Saving for the future.

[mrblah]

I max out my 401k, which is the best thing I have ever done..(mainly because you can take a loan out on it if you HAVE to). This is my rainy day fund, and puts me at a lower tax bracket...

I max out my Roth IRA every year, but I tend to make too much on some years, and then I do a back door via traditional ROTH. I tell everyone to at least open a Roth IRA, this is a NO BRAINER. Only a fool would not take this opportunity....


I play the stock market, I don't day trade, but I actively manage my stock portfolio, and mess around with options on the side. I get about 40 percent return on a good year, and 9 percent (industry average) on a bad year.

I'm not rich by any means, because I never withdraw my money from the stock market (I do sell, and reinvest to keep my money growing), and that's the key to the stock market. Its okay to sell your stock at a loss, but you have to reinvest it, or you can simply wait for the stock to rebound if you don't like risk. The key to buying and selling stock is to make good, educated, and informed decisions before you hit the buy or sell button. Never buy or sell based on emotions or speculation if you are investing in stocks. Learn to use options as a hedge.

When it comes to stocks, you have to ask yourself, are you investing for the future (i.e. retirement) or are you out to make a lot of money??? The strategies are remarkedly different.

I make a lot on paper, but I also owe a lot on paper (due to my student loans), but I did start from nothing....so for those who whine about not having cash or not knowing how to do it. There is no easy way to do it, there is no free lunch. You need to make sacrifices now, so you don't have to in the future. Once you have enough equity in your investments, life gets much easier.

Yes, the IRS loves me.

 

[leftyguns21]

is 1.3% a 'normal' yearly rate to have someone assist in managing an account? I met with a banker at JP Morgan today and that's their fee for managing investments. its based off total portfolio so it seems like a good incentive for them to manage wisely since, the more I make the more they make. this is the first time talking to anyone though so I don't know if this is a normal fee. I do know, this is not something I can manage on my own just yet since I know absolutely nothing.

 

[Bumbo]

is 1.3% a 'normal' yearly rate to have someone assist in managing an account? I met with a banker at JP Morgan today and that's their fee for managing investments. its based off total portfolio so it seems like a good incentive for them to manage wisely since, the more I make the more they make. this is the first time talking to anyone though so I don't know if this is a normal fee. I do know, this is not something I can manage on my own just yet since I know absolutely nothing.

You need to look at that as a service/product they are selling you...

1.3% is a bit on the higher side of what I am seeing... Usually its around 1% for a fully managed service like that.

Because of all this new DOL fiduciary ruling stuff going on, there are changes in the industry which is effecting this very thing. We negotiated a better rate... I saw as good as 3/4 of 1%.

Keep in mind that's for fully managed PIA type account... you can't actually make a trade, they just do it all.

There are plenty of other types of services and account structures too.

Merrill Edge for example has everything from fully self managed with no fees to adviser based services, to fully managed.

My personal opinion is to have a combination of the two... I have 1 account that is fully managed, but I also have a self managed account to mitigate some of those fees.

Plus when I was to do things like buy 100 shares of Microsoft or whatever else, I can do it. I cant even ask them to buy that for me in a fully managed account, and if you have some type of broker, you better believe you will be paying $70-150 for each trade.

Their entire game is about the fees, and your entire game is to reduce them.

As an example, I don't need to pay someone 1% of my money to buy S&P 500 when I can do it myself. On top of that, I have actually found some brokers to buy those exact same thing along with ETFs in managed accounts. Those ETFs have their own internal running fees so really ur paying the fund managers who are managing it in the first place on top of ur broker. Its not hard to get to a stage where ur getting double dipped and over charged.

 

[RockyMountainT4R]

having a kid was/is most wonderful investment of my life so far.
You childless egocentrics wouldn't understand.

Oh, I think this “childless egocentric” might understand and I do wish you and your family well. I also believe the selfish, irresponsible egocentrics who choose to bring innocent children into this world, only to be emotionally/physically abandoned, are the ones who should be criticized for the harm they have done to their kids rather than those, who after much consideration, chose not to have children of our own. Read on for my experience with these special people.

For over four decades, I taught/tutored/mentored children, many of whom were considered “at risk”. I also coached them in multiple sports. Yes, it was a big part of my life and gratifying to help them learn, develop personal values, achieve and have a better chance at life. At the same time, it was sad the number of truly selfish, egocentric, poor examples of “parents” I encountered along the way. Choosing to have kids doesn’t necessarily indicate a lack of selfishness or egocentricity.

The life role of being a loving, responsible parent is one of the most important and demanding choices a person can make. Sharing and talking with many of my friends who have children, it can also be the most rewarding. It doesn’t take a big financial portfolio to accomplish this. One thing it does take is the investment of a lifetime of real commitment after a serious period of consideration of the responsibilities. Unfortunately, many of the “parent (s)” I continued to meet had chosen to procreate, often out of wedlock, with no real commitment to parenting. They didn’t take parenting seriously and refused advice about the responsibilities of starting a family. They also selfishly refused to stop having children that would face the same environment. Social pressure to have kids was a major factor. Mothering and Fathering, at least the initial phases, were seen as fun, cool and a way to fit in. To some it was proof of manhood/womanhood among their peers. They acted very irresponsibly, and expected others, including the government, to fulfill the long term parenting role once the cute baby stage was over. Their time, poorly managed income and, most important of all, love were largely spent on themselves and their current partner, but very little on their children, especially if there was still a household when the children reached puberty.

Sometimes after the initial displays to likeminded family and friends of “ohh, ahh, what a precious baby and mommy”, “oh look, he/she is crawling”, often followed by the “where’s daddy” phase, they saw their children as a financial and emotional burden. An inconvenient strain on their personal/social life rather than their priority. This egocentric attitude was often a factor that led to child neglect/abuse, as well as divorce, if they were married in the first place. One way or the other, it deeply harmed the children they had selfishly chosen to conceive.

Fortunately, some of these children, with a huge amount of outside support, grew up to become wonderful, happy, responsible adults. Coming from a similar background, I continue to find their success ego gratifying even if they aren’t my own kids.

 

[Bumbo]

Work for about 30 years, save about half of what you make. Don't borrow money. Done!

As logical as that sounds, I learned it isn't the right move.

It sounds like a great plan until you realize how far left behind you really are not putting your money to work for you...

The rate of inflation is about 2-3%... having your money sitting in the bank not working for you means you are getting left behind. Literally getting poorer/loosing by the day. In other words... for every year you hold cash that isn't "working", it literally cost you 2-3% per year of what you have in cash to keep it. That's opportunity cost and the cost of cash.

Why use your own money IF borrowing cost less? Borrowing for less is better opportunity cost. Any investment adviser worth his salt can make that cash grow at a rate of at least 5-7% minimum and often times more. As long as your interest rate is less than your rate of growth, you are making money on someone else dime.

The Index... S&P 500 for example... Say you took 50% of that money you saved, invested in just that index, you can expect to double your money in 7-10 years.

If you saved half of everything you made, threw it in the bank, and forgot about it... you lost so much growth potential, along with actually having your money be worth less over time due to inflation.

I know people who literally FREAK OUT when they paid off their homes... they have nothing to write off against their income. Deferring taxes is the name of the game... they love being in dept.

As much as I hate having to invest and borrow money, its the smarter financial decision and the end result impact over time is HUGE.

 

[LA2SD]

I belong to several forums, and this is one of the best threads I've come across in a really long time. Glad it was resurrected. Many pieces of great advice, and it really does make you think...

 

[good2go]

My take:. I remember the rule pay yourself first and you don't miss or spend what you don't have. So, besides contributing to my retirement (employer's excellent/diverse investment plan), I've also bought 5 extra years credit for retirement (using my deferred compensation account and paying back into it), and max out on the annual pre-tax deferred compensation contribution (about $18.5K/year). I live within my means and don't waste $ on frivolous/trendy stuff except for the 4Runner upkeep and modding within reason - still cheaper than ho's and blows. At my work, we can max out $22.5K /year in pre-tax Def. Comp contribution after you're 50 years old, and catch-up up to $33K/year within 3 years of retirement. Made about 13% return last 12 mos (ups and downs...).

With a fixed job income, I have to force and discipline myself to make the pre-tax deductions for retirement NOW...(and live on smaller net income but comfortable). Well, I 5.5 years until retirement @ 55 YO, 34 yrs total service credit, at 93% and 80% medical (will have higher net income without all the deductions) and a good sum Def. Comp cushion = more financial freedom! I want to enjoy my retirement years without much financial stress LATER. I learned a little bit about mutual funds inesting in college years. To me, simply, it's all bout the monthly cashflow...secondaries will be savings and Roth IRA.

My dad always told me as a kid (in regards to higher education), "Do you want to suffer 4 years or 40 years?" He was right - For me, I had better career, higher paying jobs, and more opportunities with college degrees, than without. YMMV. The same saying, I think, applies to retirement planning/ savings, you sacrifice/suffer (little setbacks) NOW and not to really suffer LATEr when you're older and weaker, can't, and don't have to work, or dependent on others. My 2 pennies.

Also, I do have a side business for extra income and tax write-offs: PI work.

 

[AKmoney]

is 1.3% a 'normal' yearly rate to have someone assist in managing an account? I met with a banker at JP Morgan today and that's their fee for managing investments. its based off total portfolio so it seems like a good incentive for them to manage wisely since, the more I make the more they make. this is the first time talking to anyone though so I don't know if this is a normal fee. I do know, this is not something I can manage on my own just yet since I know absolutely nothing.

1% seems to be the average going rate for a fully-managed account. I think this is what you can expect from a service like Edward Jones. They put your money into a bunch of expensive, actively-managed mutual funds and then charge you a 1% management fee on top of that.

More recently, "Robotraders" such as Betterment and Wealthfront have come along that more or less do the same thing, but are software algorithm driven instead of managed by a human. They charge a 0.25% management fee, and they spread your investment across a half-dozen or so low-cost index ETFs from Vanguard.

Neither of the above are necessary. Even if you know absolutely nothing about investing, you can always start with something called a Target Date Fund. These are "funds of funds" and they're fully diversified. You pick the Target Date fund with the date that's closest to your expected retirement date. The closer you get to the target date, the more conservative the underlying investments become. They re-balance automatically over time. It's a no-brainer. Vanguard, Fidelity and Schwab all offer these, and all have very low expense ratios (on the order of 0.1%).

I highly recommend reading this link for a recommended portfolio that's very simple to understand and manage, no matter who you choose to invest with:

https://www.bogleheads.org/wiki/Three-fund_portfolio

 

[Bumbo]

[MENTION=84801]AKmoney[/MENTION]

So who should be buying these products? Most people I talk to want to steer me away from stuff like that.

In the past I was told TDF also had generally higher internal costs so I never really looked into it.

Also... how does someone buy one of these Target Date Fund products? ...is this something you just buy using the symbol which is different based off your age group?

 

[AKmoney]

[MENTION=84801]AKmoney[/MENTION]

So who should be buying these products? Most people I talk to want to steer me away from stuff like that.

Anyone can buy them, but I think they're especially well suited to people who are either just getting started with investing or who really don't want to know much about it and pick something "fire and forget" that they can keep for pretty much eternity.

In the past I was told TDF also had generally higher internal costs so I never really looked into it.

This was probably true in the past but these days it's possible to find TDFs that have pretty low costs. The key is to make sure you choose a TDF that's based on an index fund and not one of the other actively-managed funds. Fidelity offers both kinds. For example, there's the Fidelity Freedom 2050 Fund (FFFHX) and the Fidelity Freedom Index 2050 Fund (FIPFX). Both funds have the same stated objective. The difference between the two is that FFFHX is constructed from a bunch of actively-managed funds and has an Expense Ratio of 0.75%, whereas FIPFX is constructed from passively-managed index funds, and has an overall ER of 0.15%.

Index funds are exactly that: They're funds designed to track a particular index, such as the S&P 500. There's no stock picking involved. Actively managed funds have a bunch of Harvard and Stanford MBAs and PhDs picking stocks. Those folks cost a lot of money, so funds they manage have higher expenses. The question is whether the higher expenses worth it? Can the nerds in charge consistently beat the index year after year, and beat it by a large enough margin to justify the higher expenses? There's plenty of evidence out there to suggest it's not worth the cost, but we can debate that in another post.

Also... how does someone buy one of these Target Date Fund products? ...is this something you just buy using the symbol which is different based off your age group?

If you were just getting started, it'd be pretty easy.

1) Go to Vanguard.com and open an account
2) Pick which fund you want to buy. For example, Vanguard Target Retirement 2050 Fund (VFIFX), which has an Expense Ratio of 0.16%.
3) Link your external checking account and transfer over the minimum investment, which in the case of VFIFX is $1000, then place a buy order.
4) Set up periodic, automatic investments. For example, if you get paid biweekly, set up a biweekly transfer from your bank to Vanguard and set it to buy $X worth of VFIFX each and every time. Whatever you're comfortable with - $100, $250, whatever, as much as you can.
5) Check back in on it in 30 years. You're sitting pretty.

 

[Bumbo]

[MENTION=84801]AKmoney[/MENTION]

When I said:
"Also... how does someone buy one of these Target Date Fund products? ...is this something you just buy using the symbol which is different based off your age group?"

I guess what I was trying to ask is how do they set and manage the "target"?

For example... how do they know I am 30 and want a target date of 65? How do they progressively move from a growth to an income balance as I get older?

I just wasn't sure how it was any different if a 30 year old bought FIPFX vs a 60 year old buying FIPFX.

 

[AKmoney]

[MENTION=84801]AKmoney[/MENTION]

When I said:
"Also... how does someone buy one of these Target Date Fund products? ...is this something you just buy using the symbol which is different based off your age group?"

I guess what I was trying to ask is how do they set and manage the "target"?

For example... how do they know I am 30 and want a target date of 65? How do they progressively move from a growth to an income balance as I get older?

I just wasn't sure how it was any different if a 30 year old bought FIPFX vs a 60 year old buying FIPFX.

Ahhh gotcha. The way I understand it is the date in a TDF is your target retirement date, at which point in time it's assumed the investor wants a more conservative investment mix. When it's at least 25 years from the target date, the TDFs have a pretty aggressive investment mix; 90/10 stocks/bonds in the case of the Vanguard funds. At T-Minus 25 years, the underlying mix starts to grow more conservative over time following something called a glidepath. By the time the retirement date hits, the mix is about 50/50. At T=Retirement+5 years, it's very conservative; more like 30/70.

More info here:
https://investor.vanguard.com/mutual-funds/target-retirement/#/

Here's the 2050 Fund. You can play around with the glidescope tool to see the investment mix change.

https://investor.vanguard.com/mutual-funds/target-retirement/#/mini/overview/0699

EDIT:

For comparison purposes, here's Schwab's Index TDFs and Glide Path: https://www.schwabfunds.com/public/file/P-9430864

 

[Bumbo]

I see, they literally have different funds that you would buy based on your age group.

In my above example... only someone in their 30s would buy Vanguard Target Retirement 2050 Fund (VFIFX).

Someone who is 60 years old would end up buying Vanguard Target Retirement 2020 Fund (VTWNX).

Different symbol, but the same product on a different timeline?

Thanks [MENTION=84801]AKmoney[/MENTION]

 

[AKmoney]

I see, they literally have different funds that you would buy based on your age group.

In my above example... only someone in their 30s would buy Vanguard Target Retirement 2050 Fund (VFIFX).

Someone who is 60 years old would end up buying Vanguard Target Retirement 2020 Fund (VTWNX).

Different symbol, but the same product on a different timeline?

Thanks [MENTION=84801]AKmoney[/MENTION]

Yep - the 2020 and 2060 use the same formula but are at different points on the glide path.

I think these funds are good places for people to start. At some point their portfolio might grow larger and more complex with different types of accounts (401k, Roth IRA, taxable, etc). Perhaps then they can consider swapping out the TDF for the individual funds that comprise the TDF and "parlaying" them in accounts that make sense. For example, it's usually better to hold bonds in a 401k or an IRA because they consistently earn dividends which are otherwise taxable. Stock funds, OTOH, pay fewer dividends and have mostly capital gains which aren't taxable until you sell them. TDFs don't take any of this into consideration, but still, if all someone ever did was invest consistently into a TDF for a few decades, they'd be way, WAY better prepared for retirement than the average Joe.

 

[97t4r81]

Thanks y'all this is super helpful motivator.

 

[Oldmanb777]

Bumbo, I don't know how old you are, but guessing you are young. Time is your friend, use it wisely. Starting early is probably the best key to having something in the future. The fact you are asking these questions, means you are probably already well ahead of many.
You might find this guy very interesting, and enlightening. Mr Money Mustache. Lots of really good stuff there. Good luck

 

[Muzzle of Bees]

Good luck with that.... Even Tony Soprano and Paulie Walnuts got screwed over when the big corporations started taking over the mom and pop coffee shops

TV is for entertainment. Hunting humans is the same as hunting any other animal. Stealth and patience are key. I grew up living in a family that believed in the old testament. I love the feeling after getting even with someone. Most people don't have the balls, I have regretted not getting even in the past. Not again. I get no satisfaction from those that create great wealth for themselves by sacraficing others.

 

[HerT4R]

This idea originated in the "America this week" thread. After seeing a number of likes on my post (http://www.toyota-4runner.org/off-topic/222220-america-week-what-hell-95.html#post2463370) I decided to kick off a new thread.

To start - how ready are you to handle an emergency expense, rainy day fund or retirement?

If you have little to nothing how do you justify your truck, mods, big boy toys, etc?

thanks for starting this thread! ive read through all the pages now and there is some pretty good advice and some typical trolling craziness (seems to be isolated to one member...)

There is another side to investing that is starting to take off, cryptocurrency. Its a little interesting at first to conceptualize exactly what it is but some people are getting filthy rich off it. There are some notable ones: bitcoin ethereum, etc. But there are a TON of them starting up everyday and typically having pretty large booms, though the busts historically are just as big as the booms. The guys ive been working with for the past week wont shut up about it and its been interesting to just listen.

I forgot to add:
I learned smart financial decisions from my parents first and foremost. When in colelge I was a pretty broke college student with my parents giving me just enough to live on which was contingent on good grades ending in an engineering degree from a good school). I worked every summer while I was in school (retail, then engineering intern twice) to earn some extra money but wasn't investing at that point and didnt even really know what investing was. When I graduated my parents let me borrow their Dave Ramsey CD set and I listened to them on the way to and from work everyday, making mental notes about what I wanted to look up. Since I have graduated college I have lived debt free (thankful to my parents and the smart financial decisions they have made to set me up debt free). Some people may say "borrowing is cheap" but I wasnt ready to navigate a car loan (with my bank or other) when I bought my 4runner. There were words being thrown around like front-end loaded interest, and the rate with my bank just really wasn't that good on a used vehicle. But the feeling as I drove away knowing she was mine and NOBODY, not the bank, or the dealership, or anybody, could take her away from me glued a smile to my face for the whole 200 mile drive home. Today I am fortunate enough to max out my 401k with a *very* nice employer match program and my HSA (which is literally the BEST investment opportunity you will almost EVER have, triple tax advantaged!!!). My wife and I each max out our Roth IRAs per year too. So I am saving quite a bit of money, but we by no means live miserly, just meagerly. We still like taking trips and I love modding my 4runner, but its all within reason and most importantly within budget.

 

[leftyguns21]

managed vs default

bringing back a dead thread.

i got a call the other day from a money management company that works with people in my company to help manage their 401k accounts. he was a total sales man claiming he can make great gains with minimal loss and blah blah. i entertained him for a bit and was waiting to get a portfolio sample sheet from him. he cancelled our follow up meeting so he lost my business but got me to thinking. i just turned 40 recently and while i wont be retiring anytime soon i really need to laser in on making my account/savings grow so im not working till i am 70. should i be using a money manager? their fees are generally in the 1-1.5% range which isn't horrible if they can actually get you better investments. i only set my 401k up around 4 years ago, i've been contributing 14%(6% Roth IRA, rest in pre-tax) for awhile but its set to all of the default investments with 96% going to the bonds/retirement fund and rest to company stock. i asked a guy i work with and he showed me articles to prove the default settings have the best gains with lowest risk and fees. he told me using a money manager is a waste. another guy i work with said instead of putting money in 401k pay my mortgage off faster. i already apply extra principal to my mortgage and the value has doubled since i bought it. i feel pretty good about my home, with exception of how much interest i have already paid. its my actual retirement account i am worried about. i don't know what to believe and curious what everyone elses opinions are.

 

[jordanrb81]

My advice is save 20% of your money remember tax diversification is at least as important as asset diversification. So for example 7% into your Traditional IRA/401k, 6% into your ROTH (contributions tend to be limited/capped) and 7% into a non qualified taxable account. remember there is more than retirement to save for and more than one thing you'll need the money for potentially. I also would recommend no less than 6 months of expenses in a totally liquid non invested savings account for folks that are working, and 12 months if you're retired. That way if the market isn't cooperating with your cash flow needs you're not in a position where you're forced into taking a loss.

to those of you who think paying off your mortgage faster is a help. put simply you're wrong. If you don't believe me google it the facts aren't on your side. if you lose your job and made a double mortgage payment for the last six months will your mortgage provider give you three months off? NO. the average American owns their home for something like 7 years. So I buy my house put 20% down (avoid PMI which is pure cost) pay on a 30 year note for 7 years then sell, because... job, school, transfer, whatever the reason. let's say your home value increased 2% each year (usually more like 3%) so the house you bought 7 years ago for $400,000 is now worth $460,000 and you now owe $300,000.00 did the fact that you paid your mortgage faster or slower have any impact on the value of your real estate investment? NO did the equity in your home provide you with any other investment opportunity? NO were you able to deduct the already low interest you were paying? oh yeah!! did that reduce your effective tax rate? yup could you have taken the same 200-500 a month that you were throwing at your mortgage and earned more on it than you were paying in interest? YUP... well probably. if you needed that money for an emergency or to take advantage of a great opportunity would it be available without having to ask a bank to borrow your own money? (Home Equity Line of Credit) oh yeah. overpaying on your mortgage feels good, makes you feel like you're doing a great thing and sure it's a far better use of your money than hookers and blow, but you'd be better off keeping it yourself and saving or investing it rather than giving it to the mortgage company.

Alternatively I love the fact that if I wake up tomorrow and feel compelled to do so I can liquidate a few positions in my portfolio and write a check to pay off my mortgage balance. Having the money and choosing to use the banks feels good. borrowing money you don't have feels quite a bit more risky to me.

I got to the point where I had a choice by being disciplined and following the guidelines of my first paragraph. I didn't really start saving in earnest until I was 25 and now 12 (almost 13) years later I have more money than most people in their 60's and 70's. Half of our monthly income goes to fixed expenses and we do literally whatever we want with the remaining 30% knowing we saved the 20%, paid ourselves first. we feel empowered spending the 30% on the here and now.