100, 000, he or she can write off up to $25, 000 just for losses against their gross income. A residential real estate even receives a special capital gains tax exemption not wanted to other investments. If one had lived in the home in the form of primary residence for two of the previous five years, your specific is allowed a capital gains exemption of $250, 000. This amounts to a $37, 500 tax discounts based on the current 15% Long Term Capital Gain tax quote. Not so with distributions taken from a qualified plan. These are taxed as ordinary income, at your highest tax rate. Should the investor owned a primary residence along with a rental building, the investor could sell the primary residence at type of pension, take the capital gain, and move into the rental. Typically the tax-free distributions from the liquidation of the primary residence could possibly be used to pay off any remaining mortgage on the rental place and provide extra funds for retirement expenses. Real estate presents many positive benefits that may be important to a person planning for golden age. Like stocks and mutual funds, real estate has the future to appreciate, preserving purchasing power. Adding real estate to the holdings increases diversification and reduces overall portfolio chances helping to ensure a financially successful retirement. Residential as well as investment real estate often provide tax benefits not seen in other retirement investments.

[samuelfields]

Every Investment Decision You Make Is Market Timing

One of the things I’m fascinated about is why some people get upset with what other people do with their money.

Every time I write in my newsletter that I’ve decided to increase or decrease risk with my investments, someone gets hot and bothered!

What someone does with their money has no bearing on what happens with your money. You have the freedom to make one giant paper money statue and light it on fire if you wish.

I choose to consciously have a purpose for all of my investments. Otherwise, there’s no point to saving and investing so much all these years. I feel sorry for folks who’ve already reached financial independence and still can’t stop hoarding money.

Let me go through some examples of market timing everybody makes, but somehow don’t get recognized. I’m certain by the time you finish reading this article you’ll find more purpose with your money.

10 Examples Of Market Timing

1) Front loading your 401(k) and other pre-tax retirement accounts. If you are lucky to receive a bonus or have enough cash flow during the beginning of the year, it’s commonplace to max out your 401(k), IRA, HSA, Solo 401(k), Roth IRA, or whichever tax-advantageous retirement account you have.

People like to get these accounts out of the way, just like how people like to pay themselves first with each paycheck. How and how much you get paid results in market timing. 

2) Deciding when to use your 529 plan. You may spend 18 years contributing to a 529 plan for tax-deferred compounding until your kid decides to go to college. Whether you use the funds at age 18, 19, 20, 21, or 22, that’s up to you. You might even decide to sell some stock to pay for private grade school since that’s a new rule. 

But what if your child decides to defer college or take six years to graduate? What if your child decides never to go to college? Ah, market timing. 

3) Deciding to take distributions from your 401(k). You can take penalty-free distributions from your 401(k) after age 59.5. Once you start withdrawing, you can stop and start again innumerable times until age 70.5. Once you’re 70.5, you must withdraw a specific portion, the Required Minimum Distribution, from your nest egg each year.

Because you are in great health and don’t need your 401(k) funds given your large after-tax portfolio, you decide to wait until you’re forced to take RMDs at 70.5. Your good genetics and financial preparation results in market timing. 

4) Deciding to de-risk your House Fund. If you’re planning on buying a house within the next 6-12 months, you should probably keep your House Fund in 100% cash or short-term Treasuries. You don’t know exactly when the perfect house will come along. Even if you find the perfect house, you might not win the house because your offer isn’t competitive enough. 

Let’s say you get a surprise promotion at work. This promotion gives you the confidence to finally buy a primary residence. As a result, you decide to de-risk your House Fund into 3-month Treasuries and aggressively start looking for a dream home. Your promotion made you time the market. 

Related: How To Invest Your Downpayment Depending On Your Time Frame 

5) Deciding to invest 100% of your severance check in the stock market. Getting a severance check is a nice windfall, especially if you had planned to quit your job anyway with nothing. But who knows exactly when you will be able to successfully negotiate a severance?

Management might suddenly offer up severance packages one year due to a restructuring. Or you might get sick and tired of your boss another year and want to leave. Whenever you do negotiate a severance and invest it all in the market, that’s market timing. 

6) Deciding to sell your rental property because your tenants moved out. You might have had a great 12-year run as a landlord, but couldn’t find replacement tenants at the same rent. With the desire to simplify life, you put your house on the market and discover its worth 70% more than you bought it for. Therefore, you decide to take advantage.

If your tenants hadn’t moved out, you wouldn’t have been able to remove them even if you had wanted to due to strong tenant rights laws in your city. Your tenant’s decision to move out due to a new job opportunity is market timing. 

Related: Why I Sold My Rental Home: Had To Live For Today

7) Deciding to reinvest your house sale proceeds in a diversified real estate portfolio. After riding one concentrated position up 70% with leverage, you decide it’s best to diversify your real estate holdings by investing outside of your expensive coastal city.

As a result, you invest in several commercial real estate properties in Austin, Texas where cap rates are 5X higher. Not only are you earning a higher return, but you’re also earning it passively.

Related: Focus On Long-Term Trends: Why I’m Investing In The Heartland Of America

8) Deciding to buy a new primary residence five years later. Your commercial real estate investments in Texas pay out five years later with a 12% IRR.

Since the initial investment, you and your partner had a baby and decide it’d be nice to move out of your tight two bedroom apartment to a three bedroom house with a backyard. You didn’t plan to have a baby, but here he is! You use the proceeds from the Texas properties to buy a nice house. 

The unwinding of your commercial real estate portfolio and the arrival of your baby is market timing. 

9) Deciding to stop work to take care of your baby. After going back to work after three months of parental leave, you feel terrible dropping off your baby at a daycare center. As a result, you decide to stop work until your boy goes to preschool at 3.5 years old.

Your partner still works a stable job, but due to the loss of your income, you decide to sell some stocks to pay for general living expenses. Your guilt about leaving your baby in the hands of strangers results in market timing.

Related: Career Or Family? You Only Need To Sacrifice For 5 Years At Most 

10) Deciding to cash out of your IPO proceeds. Your partner’s company successfully IPOs after she worked there for six years. Her stock options are worth $1.5 million and she also wants to stay home and raise her boy as well.

Once the lockup period is over, she decides to sell 80% of her stock and diversify her net worth into index funds, REITs, municipal bonds, and short-term Treasuries. At one point, her net worth was comprised of 90% company stock. 

The CEO’s decision to sell a piece of his company to public retail investors results in market timing for you. 

Related: Career Advice For Startup Employees: Sleep With One Eye Open

Market Timing Is Life

Don’t be naive. Every decision you make is market timing. Life is an unpredictable journey. 

At the very least, everyone should save and invest as much as they can when they can. Have financial fire power to withstand anything life throws at you.

Every dollar you save should have a purpose. Don’t just think the main purpose for all your saving and investing is to live a comfortable retirement. That’s too amorphous a goal. 

Have specific purposes for your investments, such as buying a house, paying for your kid’s tuition, remodeling your home, taking care of your parents and so forth. 

In addition to making sure your money has a purpose, practice taking profits for a better life. If you do, ironically, you’ll still likely end up with more than you’ll ever need because you’ll have been so focused on accumulating and optimizing your investments. 

Don’t let what other people do with their money affect how you feel and do with your money. You must focus on your own financial mission.

We are not gods. We do not know the future, nor will we live forever. The person who dies with too much loses.

My financial path is completely different from yours. So are my needs and desires. I will continue to make financial decisions that best fit my family’s needs. So should you. 

Related:

Various Portfolio Compositions To Consider In Work And Retirement

A Different Dollar Cost Averaging Strategy

Readers, why do people get upset at what other people do with their finances? Why do we blame people for market timing, when our entire lives are unpredictable? Now, if we’re talking about day trading, that’s not something I recommend.

The post Every Investment Decision You Make Is Market Timing appeared first on Financial Samurai.

from Finance https://www.financialsamurai.com/every-investment-decision-is-market-timing/ via http://www.rssmix.com/

[ronaldmrashid]

Every Investment Decision You Make Is Market Timing

One of the things I’m fascinated about is why some people get upset with what other people do with their money. Every time I write in my newsletter that I’ve decided to increase or decrease risk with my investments, someone gets hot and bothered!

What someone does with their money has no bearing on what happens with your money. You have the freedom to make one giant paper money statue and light it on fire if you wish.

I choose to consciously have a purpose for all of my investments. Otherwise, there’s no point to saving and investing so much all these years.

Let me go through some examples of market timing everybody makes, but somehow don’t get recognized.

10 Examples Of Market Timing

1) Front loading your 401(k) and other pre-tax retirement accounts. If you are lucky to receive a bonus or have enough cash flow during the beginning of the year, it’s commonplace to max out your 401(k), IRA, HSA, Solo 401(k), Roth IRA, or whichever tax-advantageous retirement account you have.

People like to get these accounts out of the way, just like how people like to pay themselves first with each paycheck. How and how much you get paid results in market timing. 

2) Deciding when to use your 529 plan. You may spend 18 years contributing to a 529 plan for tax-deferred compounding until your kid decides to go to college. Whether you use the funds at age 18, 19, 20, 21, or 22, that’s up to you. You might even decide to sell some stock to pay for private grade school since that’s a new rule. 

But what if your child decides to defer college or take six years to graduate? What if your child decides never to go to college? Ah, market timing. 

3) Deciding to take distributions from your 401(k). You can take penalty-free distributions from your 401(k) after age 59.5. Once you start withdrawing, you can stop and start again innumerable times until age 70.5. Once you’re 70.5, you must withdraw a specific portion, the Required Minimum Distribution, from your nest egg each year.

Because you are in great health and don’t need your 401(k) funds given your large after-tax portfolio, you decide to wait until you’re forced to take RMDs at 70.5. Your good genetics and financial preparation results in market timing. 

4) Deciding to de-risk your House Fund. If you’re planning on buying a house within the next 6-12 months, you should probably keep your House Fund in 100% cash or short-term Treasuries. You don’t know exactly when the perfect house will come along. Even if you find the perfect house, you might not win the house because your offer isn’t competitive enough. 

Let’s say you get a surprise promotion at work. This promotion gives you the confidence to finally buy a primary residence. As a result, you decide to de-risk your House Fund into 3-month Treasuries and aggressively start looking for a dream home. Your promotion made you time the market. 

Related: How To Invest Your Downpayment Depending On Your Time Frame 

5) Deciding to invest 100% of your severance check in the stock market. Getting a severance check is a nice windfall, especially if you had planned to quit your job anyway with nothing. But who knows exactly when you will be able to successfully negotiate a severance?

Management might suddenly offer up severance packages one year due to a restructuring. Or you might get sick and tired of your boss another year and want to leave. Whenever you do negotiate a severance and invest it all in the market, that’s market timing. 

6) Deciding to sell your rental property because your tenants moved out. You might have had a great 12-year run as a landlord, but couldn’t find replacement tenants at the same rent. With the desire to simplify life, you put your house on the market and discover its worth 70% more than you bought it for. Therefore, you decide to take advantage.

If your tenants hadn’t moved out, you wouldn’t have been able to remove them even if you had wanted to due to strong tenant rights laws in your city. Your tenant’s decision to move out due to a new job opportunity is market timing. 

Related: Why I Sold My Rental Home: Had To Live For Today

7) Deciding to reinvest your house sale proceeds in a diversified real estate portfolio. After riding one concentrated position up 70% with leverage, you decide it’s best to diversify your real estate holdings by investing outside of your expensive coastal city.

As a result, you invest in several commercial real estate properties in Austin, Texas where cap rates are 5X higher. Not only are you earning a higher return, but you’re also earning it passively.

Related: Focus On Long-Term Trends: Why I’m Investing In The Heartland Of America

8) Deciding to buy a new primary residence five years later. Your commercial real estate investments in Texas pay out five years later with a 12% IRR.

Since the initial investment, you and your partner had a baby and decide it’d be nice to move out of your tight two bedroom apartment to a three bedroom house with a backyard. You didn’t plan to have a baby, but here he is! You use the proceeds from the Texas properties to buy a nice house. 

The unwinding of your commercial real estate portfolio and the arrival of your baby is market timing. 

9) Deciding to stop work to take care of your baby. After going back to work after three months of parental leave, you feel terrible dropping off your baby at a daycare center. As a result, you decide to stop work until your boy goes to preschool at 3.5 years old.

Your partner still works a stable job, but due to the loss of your income, you decide to sell some stocks to pay for general living expenses. Your guilt about leaving your baby in the hands of strangers results in market timing.

Related: Career Or Family? You Only Need To Sacrifice For 5 Years At Most 

10) Deciding to cash out of your IPO proceeds. Your partner’s company successfully IPOs after she worked there for six years. Her stock options are worth $1.5 million and she also wants to stay home and raise her boy as well.

Once the lockup period is over, she decides to sell 80% of her stock and diversify her net worth into index funds, REITs, municipal bonds, and short-term Treasuries. At one point, her net worth was comprised of 90% company stock. 

The CEO’s decision to sell a piece of his company to public retail investors results in market timing for you. 

Related: Career Advice For Startup Employees: Sleep With One Eye Open

Market Timing Is Life

Don’t be naive. Every decision you make is market timing. Life is an unpredictable journey. 

At the very least, everyone should save and invest as much as they can when they can. Have financial fire power to withstand anything life throws at you.

Every dollar you save should have a purpose. Don’t just think the main purpose for all your saving and investing is to live a comfortable retirement. That’s too amorphous a goal. 

Have specific purposes for your investments, such as buying a house, paying for your kid’s tuition, remodeling your home, taking care of your parents and so forth. 

In addition to making sure your money has a purpose, practice taking profits for a better life. If you do, ironically, you’ll still likely end up with more than you’ll ever need because you’ll have been so focused on accumulating and optimizing your investments. 

Don’t let what other people do with their money affect how you feel and do with your money. You must focus on your own financial mission.

We are not gods. We do not know the future, nor will we live forever. The person who dies with too much loses.

My financial path is completely different from yours. So are my needs and desires. I will continue to make financial decisions that best fit my family’s needs. So should you. 

Related:

Various Portfolio Compositions To Consider In Work And Retirement

A Different Dollar Cost Averaging Strategy

Readers, why do people get upset at what other people do with their finances? Why do we blame people for market timing, when our entire lives are unpredictable?

The post Every Investment Decision You Make Is Market Timing appeared first on Financial Samurai.

from https://www.financialsamurai.com/every-investment-decision-is-market-timing/

[vafiya]

Step by step instructions to Build Wealth At Every Age: 6 Tips From Your Waco Bank 

As indicated by the New York Times, most moguls don't become tycoons until they're in their fifties (demonstrating that unwavering mindsets always win in the end!) At various phases of your life, there are steps you can take to improve your monetary future and increment your abundance over the long haul. 

TFNB Your Bank for Life has helped a huge number of Central Texans construct their savings. Here are some no-bomb tips on building abundance at whatever stage in life. 

20s: Pay Yourself First and Start Investing 

Pay Yourself First 

Paying yourself first methods designating a repetitive measure of your check toward your reserve funds. This procedure advances predictable reserve funds and objective setting. What amount of cash would you like to have saved in a year? Five years? 10 years? These inquiries can assist you with deciding the perfect add up to be saving each opportunity your check comes in. 

Paying yourself is the main propensity you can create. It permits you to see the drawn out advantages of your cash and causes you dodge a check to-check way of life. 

At the point when you're simply beginning, think about a 50/30/20 financial plan: allot half of your month to month pay toward fundamental costs and 30% toward needs, ensuring you contribute in any event 20% toward saving (or paying yourself). Where would it be advisable for you to save that 20%? That takes us to our next point. 

Begin Investing 

Your twenties are an ideal opportunity to add to a speculation portfolio that will keep on bringing in cash as you go through adulthood. We know, we know: you're simply beginning your expert life! Be that as it may, trust us — it's never too soon to begin pondering retirement. 

Consider saving to a 401(k) account or a Roth IRA. These are the two sorts of retirement accounts that contrast in the manner they are burdened. In the event that your boss offers any choices for coordinating with 401(k) commitments, make certain to save enough to augment those commitments (it's free cash for your future). For an IRA in Waco, (or an "Singular Retirement Account") visit TFNB. Our group can walk you through an investment funds system that works with your pay and way of life. 

Just as a retirement account, consider setting aside cash in a to some degree forceful shared asset or file store. These assets incorporate a huge number of various stocks and are overseen via prepared financial backers. 

While the stocks, securities, and different resources in these finances convey a smidgen more danger, they additionally can possibly develop your speculation more. As a youthful expert, higher danger for higher prize could be advantageous for your drawn out riches. 

30s: Utilize Multiple Sources of Income and Remove Debt From Your Life 

Various Sources of Income 

Welcome to your 30s! You might be pondering purchasing a home, having children, and putting something aside for school, however there's still chances to develop your riches. 

At this point you have a smidgen more vocation experience. Your work is likely your principle kind of revenue. It ought to give the main part of the cash you'll use to produce abundance after some time. Be that as it may, you can do yourself an extraordinary assistance by producing numerous kinds of revenue, making more pay while bringing down your danger. With numerous types of revenue, on the off chance that you lose your employment you actually have different activities to count on while you look for a new position. 

In his investigation of how well off people deal with their funds, Tom Corley tracked down that most independent moguls created their pay from numerous sources. Corley noticed that: 

65% had three surges of pay 

45% had four floods of pay 

29% had at least five floods of pay 

On the off chance that you will likely produce abundance, taking a gander at the manner in which well off individuals have dealt with their pay is a decent spot to begin. Corley's information shows that numerous floods of pay are useful, if not fundamental, to collecting abundance over the long haul. 

In any case, HOW CAN I GAIN INCOME OUTSIDE OF MY CURRENT JOB? 

On the off chance that you have a pastime or ability you're energetic about, check whether you can benefit off of it! A side business that permits you to seek after your interests while making some additional money is an extraordinary utilization of your time and assets. 

In the event that you are tricky or imaginative, internet business monsters like Etsy and Amazon simplify it to sell shirts, welcoming cards, gems, and any kind of item to individuals around the country. Or on the other hand, utilize your extraordinary ability to talk with other people who could utilize your ability. 

Land is another mainstream field for individuals to expand their pay. Think about purchasing an investment property or working an Airbnb/Vrbo posting. In our current "gig" economy, the choices are interminable for beginning that next side hustle. 

Eliminate Debt From Your Life 

You probably have obligation in some structure or design. Understudy loans, Visas, doctor's visit expenses, and even home loans can keep you away from building riches. 

(In the event that you've aggregated obligation over your lifetime, realize that you're in good company. As per a report from CNBC, the normal American has more than $90,000 owing debtors, with Gen X driving the route with a normal of $135,841 under water.) 

This is the ideal opportunity to set up an arrangement to eliminate obligation so you can pay yourself more. 

Planning is the initial step. Be brilliant about what you purchase. Recollect the 50/30/20 planning framework? While you're in the obligation expulsion stage, you might need to designate some cash from the needs class toward taking care of obligations also. You can't start to produce genuine abundance until you wipe out however much obligation as could be expected. 

However, which obligations should I take care of first?The popular monetary consultant Dave Ramsey suggests a strategy he calls the "Obligation Snowball." With this technique, Ramsey proposes making a rundown of every one of your obligations from the littlest to the biggest. At that point, center your endeavors around taking care of the littlest obligation rapidly while making the base installment on the remainder of your obligations. With time, you'll knock off the obligations individually, opening up more funding to take care of your different obligations as you wipe out every obligation individually. 

Settling on great buying choices is critical to taking care of obligation. Regardless of whether you went through more cash than you had accessible before in your life, this is the ideal opportunity to change those practices. Go through cash admirably on things that you need and save the "needs" for uncommon events. 

40s and 50s: Revisit Your Portfolio Yearly and Consider Refinancing Your Mortgage 

Return to Your Portfolio Yearly 

It's not difficult to set up your retirement venture portfolio and afterward go into autopilot. Also, partially that is something to be thankful for — your cash ought to be working for you, not needing your ordinary consideration. Yet, it's essential to return to your portfolio every year to break down the thing is working and what isn't. 

To oversee hazard, you should concoct an equilibrium of stocks to bonds that you are alright with. 

Stocks offer higher danger with the chance for more prize, while bonds are a less unstable choice that is for the most part seen as more protected. Let's assume you're alright with a proportion of 80% stocks to 20% bonds in your speculations. Following a year, your stocks have likely acquired an incentive than your bonds. Your new proportion may have changed to 82% stocks to 18% bonds, which means you are currently facing more challenge than you had arranged. 

Rebalancing your portfolio can help you ensure you are contributing with a danger sum you are OK with. Returning to your portfolio likewise permits you to examine which stocks or speculations you are not happy with. You can sell those and put resources into something different, set aside the cash, or even use it to take care of obligation. 

Think about Refinancing Your Mortgage 

In the event that you haven't assessed your home loan in the previous few years, presently is an incredible opportunity to renegotiate. At the point when you renegotiate a home loan, you're searching for a lower financing cost. In the event that your credit has improved since you last renegotiated, this can be incredible for your drawn out abundance the board. Loan fees are at memorable lows. 

Most specialists concur: renegotiating is a smart thought in the event that you can save at any rate 0.5 to .075% thusly. 

Be that as it may, before you renegotiate, contrast any future investment funds and the current expenses to renegotiate. Shutting costs are normally 2% to 5% of the credit's chief sum. Assuming you acquire $200,000 and shutting costs are 2%, you would owe $4,000 at shutting. 

While that is a ton of cash, the drawn out reserve funds from renegotiating might be well great. To sort out what amount of time it will require to make back the initial investment from your renegotiating costs, partition your end costs by the sum you will save every month. This can help you better comprehend the genuine benefit of renegotiating. 

In case you're thinking about renegotiating your home loan, converse with our group at TFNB. Our home loan moneylenders can assist you with comprehension if renegotiating is a decent move for you and help get you the best rate. 

Capable Wealth Management with TFNB, Your Waco Bank forever 

TFNB is here to assist you with dealing with your abundance at whatever stage in life — that is the reason we're Your Bank For Life. Regardless of whether you're moving on from school or are anticipating retirement in only a couple years, come converse with us. As a neighborhood bank, we need to become acquainted with you and your objectives — not simply talk dollars and pennies. 

[cryptoandfire]

What is Net Worth? How to Calculate Your Net Worth?

Do you know your net worth? If you don’t, you should.

I’m not sure why speaking money and investments is a taboo in my circle. People like to have fun and when you want to have a serious conversation in between, that never happens. Only one in 10 of my friends would be interested in talking money and investment. Your circle could be different than mine.

I read in the internet that only 5% of people know their net worth, which means my friend circle knowing their net worth is twice as much. That boils me to the core but hey, not a lot of people are genuinely interested in money, investment or planning for retirement.

Whenever someone tells me that they have no idea how much debt they have, how much money they have saved, what their assets are worth, I can’t help but tell them how maintaining them in a simple spreadsheet has greatly improved my life. Obviously, they ignore my boring advice. What did you expect? 😀

What becomes more shocking is that, when I ask them to take a guesstimate of their net worth, they just throw me a blank face and say they have no clue whatsoever about what the amount would be. Or, they playfully quote something that doesn’t make any sense, just for humor.

This is something that definitely needs to change.

Net worth is a very important measure of your financial situation, and it is something you should be aware of.

Why Know your Net Worth?

There are many positives to being aware of your financial situation and net worth, such as:

Manage your money better If you know what your net worth is and you track it every month, you might become more careful about where you spend excessively and other financial decisions, such as with keeping a budget. If you have a negative net worth, then your best goal is to become debt free as soon as possible. If it’s not as high as you hope, then you will start taking progressive steps to achieve the level you want.

Stress on Liabilities Many people only think about how their assets are performing but never think about liabilties. Net worth gives them a chance to increase their vision on liabilities and truly understand the complete picture. You might be thinking you’re well but you could be surprised. Try to cut your liabilities quickly on depreciating assets and high interest debt

Knowing your net worth stops you from cheating yourself You might be cheating yourself by taking impulsive decision not knowing how much it sets you back. But now, since you know your net worth, you know the consequence of your bad decisions. Possibility of reducing them is high.

Making passive retirement progress When you track your net worth, you might be making retirement progress passively without any additional effort. When you save more, little drops make up an ocean.

Net worth is a great measurement of how you are doing financially. At the least, know your ball park range of net worth where you stand.

 How to calculate your net worth

Thankfully, calculating is not a rocket science. It’s just a simple math and read more to accurately estimate your net worth. You can calculate your net worth by using the following simple steps

1. Get an understanding of net worth

Before we get to the actual simple math, you need to understand two simple concepts. Assets and Liabilities.

Asset

An asset is anything that contains economic value with or without future benefit

An asset can often generate cash flows in the future, such as a piece of machinery, a financial stock or bond, music album or a patent.

Liability

A liability is something a person or company owes, usually a sum of money or security.

Liabilities are settled over time through the transfer of economic benefits including money, goods, or services

Liability is an obligation between one party and another not yet completed or paid for

Now that we know the difference between asset and liability, let’s go on our journey to find our net worth.

In most cases, your net worth is simple subtraction: your assets minus your liabilities.

To determine your number, you’ll need to start by coming up with lists of your assets and liabilities.

If you don’t want to go through the hassle, try to engage a no-commission financial advisor, who puts your best interest rather than their commission. They generally charge a consultation fee and never have any affiliate products and push you through them.

2. Cover all your assets

To take an extensive inventory of your assets, think hard and make sure you include everything in your portfolio that has value. Don’t forget about retirement savings acounts (like Roth IRAs or 401(k)s) and investments.

You can include physical items like your car, even if it is has a loan on it. In this case, you will add the value of the car to asset and the loan towards liabilties

Fun Fact : I have 92 different assets, that I track every month, on my spreadsheet

Just waiting for the month when I can expand my assets column to 3 digits. I will fist pump in air and celebrate alone in Covid-19 time and then get back to thinking how I can expand this further next month.

3. Note down your liabilities

It’s time to move on to liabilities. Start writing down everything you owe money on, from credit card balances to loans. Many people make a mistake by adding their routine monthly expenses into liability. Please do not. Expense != (not equal to) Liability .

If you have a lot of different debt and it becomes unmanageable, consider taking out a debt consolidation loan to simplify your payments and save big on interest.

4. Do the math

 Take a final look at all your asset and liabilities and see if you missed anything. Once you finish this, it’s time to do the math.

Now that you’ve taken stock of your assets and liabilities, add up each category. Then, subtract the total liabilities from the total assets. This will leave you with your current net worth. It’s that simple.

Just to help you with an example, Nick has savings of $10K, investments of $100K and a beautiful sedan worth $20K. Total assets Nick owns is $130K.

Let’s assume he also has a credit card balance of $3K and a student loan of $47K which makes his total liabilities amount to $50K.

So, Nick’s net worth is $130K (assets) minus $50K (liabilities), which equals $80K. Nick has a total of $80K to his name.

5. Ponder how to increase your net worth

Now that you’re done with the difficult math (just kidding), it is time to think how you can improve it next month and see your overall financial health making some progress.

Concentrate more on attacking liabilities. Consolidate or pay debts if you can afford quickly. Bolster your assets by diversifying and investing in Crypto, real estate, stocks and so on.

Aim for the sky. There’s Bezos at the top with $186B, according to Bloomberg billionaire index

Can Net Worth Be Negative?

So, if you have $50K in assets and $50K in liabilities, that means you have nada or zilch ($0).

If you have $50K in assets and $100K in liabilities, that means that you have no wealth and your NW is -$50K. Yes, you can definitely have a negative NW, if you have more liabilities than your assets.

If you have it negative, make sure you put active effort into becoming debt free as soon as possible. Debt keeps up at night and has a negative effect on mental health too.

How often should you calculate your net worth?

I always look at my net worth when the month begins for the previous month. I feel doing it monthly is the best cadence to check how your net worth has changed. You can look at your budget, expenses and net worth at the same time, which will help you see what you need to improve on and change.

There might be huge fluctuations between months if you invest in Cryptocurrency or Stock market might swing heavily up and down or your home values change drastically, or your car value dropped at the beginning of a new year. So don’t be worried by small month on month movements. Have a net worth goal for the year and achieve it at the end of the year, Net worth is a great measure of personal wealth and I highly recommend to keep track of it.

How to increase your wealth fast?

Whatever is your level of assets and liabilities, you still need to think on how to grow the assets. If the NW is negative, first concentrate on getting it on the positive side, by paying off the debt quickly. You should hate debt to the core to do it.

To increase your net worth fast, there are many things you could do

Find ways to make more money

Pay off debt

Cut your budget

Invest your money

Save more money

Let me know in comments what strategy you used to grow your net worth fast!

The post What is Net Worth? How to Calculate Your Net Worth? appeared first on Crypto and FIRE.

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[darcyfarber]

How Does a ROTH IRA Work?

Recently I opened this email from a reader:

Hi Peach,

I need advice on a 401(k) that my husband rolled over to a ROTH IRA. He rolled it over almost 2 years ago and it hasn’t grown, but cents. Unfortunately, we haven’t contributed to it, but really want to start doing that. I just want to make sure that the ROTH IRA is the direction to go with a retirement account. Seems like it should have grown a little, even without us contributing to it. School me…I’m lost!

Thank-you,

Brandi

  Before I jump into a ROTH IRA, it would be best if we understand how and why retirement investing works.

A 401(k), 403(b), 457, IRA, ROTH IRA, and a SEP IRA are all a bunch of confusing numbers and letters smashed against each other in an effort to confuse and eventually scare the crap out people when it comes to investing for retirement.

Well, maybe that is a stretch. Truthfully, the numbers and letters are simply where they are located inside the Federal Tax Code.

Example: The rules for a 401(k) are found inside the IRS’s tax code – Section 401 subsection K. 

Why We Have Retirement Accounts?

Retirement accounts are a benefit for you and I because it creates a way for us to avoid sending even more money to the government in the form of taxes. Thus, you may have heard retirement accounts referred to as tax sheltered accounts because that’s exactly what they do; they shelter your money from the IRS.

How Do We Avoid Paying Taxes on This Money?

When we save outside of a tax-sheltered account, we are taxed on the money before we ever invest it in the form of income tax. Then when we invest and our money grows, we pay a 15% (20% for high income earners) tax called capital gains tax whenever we sell the investment. However, when you invest inside a retirement account, you avoid this tax in a few different ways 🙂

Pre-Tax Retirement Investing

Pre-tax simply means the money you invest into your retirement account is not (yet) taxed. Instead, the money you send to your 401(k), 403(b), 457, is taken from your paycheck before the money is ever taxed . In addition to the pre-tax, the money inside your account grows tax-free over time. The only time you pay taxes on a pre-tax account is when you withdraw the money in retirement (age 59 1/2 ). As of right now, the amount of money you withdraw at retirement is taxed as ordinary income.

Note** If you don’t work for an employer who offers a 401(k) plan OR you are self-employed, you can still take advantage of this pre-tax retirement investing. Instead of the money coming out of your paycheck pre-tax you would simply deduct the amount you invested throughout the year when you file your taxes in the Spring. This type of account is called a traditional IRA (Individual Retirement Arrangement).

  What About the ROTH IRA?

In 1997, William Roth, a U.S. Senator from Delaware, helped put the ROTH IRA into law. Remember this man’s name, because he is going to help you build a boat load of tax-free wealth over time!

The ROTH IRA is different than all other retirement accounts because instead of investing your pre-tax dollars, you are instead investing after-tax dollars.

Just like the pre-tax accounts, the money still grows inside tax-free, meaning you no longer pay capital gains tax. However, in retirement you can withdraw the money WITHOUT PAYING TAXES!

Example: You get paid on Friday. Saturday morning you go online and send your AFTER-TAX dollars into the ROTH IRA. Over time the money grows inside the ROTH IRA via stocks, bonds, mutual funds, certificate of deposits, etc., and when you withdraw the money, you don’t pay taxes.

  Why Does the Government Give Me a Tax Break?

Great question! When you are investing into retirement accounts, you usually will have to wait until you are age 59 ½ before you can withdraw the money. If you do so before this age, you will pay taxes on this money AND a 10% early withdrawal penalty.

My Opinion: The only reason to pay the penalty would be to avoid a bankruptcy. Otherwise, leave the money alone! The more money you have in there, the more your money will go to work for you to build substantial wealth. As soon as you withdraw a portion of the investment, you would pay a penalty AND your money stops working for you.

Since the government can count on your money being left alone until you are of age (or they can count on your 10% penalty), in return they give you a nice little tax break.

The ROTH IRA Rules

Here’s exactly how a ROTH IRA works.

How Much Can I Invest Into It?

$6,000/year per person in 2020 with an additional $1,000/year if you are age 50 or older.

After-Tax or Pre-Tax Dollars?

After-tax dollars only.

Income Limitations?

Yes.

In 2020 single filers begin to phase out at $124,000 and then are ineligible for a ROTH IRA at $139,000.

In 2020 married filers begin to phase out at $196,000 and then are ineligible for a ROTH IRA at $206,000.

**Note: If you are outside the income limitations for a ROTH, you can back door your way into a ROTH IRA by converting a Traditional IRA to a ROTH IRA after paying taxes on it. I highly recommend this, but please contact your tax professional before you get started.

When Can You Invest Into a ROTH IRA?

You can invest all the way up until April 15th, 2021 for the 2020 tax year.

Do I Have to Have an Income?

Yes and No.

You must have an earned income to invest money into a ROTH IRA, and if your income is below the contribution limits, then you can only invest up to what you earned within the year. This means if you earned $4,000 in 2020, you would only be able to invest $4,000 instead of the $6,000 contribution limit.

**HOWEVER, A NON-WORKING SPOUSE CAN ALSO OPEN A ROTH IRA.

First off, let me rephrase this by stating there is no such thing as a non-working spouse. I have been home with my kids a few too many times when my wife is at work and it is way more work than actually going to work.

These types of ROTH IRAs are also referred to as Spousal IRAs, and the same rules apply. This means together, you and your spouse can invest up to $12,000 per year ($14,000 age 50 or older), even if only one of you have an earned income.

Can I Contribute If I Have a Retirement Account at Work?

Yes.

What About Mandatory Withdrawals at Age 70 ½ ?

No.

The government cannot collect taxes when you cash out on your ROTH IRA, so they don’t force you to withdraw from it when you are age 70 ½.

This is one of the BEST things about a ROTH IRA and is one of the main differences from pre-tax retirement accounts where you are forced to withdraw your money (so the government can start to collect taxes on that money).

What If I Don’t Need the Money Inside my ROTH IRA?

If you don’t need the money from a ROTH IRA, you can leave your tax-free money inside the ROTH for as long as you live. You can also leave your ROTH IRA to a beneficiary, and they can stretch this tax-free money over their lifetime. This is a fantastic bonus for future generations.

When and How Can I Withdraw From the ROTH IRA?

If you are OVER age 59 ½ , you can withdraw as much as you would like, tax-free, so long as your ROTH IRA has been open for at least 5 years.

Example: If you opened your ROTH at age 60, you wouldn’t be able to withdraw from it until age 65, or you would pay a 10% penalty.

If you are UNDER age 59 ½ , you can only withdraw the amount you have contributed (not the growth portion) without paying a penalty.

BONUS: If you have had the ROTH open for at least 5 years, you can withdraw from the account penalty-free (but not tax-free) for the following expenses:

First time home purchase up to $10,000 per account for you, your children, or your grandchildren.

For College expenses for you, your children, or your grandchildren.  This can be a little tricky and you should contact your tax professional before starting this process. A 529 Plan is a much better option for this.

Back to the Brandi’s Email

Here is the answer to Brandi’s question:

Hi Brandi,

Your ROTH IRA is not actually the investment. It is the tax-advantaged bucket that holds your investment inside it to protect your money from taxes. If your ROTH IRA is performing badly, which it sounds like it definitely is, your ROTH IRA is not to blame. Instead, you should be looking at what is INSIDE your ROTH IRA.

Thanks for the question,

-Chris Petrie

In a Nutshell…

For those of you who skipped to the bottom (you should really go back to the top), here is the ROTH IRA breakdown:

After-tax contributions up to $6,000/year per person ($7,000 if over age 50) in 2020

Tax-free growth for the investment inside the ROTH IRA

Tax-free withdrawals at age 59 ½ (or for qualified withdrawals – see above)

Where Can I Open My ROTH IRA?

You can really open a ROTH IRA anywhere. Almost all investment companies, banks, and financial advisors offer ROTH IRA accounts.

Here are the questions I would be asking:

Is there a fee to open the ROTH IRA?

What are the annual expenses for the ROTH IRA?

What can I invest inside the ROTH (mutual funds, ETFs, managed funds, etc.)?

What are the fees for buying/selling inside the ROTH?

Is this a DIY account or will and advisor be helping me?

**I currently have my ROTH IRA at Ally Invest.

Ally Invest

Ally Invest is my first choice when it comes to opening a ROTH IRA and it’s also where we have our own accounts. Here’s why I recommend Ally Invest:

Low Fees: 0.00% – 0.30% is the lowest you will find for the quality you receive.

Large Investment Selection: Many different investment portfolios to choose from based on your risk tolerance

Integration to online savings accounts: We also have our Sinking Funds set up with Ally Bank.

Personal Capital

Fees are a little higher than Ally Invest, but they are still lower than 95% of investment brokerages you will find. Fees are higher because you will have your own human advisor to help you get started. You can also try their free app which allows you to see all of your account in one place in real time. I use personally use this tool to track my own net worth in real time.  You can open an account at Personal Capital here.

Did you know rich people focus on their net worth while poor people focus on their working income? I highly recommend everyone start tracking their net worth. When I started – it was a negative net worth! With that said, what gets measured, gets managed. Start tracking your net worth right away — don’t worry, it’s very simple.

I am an affiliate with the investment brokers listed above. If you do open an account with either of them, they will be sending me a thank-you referral commission at no extra cost to you whatsoever. If this doesn’t sit well with you, simply close out your browser and go directly to their landing page from a new browser. The thank-you commissions I receive allow me to continue to provide you free content on this blog, podcast, and YouTube channel. Thank-you for your support!

Open Up Your ROTH IRA Now

You’ve read this far through the post and you’re ready to open up your first ROTH IRA. Your best bet is going to be with Ally Invest where you open up an account with $100 minimum deposit and start growing your nest egg from there. If at all possible, set up automatic recurring deposits into your ROTH IRA. Don’t forget, you can invest up to $6,000 per year ($500 per month or $115 per week).

If you’re age 50 or older in 2020, then you can add an additional $1,000 per year. 

Good luck!

Ally Invest

How Does a ROTH IRA Work? published first on https://mysingaporepools.weebly.com/

[waleedahmad1389]

Is 2 million $ enough too retire at 60.

There are numerous variables that go into the condition, for example,

Retirement objectives

Ways of managing money

Wards

Wanted retirement area

Wellbeing

Venture hazard resilience

Also, considerably more

Advanced

Youth Lead: Investing In The Long-Term and more on 711Finance.

Developing Voters: An Opportunity For The Nation, For All Of Us

This is the thing that makes budgetary arranging dubious yet additionally a huge amount of fun on the grounds that each circumstance and story is one of a kind.

Coming up next is an example contextual investigation of retirees who are trying to resign with a savings worth $2 million. A portion of the subtleties have been changed for their protection.is 2 million enough to resign onWhile this contextual analysis centers around prospective retirees, this ought to likewise be a significant exercise for any Gen X'er or Gen Y'er needing to resign one day. A portfolio worth $2 million doesn't become for the time being.

And keeping in mind that it might appear to be unthinkable for some to achieve, it's entirely feasible with discipline, an arrangement of assault and ensuring that you're not trying to claim ignorance about your cash circumstance.

The Petersons' Story

To begin with, here's a portion of their back story:

Joseph Peterson is 58 years of age, began working for Ameren Corporation at age 24 as a lineman, and is currently a Training and Simulation Supervisor – some portion of Ameren's Crisis Management Team. Joseph is hoping to resign in four years at 62 years old.

Joseph as of now has a duty conceded 401(k) plan worth $671,045. Four years prior Joseph opened a duty excluded Roth IRA and contributes $6,500 every year – it's worth $28,517 today. Joseph likewise has a Traditional IRA worth $219,714. Moreover, Joseph has a characterized advantage annuity plan as a feature of his work benefits with Ameren. The current incentive on the benefits plan is $650,000.

Debra Peterson is 57 years of age, began filling in as a RN at 22, and at 30 years old she quit attempting to turn into a full-time housewife. Debra remained at home with her youngsters for a long time and returned to work at age 40 as a RN. She has charge conceded 401(k) plan worth $159,305 through her manager at the medical clinic. Debra opened a duty absolved Roth IRA five years back, and contributes $6,500 every year – it's worth $36,496 today.

Together, Joseph and Debra have a financial records parity of $83,000 and a bank account esteemed at $153,031. They as of now owe $155,033 on their home loan, Joseph owes $15,000 on his truck credit, and Debra owes $20,035 on her vehicle advance. Joseph and Debra have three kids: Matt who is 27 years of age and fills in as a line cook in St. Louis; Morgan who is 25 years of age, despite everything lives at home, and is completing doctoral level college; and Samantha who is 18 years of age and is preparing to begin school. Joseph and Debra are going to pay for Samantha's advanced degree.

Here's an aggregate of their advantages and liabilities:

Resources: $2,001,108

Liabilities: $315,068

All out: $1,811,040

resign on 2 million assetsJoseph and Debra wish to have $90,000 every year for retirement and have certain objectives they wish to satisfy while living serenely in retirement. To begin with, when Joseph resigns he intends to burn through $25,000 to purchase another vehicle for his child Matt, and afterward two years after the fact $25,000 to purchase another vehicle for his little girl Morgan, and afterward quite a while from now $25,000 to purchase a vehicle for Samantha.

Joseph and Debra likewise need to begin going when Joseph resigns so they intend to have $10,000 planned every year to go for a long time straight. They wish to make a trip to Italy, Rome, and Greece together. They likewise need to take their youngsters to New Zealand.

In 2023, five years after Joseph resigns, he intends to purchase a lakeside lodge for him and his family where they can spend their summers. He intends to burn through $30,000 on the cabin.retire on 2 million objectives

Our Unique Process

In the event that one of my customers inquires as to whether they can resign with $2 million, we start with our extraordinary procedure, The Financial Success Blueprint. We remember we need to go past the numbers to locate a strong answer. Path before we get start the calculating, I like to get the customers truly pondering retirement and what the following barely any years is going to resemble. Here's the basic inquiry I pose to them:

"On the off chance that we were meeting three years from today – and you were to think back over those three years to today – what must have occurred during that period, both by and by and expertly, for you to feel cheerful about your advancement?"

Clearly, their speculations' presentation and us cooperating will be a piece of this condition, yet I need to know more:

What will a common day resemble for them in retirement?

What might keep them the most occupied?

What will they do in retirement that they can't do now?

What are the difficulties, openings, and qualities that will either support them or forbid them from accomplishing these objectives?

After they answer a portion of those inquiries we plunge into the numbers of retire at 60 with 2 million. We utilize a record aggregator called Blueleaf which permits every one of our customers to see their whole portfolio in one spot. I'm astonished what number of individuals will have numerous 401(k) venture accounts spread out among five, six, seven, or eight distinct organizations, however never take a gander at it under one magnifying lens. That is the thing that Blueleaf offers.

At first, we'll simply investigate their present distributions and afterward begin leading various "stress tests" to perceive how those portfolios will hold up over the long run. Basically, this is the thing that we are attempting to decide with their present arrangement and venture system:

The ideal resource portion or item blend to guarantee a sheltered retirement salary forever

The cost structure of various venture choices to guarantee the base expense for quality counsel, the board, items, and so forth

The potential expense results of different speculation techniques to guarantee ideal after assessment forms from different items and the executives styles

The potential non-speculation dangers, (for example, clinical consideration, obligation, and so forth) and the ideal resource/protection structure to guarantee your retirement plan isn't wrecked due to said dangers

The riches move of your advantages for picked beneficiaries/recipients to guarantee the greatest worth is held by your picked recipients instead of the US Government

The effect of your non-advertise protections, (for example, land, private loaning, or personal business venture) and their hazard/reward comparative with your monetary arrangement

The Investment Strategy

In view of the hazard resilience and their pay needs, we discovered that Joseph and Debra required generally 60% of their interests in stocks and 40% in bonds for the initial 10 years of retirement. After a portion of their objectives of purchasing a co-op and purchasing their children's graduation blessings, at that point we believed we could restrain the assignment to 40% stocks and 60% bonds (that is the thing that these two diagrams speak to).

I tell every one of our customers that the yield is just tantamount to the info so we need to put forth a valiant effort to have an away from of our money related objectives and what our pay needs will be in retirement. I realize this is hard for a few, however it just strengthens how significant having a type of spending plan is on the off chance that you need to have an effective retirement.

[meraenthusiast]

Robo-Advisors – The Good, The Bad, And The Ugly

Robo-Advisors – The Good, The Bad, And The Ugly

[Editor’s Note: Today’s article in a guest post from Kevin who runs the personal finance website Just Start Investing, where he focuses on making investing easy. Just Start Investing has been featured on Business Insider, Forbes, and US News & World Report, among other major publications for his easy-to-follow writing. Check out Just Start Investing to learn the simple strategies to start investing today, as well as ways to optimize your credit cards, banking and budget.]

Robo-advisors might not be as inherently exciting as the 1966 Western Classic starring Clint Eastwood, but they are certainly more modern. 42 years after the debut of this Eastwood blockbuster, the first Robo-Advisor came onto the scene. And 11 years after that, we’re stealing the title of that movie classic to create our own Hollywood film (article), starring Robo-Advisors.

So grab your popcorn, fill up your 48oz cup of soda, and silence your cell phones – we’re embarking on a journey that every modern investor should complete.

The Good, The Bad, And The Ugly – Robo-Advisor Edition

Ever wonder why robo-advisors are getting so popular? And what the catch is (there is always a catch…)?

Well, you’re in the right spot.

We’ll start at the beginning, with some character development of our lead star: robo-advisors. And then dive into the three parts of this 2019 blockbuster article:

Part 1: The Good – The Pros of Robo-Advisors

Part 2: The Bad – Things Robo-Advisors Could Improve

Part 3: The Ugly – What We Can’t Stand About Robo-Advisors

New Robo Advisors seem to be popping up a lot these days. You know how that is, right? It’s popular, it’s getting traction, so everyone wants to dive in. Betterment was among the first. Schwab jumped in soon after.

Since then, we’ve seen numerous players enter the market – Wealthfront, M1 Finance, Wealthsimple, Ellevest, Blooom, Personal Capital, and SoFi, to name a few.

In this post, we’re going to review two – Betterment and Blooom (yes, I spelled it correctly). Why? Betterment was the first one and one of, if not, the best.

Blooom focuses strictly on 401(k) investors. For those reasons, we’ll get into the good, the bad, and the ugly of these two Robos.

What Is A Robo-Advisor?

Robo-advisors strutted onto the scene in 2008, like how Tom Cruise struts away from explosions in almost every one of his movies.

Or is this case, bikes away.

During a global recession, the first robo-advisor was created in 2008. And they have only been gaining in popularity ever since then.

Robo-advisors are online platforms that do 99% of the work for you when it comes to investing. Most will ask you to complete a series of questions before opening an account. Then, the robo-advisor will automatically select investment vehicles for you based on your answers.

Behind the scenes, robo-advisors are employing an algorithm that buys and manages investments for you – optimizing and reallocating your portfolio to match your goals.

They have been gaining in popularity recently due to their:

efficiency

low costs

easy-to-use online interfaces

Robo-Advisors: The Good

There is plenty of good to find with robo-advisors. But overall, we’ve seen most of the benefits of robo-advisors revolve around one thing:

Simplicity.

Robo-advisors make your life easier in a lot of ways. Just like credit cards simplified the buying of goods and exchanging cash, robo-advisors have simplified investing. And they didn’t take any shortcuts while doing it, either.

Most of the time, the benefits they offer are things that financial advisors couldn’t do (or would charge an arm and a leg to do for you).

Easy Set-Up

It’s straightforward to get started with a robo-advisor. Most operate the same – to open an account with them, you first need to answer a set of questions.

Luckily, the questions are usually pretty straightforward. They revolve around either getting:

Personal Details: such as your email and date of birth, so that they can open accounts on your behalf.

Investing Details: what your goals are and when you want to retire, so that they can optimize your accounts to fit your needs.

In most cases, you answer these basic questions. The robo-advisor does the rest. That’s much simpler (and less time consuming) than trying to do it all on your own.

Ongoing Management

Of course, robo-advisors will manage your assets for you ongoing. I mean, that’s the whole point of getting started with them in the first place!

Once your portfolio is set up (which they do based on the guidance from your initial questions), they will continue to manage your portfolio. As you age and your investing goals change, they will change your portfolio.

Plus, they usually offer a sleek online platform for you to track your progress as you go.

Tax Optimization

The most complex service that most robo-advisors offer is tax optimization. This can take many forms, but most commonly, it is ensuring your assets are in the right accounts and tax loss harvesting.

Asset Location: Smartly investing your assets across your accounts can save you money in taxes over time. Robo-advisors typically put tax-advantaged investments in taxable accounts where they can and vice versa. Let’s say you have an asset that is not taxed (like a municipal bond). They will ensure that it is not sitting in a Roth IRA and wasting the tax benefit that a Roth IRA provides.

Tax Loss Harvesting: Tax-loss harvesting can save you money when investments decline in value. Put simply, if you invest in a broad index fund that drops 10% one year, the robo-advisor will sell that fund and purchase a new, similar one instantly. This will allow you to write off those losses while staying invested in very similar assets the whole time.

Customer Service

Yes, their name has “robo” in it, but that does not mean there is no human touch or customer service.

Most robo-advisor companies still have real people you can chat with if needed, which I find reassuring. And, some even offer professional advice as needed (though, it usually comes with an added cost).

Fund Selection

Last, but not least, the fund selection within robo-advisors – most of the time is very good.

Very good, meaning it’s full of low-cost index funds or ETFs, which is what I (and a lot of people) would be investing in on my own anyway.

For example, Betterment is full of funds from Vanguard and Charles Schwab, which are two of the leading companies in offering low-cost index funds and ETFs. Both offer funds with expense ratio fees below 0.05% (which equates to just $5 in fees annually per $10,000 invested)!

Robo-Advisors: The Bad

It’s not all roses and butterflies in the Wild West, and it ain’t that here either. Robo-advisors have their downfalls, and we’re entering the thick of the plot now!

What comes with simplicity is usually a lack of customization and detail. And in the case of robo-advisors, the result is no different.

Lack Of Customization

When you sign up for a robo-advisor, you are essentially signing away your right to customize and build your portfolio. Sure, they have a good selection of funds under their belt. However, they don’t have nearly the full range you would have if you were investing on your own.

On top of that, robo-advisors are deploying simple strategies. And while these simple strategies are great for 90% (or more) of investors, it means that you can’t easily invest in real estate or other sectors that might interest you.

For better or worse, you get locked into their plan.

Lack of advice

Though Betterment and other Robo-Advisors now offer CFP®s (certified financial planners) for an additional fee, the planning they do is limited. If you’re looking for an ongoing relationship with someone who can guide you, it will be hard to find at most Robo-Advisors.

I’ll offer my suggestion on the best place to get advice shortly.

Lack Of Detail

There is also an inherent lack of detail when it comes to robo-advisors. Yes, that short survey you complete when opening up an account is easy and straightforward, and that comes with a tradeoff.

How much can a robo-advisor learn about you in a few questions?

Can they get your investment strategy right with such little information?

For most people, yes, I believe they can. But there is a risk in the lack of the detail that they request and operate on.

Robo-Advisors: The Ugly

We made it – the final scene.

The horses are tired — our guns out of ammo. The wild west adventure ends here.

Luckily, there is only one ugly truth with it comes to robo-advisors, and it is their cost.

The Cost

Look, robo-advisors are a steal compared to most financial advisors and actively managed mutual funds. In this case, the “ugly” call out is relative to all of the other items considered above.

The cost is the worst thing about robo-advisors, but it isn’t always a deal-breaker.

Most robo-advisors charge about 0.25% for their services. Of course, the fee varies by company, but it’s a good rule of thumb and average.

With a fee of 0.25%, on every $10,000 the robo-advisor manages, they charge $25. That’s how the firms make money and keep the lights (servers?) on.

Compared to an actively managed fund that charges 1% or more, this is a steal, as I mentioned.

But compared to investing on your own, this is a real cost that can add up.

When investing on your own, if done wisely (through Schwab, Vanguard, or another reputable online broker), you’ll face fees of around 0.10%. If that. There are many funds out there charging 0.03% or lower.

That’s less than half the cost of what a robo-advisor will charge in management fees. And the worse part is, the robo-advisor will also charge you for the fund fees.

So, if you’re invested in funds with an average of 0.10% fees, in our example, the robo-advisor will charge you 0.35% (0.25% management fee + 0.10% funds fees).

Now you have to decide – does the value that robo-advisors bring (“the good”) outweigh the costs (“the bad” and “the ugly)?

How To Get Started With Robo-Advisors

In my opinion, robo-advisors can often be worth the cost. Especially for new investors or for someone who wants to take a hands-off approach.

As we mentioned, getting started with robo-advisors is easy. Two of our favorite robo-advisors are discussed below, each good for a specific part of your portfolio.

Betterment

Betterment launched in 2010 and was one of the first robo-advisors to explode on the scene. They state their mission is to “Help People Live Better.” It’s a little corporate-y. But they certainly live up to it by providing best-in-class investing resources to the masses.

Betterment works the typical robo-advisor (as described above). New investors answer a short series of questions to allow Betterment to set up and manage their investments ongoing.

It’s a very hands-off approach for investors. That approach makes it great for new investors. It may also be suitable for those who don’t want to spend a lot of time worrying about reallocating their portfolio. Betterment does that and optimizes your portfolio for taxes.

Betterment also works on various individual accounts, from personal brokerage accounts to Roth IRAs.

You can find a full review of Betterment here.

Blooom

Blooom is a robo-advisor designed explicitly for 401(k)s.

It was started a few years ago by a couple of Wall Street guys. Don’t let that scare you away. They founded the company because they were fed up with Wall Street and what they were currently offering (or not offering) to the everyday investor.

So Blooom was created, and provides two main offerings

Free 401(k) Analysis

Ongoing 401(k) Management

Free 401(k) Analysis

Blooom can connect to your 401(k) to review your account and provide actionable tips on how to optimize your 401(k).

Price: Free.

Expense Ratio: None. No hidden fees.

Account Minimum: $0

Services: 401(k) analysis, which provides:

Diversification recommendation.

Fee check-up – ensuring you are in the lowest fee funds possible.

Other red flags – like being invested in company stock.

Retirement tracking snapshot – to help ensure you are investing enough in your 401(k).

Ongoing 401(k) Management

Blooom also offers ongoing 401(k) management, so you can take a more hands-off approach and let them take the wheel. This service is similar to what Betterment and other traditional robo-advisors do.

Price: Flat $10 / month.

Expense Ratio: None. No hidden fees.

Account Minimum: $0

Services: 401(k) management, including:

The free analysis detailed above.

Automatically investing you in the right funds based on your risk profile and goals.

Rebalancing your 401(k) ongoing, ensuring that you stay on track for retirement.

You can find a full review of Blooom here.

Alternatives To Robo-Advisors

Yes, this story has been entirely focused on robo-advisors so far, but there are a few other investment alternatives that deserve at least a supporting role in this feature.

Do It Yourself Investing

Managing your investments will almost always be the most affordable way to invest. It’s also the most time-consuming. And not everyone has the desire, motivation, or knowledge to do so.

I’ve written a post that may help any readers who want to get started doing their own investing – complete guide to index investing for beginners.

Note: The following section on hiring a financial advisor represents The Money Mix’s views.

Hiring A Financial Advisor

Hiring a financial advisor can be expensive, but it doesn’t have to be. It’s incredibly challenging to know where to look for a financial advisor. Additionally, if you find someone who looks good, how do you know if they are?

If you find the right financial advisor, they might be cheaper than a robo advisor. Index funds have brought down mutual fund fees and forced existing funds to adjust. Robo-Advisors are a part of that competition. Competition has forced planning firms to change their pricing to stay relevant.

Fees for financial planning

In the old days, advisors got paid commissions generated from transactions. Competition forced them to move toward an asset-based fee. They charge a percentage against the assets they managed on your behalf. The average price often quoted is 1%. So if you had $250,000 invested, your annual fee for an advisor to manage it would be $2,500.

Competition from flat-fee financial planning firms is bringing down and, in many cases, eliminating asset-based fees. The more progressive firms offer planning AND money management services for a flat-fee or via a subscription-based fee.

A flat-fee means planners would charge, say, $1,000 to do a comprehensive financial plan. Some charge a flat fee for everyone, regardless of size and complexity. Others, like Facet Wealth, have moved to a subscription model only.

For as low as $40/mo., you can get a complete financial plan that includes Facet managing your money. Facet does not charge asset-based fees. Their fees are among the lowest in the industry. Like Robo-Advisors, Facet Wealth makes financial planning available to anyone who needs help and doesn’t want to overpay for that help.

All of Facet’s advisors are CFP®s (certified financial planners). CFP® is considered the gold standard when it comes to financial planning advice.

We still think it’s better to take control of your finances and do things yourself. However, we realize it’s not for everybody.

Closing Credits

That concludes our 2019 epic sequel to the western classic!

What we lacked in shootouts and dramatic sunsets, we hopefully made up with useful information! You are now ready to navigate the Wild West that is the world of robo-advisors! And for those who need and want financial advice, you now have an excellent place to check out.

  This article originally appeared on The Money Mix and has been republished with permission.

The post Robo-Advisors – The Good, The Bad, And The Ugly appeared first on Debt Free Dr..

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Family and Passive Income — Sitting Poolside with JJ from A Journey to FI

The Sitting Poolside interview series

When people think of retirement, scenes of beachfront homes, rounds of golf, or reading by the pool come to mind. Sitting Poolside is a series of interviews that challenges that notion and other financial misperceptions. The series name pokes fun at the stereotypes, but it’s also an opportunity to discuss people’s real stories and unique insights. So grab a piña colada and pull up your lounge chair!

JJ from A Journey to FI

Hi, I’m JJ. I’m originally from Maracaibo, Venezuela. A husband, and father of two wonderful boys. I’m also an engineer who became fascinated with Personal Financial and the concept of Financial Independence. This led to the decision of starting a blog to document our thoughts and share our journey. My blog is A Journey to FI.

Growing up in Venezuela

Mr. SR (MSR): On your blog, you share that you and your wife are Venezuelan, and now living in the States. How did your early years in Venezuela give you a different perspective about money compared to what you see as a typical American mindset?

JJ: My parents came from low-income families. In South America, this meant a dual-income was a need, not want. They exchanged their time (away from us) for money. My father understood the importance of using money as a tool. He was, and still is, a big believer in living below your means and avoiding lifestyle inflation.

As a teenager, I remember my dad telling me that in times of abundance, my savings rate should be at its highest levels. The reason for this was simple, always prepare yourself for when things go south. He wasn’t thinking about a catastrophe, but as a full-time employee himself, he knew he wasn’t indispensable. These lessons stuck with me and I credit them for my starting to save at such a young age.

My perspective about money was certainly influenced by the reality of living in a developing country; however, it was my parents who instilled key concepts around money management: specifically the importance of saving for the future.

MSR: What was your concept of wealth when you were growing up?

JJ: This might sound silly to you but, as a little boy, the concept of wealth meant having a lot of US dollars and traveling to the United States for vacation. On a more serious note, it was defined as a deliverable of a plan that required the following:

Go to college, and more specifically engineering (high income),

Get a job in the Oil & Gas industry (high-paying jobs),

Get married,

Buy a house,

Have kids and,

Work until you can’t anymore.

Career and wealth

MSR: What is your concept of wealth or financial success now? What were the major influences that changed your view?

JJ: Today, we see Financial Independence as the true definition of success. As a result, we live a more intentional life driven by specific goals. Save, invest, and create sources of passive income to cover our monthly expenses. Simple and straightforward but requires teamwork and alignment.

Our view around money was influenced by many sources of information: books, podcasts, and blogs; however, it was curiosity and a desire to take control of our finances what led to a major inflection point in our lives. If you keep reading you’ll get more context around this answer.

MSR: What is your current career status? How do you like to spend your time when you’re not working?

JJ: I’m married with kids, and I have a full-time job as a petroleum engineer. Outside of work, it’s all about family time. We love sports and traveling so we try to do both as much as possible.

MSR: Describe your financial journey.

As a couple, we felt our relationship with money was in a good place. Working, saving, and investing in a 401(k) seemed like the perfect plan for retirement. In 2013, we became homeowners for the first time and this felt like the perfect seal to common expectations society had from us.

That same year we were blessed with the arrival of Tomas who came right around Christmas time. By far, the best present ever and an event that triggered seeing life from a different perspective. All of a sudden our attitude towards money started to change.

My 401(k) was in good shape but the majority of our savings were sitting in a low-interest savings account. Starting an HSA was simple but we weren’t intentional about how to manage it in order to maximize its value. Everything about Personal Finance (PF) started to appeal to both of us (me more than my wife) but at the same time, we felt overwhelmed by the perceived complexity of the subject.

We moved to Colorado in 2015. During my commute, I started listening to podcasts about money in an effort to see if there was a way somebody could democratize these concepts for me. Little did we know this would cause a major inflection point in our lives. Going down the rabbit hole is probably an understatement. One podcast led to blogs, books, other podcasts and, best of all, the discovery of a community pursuing this crazy idea about being Financially Independent (FI). Early retirement sounded fascinating and super exciting.

Fast forward to 2019 and we now are a family of four! Tomas (5 years old) and Matias (1.5 years old) have brought nothing but joy to our lives.

Our relationship with money has turned 180° and it feels like we are now on the same page. We are big fans of low-cost-passively managed index funds (VTSAX and FSKAX) and of keeping fees down to the bare minimum. We’ve become DIYers so our costs are essentially the fees funds charge.

For the past five years, we’ve paid ourselves first maximizing annual contributions of all tax-deferred vehicles including one 401(k), one HSA, and two IRAs (via backdoor Roth) all while investing in a taxable account and having a savings rate of approximately 40% based on one household income.

Last year, we also did a mega backdoor Roth conversion which allowed us to stash up to the maximum defined contribution limit in 2018 ($55,000). This has been possible thanks to after-tax 401(k) contributions available at work. In 2019, it’s game on!

Real estate is also part of our portfolio. We currently own 5 rental properties (2 SFH and 3 condos) that have done pretty well for us. This is one strategy we would like to continue to explore based on the potential of generating passive income.

We believe net-worth is a great key performance indicator (KPI); however, cash flow is also important as it could enable us to cover our monthly expenses, especially when thinking about retiring early.

MSR: On your site, you mention that you’re not FI just yet. How far along are you? How do you plan for your life to change once you do reach FI?

JJ: We’ve been asked this question in the past. The short answer is that we don’t have a set timeline or dollar amount. Personally, I’d love to get to FI before I turn 50 but time will tell. In terms of the dollar amount (per the 4% rule) you could say we are halfway there; however, our goal is to generate enough passive income (via rental properties & businesses) to minimize the need for liquidating paper assets.

I’m not really sure what will happen once we reach FI. If anything, it will be about having options to do the things we love and to live our lives on our own terms. I love my job and I’m very well compensated, but to have the option of walking away (if I choose to do so) would be pretty sweet.

Real estate passive income strategy

MSR: You mention passive income as part of your strategy to reach FI. Can you tell us more about your philosophy? I know you mentioned rental property at what point — can you share more about your experience with that?

JJ: As far as passive income, we decided to explore of real estate investing. I did quite a bit of research using resources such as biggerpockets.com, coachcarson.com, affordanything.com, listenmoneymatters.com, as well as, talking to one of my very good friends who’s also a REI. I strongly believe one should only invest in something you understand so It was important to me to learn as much as I could (still learning) before making any decisions.

I also wanted to navigate all the hype in this space making sure I became aware of the good and the bad about the potential scenario of being a landlord. After a lot of analysis, my wife and I came to the realization that a good way to get started was through turnkey REI and for it to be our of state. I believe there are opportunities out there but Colorado is pushing the limit on this one.

Once settled on the idea of using a turnkey company, we did due diligence and decided to partner with a very well know company in the Memphis area. We’ve bought two houses and are pretty happy with their service. If I were to summarize my experience: 1) completely hands-off, 2) customer service is second to none, 3) and the return on cash has met our expectations at ~ 12%.

I know you’ll hear others in the REI domain talking about numbers higher than 12% but when you go turnkey, numbers will be lower. If you can’t stomach that then this option might not be good for you. For us, it works.

In addition to these 2 properties, we also own 3 condos in Florida. We decided to buy them via a partnership and on our own. My partner lives in Florida so I could say we have boots on the ground; however, these properties were pretty much turnkey. We bought them from previous REIs who were trying to adjust their portfolio. In my opinion, we got them at a fair price. We also had 0 vacancies because some of them came with good tenants. Returns have been good so far (lower than 12% because they were cash purchases).

As far as long term goals, we want to get ~10 more homes (forecasted monthly cash flow should cover our expenses). Hopefully, we get 2 in 2020 via turnkey. We haven’t been timing the market but is nice to see that interest rates have come down. The turnkey company in Memphis is waiting for a green light so they can start sending me houses. I’m very picky (location, floorplan, rehab, price) so we will see what happens. Between now and early/mid 2020 I hope to have enough funds to cover the downpayment of 1-2 houses. We’ll see what happens.

MSR: What do you consider to be your biggest failure or regret?

JJ: Not failures but missed opportunities.

I started at my current job in 2009 but became more intentional about investing (outside of my 401(k)) in 2015. Time and compounding interest are your best friends so missing out on those 6 years hurts.

We lived in Colorado from 2010-2012 and rented that entire time. Today, we watch the Denver market and know we could have bought 1-3 properties that would have appreciated more than 50% if not more.

MSR: What’s the most helpful book you’ve read recently? 

JJ: At work, we are constantly reading books to debate and improve ourselves as a leadership team. The last one we read was The Checklist Manifesto.

Even though the narrative is centered around healthcare it was pretty easy to see analogies in our industry but also personal finance. I highly recommend this book. You can’t underestimate the power of creating a checklist and, more importantly, following through.

MSR: What’s the best advice you’ve ever been given?

JJ: Have fun and enjoy the journey.

I recently attended CampFI Rocky Mountains and met wonderful individuals. One evening, I was chatting with one of the attendees and shared 1) my obsession around looking for ways to optimize our finances (I actually wrote a post about this) and 2) its ramifications on our well-being as a family. He patiently listened to my story and after sharing details about our plan and some of the frustration I had about things I could/should be doing he said the following:

Dude, you guys are doing great! You have to learn to relax and to take care of your family, especially your wife. Talk to her, make sure she always feels like part of the team and above all enjoy the ride.

His comments were reassuring but a reminder that my “Why of FI” is my family.

MSR: I love the advice that you gave — have fun and enjoy the journey.

I am tempted too, at times, to focus on optimizing our savings so much that we aren’t able to enjoy the journey. What are some things you’ve done in the last few years to enjoy each step along the way?

JJ: My answer is pretty simple … traveling. I’ve written a couple of posts of recent trips on the blog. The intent is to 1) share cool destinations we’ve been fortunate to visit, 2) share tips on travel hacking and 3) as an outlet for not talking about financial stuff 24/7.

MSR: JJ, thank you for sharing your family’s story! I appreciate your time, and I’m excited to see how your family and the blog continue to progress.

The post Family and Passive Income — Sitting Poolside with JJ from A Journey to FI appeared first on Semi-Retire Plan.

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A 401(k) Can Help You Live Well in Retirement: Here Are the Details

Even if you’re young, it’s never too early to think about retirement. If you have a full-time job that offers a 401(k) savings plan, you might already be saving for your future. But if you’re not familiar with your options, it’s important to know what a 401(k) is, how they work and how you can get one.

What is a 401(k) and How Does it Work?

A 401(k) is an employer-sponsored investment plan designed to give you a tax break on your retirement funds. Many employers will match your contributions up to a certain percentage.

The idea is that you, the employee, allot a certain amount of your paycheck to go straight into your 401(k). You can either do this pre- or post-tax. If your employer offers a matching contribution, you should make the most of the free money.

It’s up to you how much you want to put in, though there are contribution limits of $19K of your own money per year, as of 2019.

Once you turn 50 years old, you can make catch-up contributions to your 401(k). These can total up to $6,000 per year. Catch-up contributions allow you to build your 401(k) even more before you retire.

What Does 401(k) Stand For?

The name 401(k) has a fairly dull origin with no hidden meanings. Simply put, it’s a section of tax code introduced in 1978 designed to make it easier for employers to help their workers get in good financial shape for their retirement years.

Interestingly, the man behind the 401(k), Ted Benna, told Workforce he had no clue that it would become the main way people save for retirement some 40 years later.

Advantages and Disadvantages of a 401(k)

As with most retirement or investment plans, a 401(k) has its pros and cons.

Pros of a 401(k)

Free Money

Do you like free money? Then a 401(k) is fantastic. If your employer offers a 401(k) match, that’s an added benefit you need to take advantage of if you want to get the most out of your compensation package.

As an example, my employer offers to match 100% of my 401(k) contributions up to 6% of my income. If I make $40K per year and max out my employer match, I’ll get an extra $2,400 per year in my retirement savings plan.

It’s Easy

A 401(k) is an easy way to save for retirement without realizing you’re doing it. The money automatically comes out of each paycheck, so if you sign up as soon as you start a new job, you won’t miss the money.

Since your employer is your 401(k) plan sponsor, the fees are usually less than if you set up a retirement account on your own. As with group rates on health insurance, your company can negotiate fees for things like mutual fund managers or financial advisers.

Cons of a 401(k)

Limited Options

A 401(k) typically has more limited investment options than other retirement accounts. This is not a big deal if, like me, you have no idea how or where to invest your money and need an expert to do it for you. But if you’re really into playing the stock market, you might prefer an account that gives you more freedom to invest your money outside of stocks, bonds and cash.

Early Withdrawal Penalties

Another 401(k) disadvantage is early withdrawal penalties. Most regular savings accounts allow you to withdraw money when you need it. But if you borrow money from your 401(k) before age 59 1/2, you’ll have to pay a penalty of 10%.

There are many reasons you might need to borrow from your 401(k). Perhaps you need a down payment on a house, or maybe you need some extra cash during a period of unemployment. Either way, you’ll need to weigh the cost against the benefit before making the decision to use your 401(k) funds.

Vesting

You might come across the term “vesting” when signing up for your 401(k). This refers to how long you need to work for your company before you own all the funds in the account. My company’s vesting schedule is two years, so if I quit before that I would forfeit the employer-contributed funds in the account (though any contributions I made would remain mine). That’s an incentive to stick around for at least two years.

How Do 401(k) Taxes Work?

Taxes for your 401(k) work in one of two ways. In a traditional 401(k), you make pretax contributions. With this type of account, you’ll pay taxes when you withdraw the funds after retirement.

Another option is a Roth 401(k), which approaches taxes slightly differently.

What is a Roth 401(k)?

Your employer might offer the option of a Roth 401(k), which taxes contributions you make. That means you can withdraw the money tax-free upon retirement.

Traditional or Roth?

Before deciding between a traditional and a Roth 401(k), consider your current tax bracket and the one you expect to be in upon retirement.

Most people will be in a lower tax bracket when they retire because their monthly retirement income will be less than their salary while working. In this case, you might choose to stick with a traditional 401(k).

You’ll also need to consider what the tax code might look like when you retire; the tax rate may well be higher, making it better to pay taxes on your 401(k) contribution now. However, it’s impossible to predict the future, so just use your best judgment.

You might have the option to invest part of your money in a traditional 401(k) and part in a Roth 401(k). Check with your employer to see if this is possible.

Ultimately, the decision is yours, though it’s a good idea to speak with a financial adviser to determine what’s right for you.

What Happens to Your 401(k) When You Quit?

Since a 401(k) is an employer-based retirement plan, you’re probably wondering what happens to the money if and when you quit your job.

While your employer sponsors your account, it doesn’t own it. You own the account, and it’s stored by a brokerage firm. If you quit or are fired, your money stays in the account.

My friend and ex-colleague, Timothy Moore, told me how he handled his 401(k) when he switched jobs.

“My new employer offered a 401(k) through Fidelity, so I just called them to hear what options they offered,” he said. “Instead of adding the money I had earned in my existing 401(k) to my new 401(k), I decided it was time to open an IRA and regularly contribute on my own.”

Although IRAs offer more investment choices, many people find it easier to consolidate their accounts by rolling over their old 401(k) funds into their new company’s 401(k), (assuming the new employer will accept the rollover). Age, investment goals and how actively employees want to manage their savings can influence their decision.

“For many people, having everything automated through their employer’s 401(k) plan is the only reason they have the discipline to save every month,” said Paul Ruedi Jr., a certified financial planner in Plano, Texas, who specializes in retirement planning.

Remember, though, that many employers have a vesting period. Try to stick out your job until you reach this milestone if you want to keep the free money contributed by the company.

401(k) Investment Categories

A 401(k) helps build your retirement savings by investing your money. You can choose to have complete control over where your money is invested or pick general categories and leave the decisions up to your broker.

According to the Financial Industry Regulatory Authority, most 401(k) plans have four main investment categories.

Stocks

Your company’s 401(k) may allow you to invest in stocks. If this option is available, you’ll likely be able to purchase only company stock. Individual stocks may be an option if your plan has a broker.

Stock Mutual Funds

A stock mutual fund allows you to invest in hundreds of stocks rather than individual stocks for a more diverse portfolio with less risk.

Bond Mutual Funds

Similar to a stock mutual fund, a bond mutual fund allows investment in hundreds of bonds, which is less risky than investing in individual bonds.

Variable Annuities

Unlike stocks and bonds, annuities give out regular payments once you make an initial upfront investment.

The mix of investments you choose for your 401(k) is up to you, but you should take a few things into account, including your age. The younger you are, the more risk you can afford to take with your investments. But if you’re nearing retirement age, riskier investments could result in you losing the money you need to live on. Stocks are riskier than bonds, so your 401(k) will likely be heavier with stock investments when you’re younger and switch over to higher bond investment as you get closer to retirement.

What if I Can’t Get a 401(k)?

A 401(k) is a great benefit, but not everyone is eligible. If your company doesn’t offer one, or if you’re a freelancer or an independent contractor, you can still save for retirement. The most common way is via an individual retirement account or IRA.

Like 401(k) plans, you can get a traditional IRA or a Roth IRA. An IRA, like a 401(k), limits how much you can save per year. As of 2019, the maximum contribution amount is $6,000. People 50 or older can contribute an additional $1,000.

Even if you have an employer-sponsored 401(k), you should still consider signing up for an IRA to supplement your retirement. I chose to max out my employer match in my traditional 401(k) and open a Roth IRA to make the most of my retirement savings.

Is a 401(k) a Good Idea?

A 401(k) is an ideal first step to saving for retirement. If your employer offers a 401(k), look into maxing out the amount it will match, and consider either adding more money each month or opening an IRA in addition to your 401(k).

Catherine Hiles is a mother of two trying to balance retirement investment with child care costs and regular savings. She currently has a traditional 401(k), a Roth IRA and a sizable monthly day care payment.

The Penny Hoarder Editor Susan Jacobson contributed to this report.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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A 401(k) Can Help You Live Well in Retirement: Here Are the Details published first on https://justinbetreviews.tumblr.com/

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Worried About the Stock Market and Your Retirement Savings? Read This.

In the last few days, a number of readers have written to The Simple Dollar regarding the recent downturn in the stock market. Here are a few of those notes, starting with one from Dave: 45 years old, aiming to retire at 62. I have been in the aggressive portfolio in my 401(k) since signing on back in 1998 and contributed regularly. I didnt pay attention to it during 2000-2002 or in 2008 but now I pay attention and these recent drops are killing me. How bad am I hurt if I move things to a less crazy investment? and one from Charlie: 61, was thinking about retiring next year but stock market is ripping my retirement apart! Help! and one from Ally: Im started to freak out about the stock market as I see my investments in my Vanguard index funds plummeting every day. I know I need to wait it out as Im only 34 but its really starting to panic me. Intellectually, I know to stay put and watch the gains as the market recovers but I worry that I may actually need some of that money before it goes back up and start operating from a perspective of scarcity vs. abundance (even though I have lived by the rule of thumb that if I think Ill need it in 10 years, put in high interest savings instead). All of a sudden I start imagining scenarios where Ill need it sooner and put my finances in jeopardy.Please help talk me off the ledge! Were all seeing the same thing. Depending on what numbers youre using, over the last two and a half months, the stock market has lost between 10% and 15% of its value. That means, of course, that if you have a large portion of your retirement savings invested in the stock market, youve seen a similar drop in the value of your retirement savings. Part of what has made this dip so stark is that it comes at the end of a very long positive run for the stock market, dating back almost ten years. Ten years of almost constant growth in the value of the stock market is a historical run, one likely only possible because of the enormous dip of 2008 which gave the stock market a very low point to start from. As you can see, those factors have caused a lot of people to panic and consider changing their retirement investments. My advice? Well in honest truth, I have not looked at my old 403(b) or my Roth IRA in the last three months. At all. Even if I did look, I wouldnt change a thing. Heres how my thinking works on all of this. We Look at the Short Term When We Should Look at the Long Term and Thats a Mistake The stock market is an awful short-term investment. It can lose a significant percentage of its value in just a few days, often seemingly without warning to the average investor. Even over the course of a year or two, you might have individual years where it goes up 20% and other years where it goes down 40%. Its really hard to plan around that. If you are going to need your money back in less than 10 years, you probably shouldnt be invested in the stock market. The thing is, most of us are more than 10 years from retirement. Were invested in stocks as a long term investment. Even people in retirement should have some portion of their retirement savings in the stock market because theres a good chance that theyre going to be around more than 10 more years and they should be investing for that timeframe. At that point a timeline of more than a decade you have to start looking at long-term returns and averages rather than individual years, because individual years arent really all that meaningful when youre looking at time periods beyond 10 years. I like to think of the stock market as a simple gambling game. Its a model that helps me make sense of it. Imagine that theres a game where there are nine red balls and one black ball that randomly come out of a tumbler, like drawing lottery numbers. If the black ball comes out, you lose 40% of your bet. If any of the nine red balls come out, you win 10% of your bet. However, you have to bet your whole retirement savings. What do you do? Well, for me, it depends on how many times I can bet. If I can only bet once, then its probably not a worthwhile risk. I could lose 40% of my bet right away! Not good! However, if I can just stand there and keep betting more than 10 times, Im going to do it and just keep letting my bet ride over and over again. Nine times out of 10, I win 10% of my bet, which far more than makes up for the 40% I lose one time out of 10. If I think about nothing but that first ball, Im probably not going to bet and Im going to want to take my money off of the table. Its only when I think about the fact that Im going to be around for 30 or so balls to come out of the tumbler that I begin to feel good about it. (In fact, I probably dont even pay much attention at all to the individual balls coming out of the tumbler, because it really doesnt matter to me.) The thing is, its pretty scary when the black ball comes out of the tumbler. Suddenly, a large chunk of our money is gone, and its really tempting to take your bet and run away. Thats silly, though. Its like quitting a game of basketball because you missed your first shot. If you were only going to care about your first shot or your most recent shot you wouldnt bother to play that game at all. If a basketball player quit when they miss a few shots in a row, no one would ever play basketball. At the same time, no one would bet their entire life savings on one single shot of the basketball. For most people, the stock market is a very long term investment more than 10 years and making decisions on that investment based on the last month or two is a grave mistake. Its like firing Michael Jordan because he missed 10 shots in the game last night and his team lost. Instead, look at the last 10 years of stock market returns when making your decision, because thats the kind of time frame you care about. Dont look at this chart when making financial decisions; look at this one instead. In other words, look at the long term, not the short term, because if youre investing for more than 10 years down the road, the short term is meaningless. We Listen Too Much to Current News and Media and Thats a Mistake The United States currently has three different major 24 hour news channels available on most cable providers, two devoted financial television channels available on many cable providers, and countless journalists and prognosticators trying to make a name for themselves on the internet, particularly on social media. All of that has to be filled with some kind of content, and its usually whatever content that they can find that will attract eyeballs. What attracts eyeballs? Fear. Its why disasters get breathless coverage. Its why the efforts of Washington are constantly painted to be doom and gloom and disastrous and even evil. That kind of coverage is constant, too its around the clock on news networks and social media. The same exact thing is true with the stock market. A 10% drop in the stock market really isnt anything unusual it happens every few years at least but to hear the news networks and social media and the prognosticators and the talking heads tell it, its apocalypse out there. The sky is literally falling, everyone is going broke, people are jumping out of buildings on Wall Street. Its being reported as something unique and something disastrous because thats what attracts eyeballs, and eyeballs are what makes the news networks and the reporters on social media lots of money. Theres so much time to kill and space to fill that the same things get reported on over and over and over again until the urgency of the supposed disaster seems almost overwhelming, driving people to emotional extremes. My belief is that social media and cable news are not very useful for understanding the world. They present current events from the singular angle that makes them the most money and thats through pushing emotional buttons, mostly fear. That emotional button drives people to poor decisions, and its abundantly clear when it comes to finances. In other words, social media and other news sources tend to encourage people to react emotionally to things rather than rationally. Investing is a rational game rather than an emotional one; if you make emotion-driven investment decisions, youre going to lose out. Thus, at least in terms of investment decisions on the scale of the individual investor saving for retirement, you should pay no attention to the 24 hour news cycle. It nudges you toward emotional decisions rather than rational ones. We Put Our Faith in Salespeople and Thats a Mistake Another problem is that many of the people out there talking about the stock market are effectively salespeople. They want people to buy some product theyre selling, whether its an account with their brokerage, their services as an investment manager, or an investment sold by their company. In general, brokerages make money when you do something with your investments, whether its buying shares or selling shares or something like that. They want you to take action regarding your investments. So, if the stock market is doing something, they have a financial interest in making it sound like a great reason to make a move. If you tune into CNBC or Fox Business lately, all of the chatter is about moving your investment money around to avoid getting hit hard by the stock market slide. Most of that talk is coming from guests who work for brokerages, who make money when you move your investments around. Always ask yourself where your investment suggestions are coming from and why theyre being given. Yes, that includes me. I write because I believe in what Im saying, and I make money by having more readers, not by convincing anyone to take any action. The more readers I have, the more advertisement views the site gets, and the more money everyone involved makes. Thus, it is in my best interest to do my best to give realistic advice and thoughts. With the talking heads on financial television, the goal of the host is to keep you watching, while the goal of the guest is to entertain you and, along the way, try to nudge you to their point of view because the guest makes money by being entertaining (from the network) and makes money by having more customers buying and selling investments (from their own business). In other words, take the words of investment advisors on financial networks with a grain of salt. Most investment advisors will do right by you in a one-on-one situation, but thats not their goal when theyre on television. On television, theyre there to entertain, to get the name of their brokerage out there, and to nudge people to take action on their investments whether its in their best interest or not. Practical Approaches Together, these three issues along with natural human risk aversion cause people to get extremely jittery when the stock market grumbles. Every time a 10% drop happens, I get emails and messages from readers with sentiments like those expressed by Dave and Charles and Ally. While I cant offer a perfect solution for everyone, here are five practical steps you can take to help quell the desire to make abrupt retirement moves when the stock market drops. For starters, just stop paying any attention to the day to day financial news. Dont watch CNBC. Dont watch Fox Business. Dont read financial news. Leave that to people who do this for a living and might change their investments every 15 minutes to try to score a short-term buck. Thats not the situation youre in and thus most of the day to day financial news is irrelevant. It provides you with information that isnt relevant to your decisions and emotional twists designed to nudge you to make a mistake. Just stop watching its not providing value to you. While youre at it, stop paying much attention to the 24 hour news cycle. Almost all of it is driven to trigger emotions and garner eyeballs, not to actually inform you in any meaningful way. Learn from well-researched books and well-referenced articles, not from hot takes and high pressure combative guest appearances. If youre taking financial advice from someone, know who that person is, where theyre coming from, and whether theyre trying to sell you something. Who is this person who is encouraging me to sell? Why are they saying this? What do they have to gain from it? If you can clearly see how they gain from your moves, take their advice with a grain of salt. Dont look at your account balance except on a regular infrequent pattern just to make sure everythings working fine. Looking at your balance frequently makes you start to overinflate the importance of day to day changes compared to long term changes, and its the long-term changes you care about. We often buy into the idea that we should be worried if our investments have gone down the last few times weve looked at them. Know what your plan is for saving for retirement and stick to it regardless of the news. A good plan is based on principles, and for retirement, that means staying put through thick and thin and only making changes in specific situations that you considered outside of the news cycle. Stick to that plan and dont let short-term changes and emotional responses change that plan. In short, stick to the plan and stop listening to people who are just adding noise to the mix. Good luck! Related: https://www.thesimpledollar.com/worried-about-the-stock-market-and-your-retirement-savings-read-this/

[thegloober]

10 things wealthy doctors won’t tell you

Guess what? You’re surrounded by rich doctors. You probably didn’t even know it. You know why? Because doctors don’t talk about that filthy lucre known as money. So while you’re assuming that all the other doctors in your group, office building, and hospital are in the same position as you, you’re wrong. Some of them are rich. There are ten things they’re not telling you, but which you probably need to know.

10. They don’t care about your Tesla

You know that Tesla you drive? It goes so fast. It’s so environmentally responsible. It shows people that you’re a doctor now, and a successful one at that. Guess what? The rich doctor across the hall doesn’t care. She really doesn’t. In fact, almost nobody does. You’re buying things you don’t need with money you don’t have to impress people you don’t like. Would you really want to hang out with someone impressed by your Tesla anyway?

9. They don’t care what you think about their beater

They don’t care what you think about their spending choices either, whether it’s their car, their house, their clothes, their vacations, their kids’ schools, or their favorite restaurants. They’re immune from keeping up with Dr. Jones.

8. They never owed as much in student loans as you still do

You know that $300K student loan you’re keeping under the bed? That rich doctor down the hall doesn’t have that. She lived like a bum when she was a student, like a student when she was a resident, and like a resident for 2-5 years after residency. Her student loans were only 2/3’s what yours were and she paid them off by Halloween after residency graduation by living like a resident.

7. They don’t have payments

It’s not just the student loans. Those other docs don’t have any payments. No student loan payments, no car payments, no credit card payments, no residency relocation loan payments, no timeshare payments, no ski condo payments, and not even a mortgage on their primary homes. There are lots of great mathematical arguments showing that you should drag out low-interest loans as long as you can, but most of those rich doctors stupidly paid them off early. Idiots. That lack of payments, however, did improve their cash flow and gave them the confidence they needed to take risks in their lives and their careers, and often times those risks paid off with higher incomes and better investment returns.

6. They have a written plan.

Guess what else those dorks down the hall have? A written financial plan. Silly, huh? Some of them wrote it themselves after reading some books or taking a course, but lots of them met with a financial planner and some of them still do regularly. They could actually tell you where their money goes each month, about how much they have and will need for retirement and college, and what their investment returns have been. Weird huh?

5. They’re not afraid to take ownership risk

Rich people tend to own stuff, and that includes doctors. Owning stuff can be risky, whether that means a high stock allocation in your portfolio, owning a practice, owning a side business, or owning some rental real estate. But since they apply the same intelligence and hard work to ownership as they did to get into medical school, those risks generally pay off with more wealth.

4. They’re financially literate

Not only does that rich doctor across the hall have a written financial plan, but she’s also financially literate. She knows what a Roth IRA and a mutual fund are. She knows the difference between a savings rate, an expense ratio, and a safe withdrawal rate. She can calculate her investment return and the payments on a fifteen-year mortgage. She knows the going rate for financial advice and why a capitalization rate has nothing to do with a mid-cap stock. Do you? Would you like to? There are ways of learning this stuff almost effortlessly.

3. They buy for quality

If you went to their house, you might be surprised at some of the old furniture and sporting equipment they have. But when that stuff wears out and they replace it, they do so with top quality stuff. They want something that will last a long time. They have saved up for it and shopped for it and aren’t afraid to spend money on it. They have plenty of money and are ready to enjoy it. But they’re still going to wait until the old one wears out. They might be driving a 15-year-old Accord, but the next car will be a brand new Audi paid for with cash.

2. They like their work more than you do

The doc down the hall likes her job more than you do too. How do you know that’s true? Because she’s there. She doesn’t have to be, you know. She has enough money not to work at all. So if she didn’t like it, she’d be off mountain biking, home with the kids, running a business, or pursuing a different career. Some people are surprised when they reach financial independence and find out they don’t enjoy their work more. But guess what? They’re not in clinic down the hall. They’re somewhere else. The rich ones down the hall want to be there. But they don’t put up with the crappy parts of the job. They can tell the administrator cracking the whip to shove it. They can pay someone else to work their night shifts or take their call. They no longer do procedures they don’t enjoy. They’ve figured out how to eliminate most of the parts of their job that they don’t like.

1. One house, one spouse

Remember that rich doctor in the lounge that you would have never guessed is rich? He’s been married for 25 years. To the same person. I know, right? He’s also in the same house he bought when he moved to this town. It’s been paid off for 18 years. No lake house or ski condo either. Maybe those decisions have something to do with his net worth. Or maybe it’s just the X Factor.

James M. Dahle is the author of The White Coat Investor: A Doctor’s Guide To Personal Finance And Investing and blogs at the White Coat Investor. He is the creator of Fire Your Financial Advisor!, a high-quality 12 module course with a little over 7 hours of videos and screencasts, a pre-test, section quizzes with answer explanations, and a final exam. The goal is to take a high income professional from square one, teach them financial literacy and help them write their own financial plan.

Image credit: Shutterstock.com

Source: https://bloghyped.com/10-things-wealthy-doctors-wont-tell-you/