Personal Finance: Financial Planning & Investing

[BamaNation]

I agree, starting early is the key. My oldest son is 27, owns a farm and has a substantial 401k, but he also makes a very good salary for his age. My younger son chose a different path, has no savings, but is far happier. Who is better off?

Obviously, those are their personal choices so we would have to ask them

My own view would be having no savings and having debt early in my career made me stressed all the time. Working hard, getting better jobs, doing some side gig stuff, and eventually making a higher salary allowed me to save more in all these various ways and I'm much happier knowing I did so and have lots of options available now.

If I could go back and talk to my 22-yr old self, I would say eat ramen noodles (or spaghetti noodles) every day (not really every day, but don't go out as much) , don't buy a new(er) car , save (invest) every penny you can, max out IRA & 401k etc. and do that until you're 35. At that point, re-evaluate and adjust as needed.

 

[4Q Basket Case]

I truly believe this to be good advice, but not for everyone. Your strategy for 80%+ of Americans is not possible. No amount of sacrifice would allow a family making $40k a year to save more than half of that.

But my biggest concern with this advice is that it leaves no room to enjoy life through those savings years unless you are in the top 10%. And life is meant to be lived, not survived.

The median household income in the US is a tick over $80K. The median 401(k) balance across all age groups is about $30K (less for younger investors, more for older ones). It's not exactly apples to apples because one is denominated in households and the other is 401(k) account balances.

It's likely that a lot of households have two or more 401(k)s, either because multiple members of the household work, or because they have multiple 401(k)s from multiple previous employers. Or both. Regardless, it's pretty clear that Americans as a whole aren't saving anywhere near enough for retirement.

The fix won't happen overnight, nor should it. It should take place over time. But you have to get started somewhere and have some concrete goals.

The fact that not every household can do what I've described doesn't mean that many can't. And it doesn't mean that most people can't do a lot better than they are doing.

Finally, it definitely doesn't mean that, because they might not be able to do the full thing, they should give up and do nothing -- which the numbers on savings vs. income would strongly indicate that many have done.

Though it necessarily does involve a bit of pain / deferred gratification, I've suggested a way for many people to do better while minimizing the discomfort.

In my experience, it's less about financial pain and more about financial discipline. Many people just don't grasp that relatively small choices today, repeated every stinkin' paycheck for 30 or so years, have a major impact on their ability to enjoy the latter stages of life.

To paraphrase The Unsinkable Molly Brown, "I've been broke. I've been financially comfortable. Financially comfortable is better."

For me personally, I was much more stressed when I was broke. Constantly worrying about unexpected expenses, next month's rent, etc. As I gradually got more financially comfortable over the years, my stress level greatly reduced. When I was going through the most stressful time of my work career, I didn't have GTH money. I did, however, have a GTH debt position, and that was far more comforting than any drug could possibly be.

But I learn all the time, and maybe you have a better idea. For people who can't do the full measure of what I described, how would you advise them to provide for their old age?

 

[B1GTide]

For people who are less fortunate, enjoy the life that you have. I have lived a fortunate life, but know many who have been far less fortunate. Those who stress over their finances are miserable. Those who just live their lives without worrying about things like this are much happier.

Just my experience, but that would be my advice.

 

[4Q Basket Case]

Understood.

Your approach is more, “Don’t worry….be happy.”

Mine is more, “Failure to plan is planning to fail.”

Different strokes.

 

[B1GTide]

Understood.

Your approach is more, “Don’t worry….be happy.”

Mine is more, “Failure to plan is planning to fail.”

Different strokes.

Not even close, but you don't want to understand.

 

[Bamaro]

I’ve skimmed through and don’t see any info on 403b’s. My wife’s business just got bought out and the new employer is a non-profit and offers a 403b instead of the 401k the previous ownership offered. Is there any need-to-knows? She has options on what to do with the money in her existing 401k.

Roll over the existing 401k into an IRA with an S&P 500 indexed fund with a company such as T Rowe Price, Fidility, Vanguard etc. They have very low fee structures. That will give you many more options in the future should you decide to make any changes in investment strategy.
Beyond that you may see little difference between your old 401K and your new 403B except with your investment options. I assume 403Bs contain a company match like 401Ks do. Maximize your companies contribution to the max if you can afford to (you probably can 'afford' it). That's like 'free' money.

 

[4Q Basket Case]

It’s clear that B1GTide and I see personal financial management through different lenses. That’s fine. Like I said, different strokes. Here’s some background in why I believe so strongly in what I’ve put forward.

I didn’t start with a silver spoon in my mouth. I was blessed to have a family that valued education even though they couldn’t pay for it. I was also blessed to have an old-school battle-ax of a math teacher at Tuscaloosa High School. She demanded every student’s best – often more than I thought I had to give. Because of Martha B. Howell, applying the mathematical principles to investing topics was perfectly understandable and just made easy sense.

Still, my family knew next to nothing about real investing. They knew they shouldn’t spend more than they made, though they weren’t always as diligent as they could have been on that point. They were especially deficient in distinguishing needs from wants.

They viewed investing in stocks as picking – IOW, they picked out and bought individual stocks with money they had left over after living daily life and having their fun. The concepts of (1) fun money being what you have left over after paying for prudently-defined necessities and investing, and (2) building a portfolio (as distinct from picking a stock), were as foreign to them as reading Egyptian hieroglyphs.

So when I finished the MBA program at Alabama, I had a pretty significantly negative net worth. I had a good job and good prospects, but nothing else except a fair amount of debt.

I’m not telling you all this to dislocate my shoulder patting myself on the back. I’m telling you because what I'm saying isn't coming from an ivory tower perspective of "let them eat cake."

I know what it is to be broke. I know what it is to have less than nothing when your car engine blows up and needs a total rebuild -- I can still remember the bill -- $1,281 in 1985 dollars. Took six months of no social life, including opting out of Christmas and bringing a sandwich to work every day, to dig out of that one.

So I know what it is to be unable to ask out a crush (who had indicated at least a little bit of reciprocal interest) because I didn’t have the money. I know what it is to make a financial plan and start executing it, and have a recession put a big dent in a small nascent nest egg. And no family to tell me that that's just part of it....that you're not truly an investor until you've seen the sun shine again on the other end of a recession.

I also know what it is to gradually, over time, see the plan start to work. At first slowly, then gaining momentum, persevering through three recessions, and finally ending with me and Mrs. Basket Case retired and able (within reasonable limits) to do what we want, when we want, in the style that we want. All that even though there was no family money or financial management skills to backstop us.

Most of us don’t have family money or an inheritance to make our financial lives easy. The best way – the only way – I know to go from nothing to something is to make a plan and execute it for 25 – 30 years.

I’m telling you more about my background than you probably want to know because I’m trying to convey one idea: Even if some of the specifics are beyond their realistic reach, the vast majority of the population can follow this over-arching concept and end their working careers in financial comfort.

It’s not easy. The hardest part is the discipline it requires. But if I can do it, you can too.

I’m also trying to suggest (1) practical ways to get there that don’t require a PhD in financial engineering to execute, and (2) how to handle the scoffs from people who aren't planning. Because they will come.

As a great coach once said, “The price of victory is high. But so are the rewards.”

 

[B1GTide]

It’s clear that B1GTide and I see personal financial management through different lenses. That’s fine. Like I said, different strokes. Here’s some background in why I believe so strongly in what I’ve put forward.

I didn’t start with a silver spoon in my mouth. I was blessed to have a family that valued education even though they couldn’t pay for it. I was also blessed to have an old-school battle-ax of a math teacher at Tuscaloosa High School. She demanded every student’s best – often more than I thought I had to give. Because of Martha B. Howell, applying the mathematical principles to investing topics was perfectly understandable and just made easy sense.

Still, my family knew next to nothing about real investing. They knew they shouldn’t spend more than they made, though they weren’t always as diligent as they could have been on that point. They were especially deficient in distinguishing needs from wants.

They viewed investing in stocks as picking – IOW, they picked out and bought individual stocks with money they had left over after living daily life and having their fun. The concepts of (1) fun money being what you have left over after paying for prudently-defined necessities and investing, and (2) building a portfolio, were as foreign to them as reading Egyptian hieroglyphs.

So when I finished the MBA program at Alabama, I had a pretty significantly negative net worth. I had a good job and good prospects, but nothing else except a fair amount of debt.

I’m not telling you all this to dislocate my shoulder patting myself on the back. I’m telling you because I know what it is to be broke. I know what it is to have less than nothing when your car engine blows up and needs a total rebuild -- I can still remember the bill -- $1,281 in 1985 dollars. Took six months of no social life, including opting out of Christmas and bringing a sandwich to work every day, to dig out of that one.

So I know what it is to be unable to ask out a crush (who had indicated at least a little bit of reciprocal interest) because I didn’t have the money. I know what it is to make a financial plan and start executing it, and have a recession put a big dent in a small nascent nest egg. And no family to tell me that that's just part of it....that you're not truly an investor until you've seen the sun shine again on the other end of a recession.

I also know what it is to gradually, over time, see the plan start to work. At first slowly, then gaining momentum, persevering through three recessions, and finally ending with me and Mrs. Basket Case retired and able (within reasonable limits) to do what we want, when we want, in the style that we want. All that even though there was no family money or financial management skills to backstop us.

Most of us don’t have family money or an inheritance to make our financial lives easy. The best way – the only way – I know to go from nothing to something is to make a plan and execute it for 25 – 30 years.

I’m telling you more about my background than you probably want to know because I’m trying to convey one concept: Even if some of the specifics are beyond their realistic reach, the vast majority of the population can follow this over-arching concept and end their working careers in financial comfort.

It’s not easy. The hardest part is the discipline it requires. But if I can do it, you can too.

I’m also trying to suggest (1) practical ways to get there that don’t require a PhD in financial engineering to execute, and (2) how to handle the scoffs from people who aren't planning. Because they will come.

As a great coach once said, “The price of victory is high. But so are the rewards.”

I actually did not criticize your post. I agreed with it. I simply believe that it is impossible for the vast majority.

Some believe that they achieved because they worked harder, planned better, etc. Those things are necessary, but to accumulate any wealth at all one must also be lucky.

Some examples - Lucky to be born at the right time, and place. Lucky to be born into a loving family. Lucky to have their health (mental and physical). Lucky to avoid so many life altering circumstances.

For those less lucky, there has to be a different message. That is all that I am saying. How can people with nothing help themselves to a better life?

Peace

 

[4Q Basket Case]

A list of seven books on retirement planning from Morningstar:

The 7 Best Retirement Books | Morningstar

Full disclosure: I have not read any of these, so I can't recommend or criticize any of them. I do, however, highly admire Christine Benz who is the author of one of the books.

 

[4Q Basket Case]

Here's a link to the best investing podcast I've listened to this year. It's free from Bogleheads On Investing, and is well worth about an hour of any investor's undivided attention.

Episode 77: Aswath Damodaran, the Dean of Equity Valuation from the Stern School of Business, host Rick Ferri | Bogleheads On Investing Podcast

Aswath Damodaran is one of the great minds in investing, and specializes in valuation of assets. He does a great job of distinguishing between valuation vs. pricing. He also does a great job of reiterating the value of index funds.

At the risk of sounding like an Econ 001 student challenging Warren Buffett's investment allocation, Damodaran did raise one thing I disagreed with: He believes that international exposure deserves a share of an investing portfolio just as Large Cap, Small Cap, Growth, Value, etc. sectors do.

I disagree. Not because of the 20 years of underperformance Global funds have generated, but because the demographics of too many established non-US economies are so bad -- Germany, China and Russia are in deep trouble and not fixable anytime soon, if ever. Britain and France would be except they still have decent immigration from former colonies -- which is causing internal political problems in both countries. If you believe that demography is destiny, all of those are major red flags.

Other less established economies have better demographics, but their political situations are often a mess, and too many of them are effectively governed by a mob boss.

As opposed to the US. Whose demographic problem does exist but is (1) nowhere near as severe as the other countries I named, and (2) is a lot more solvable due to the relationship with Mexico, whose demographics are awesome.

I do believe there will be a fair amount of economic upheaval in the next few years. And I believe that the US is uniquely positioned to benefit....after the dust settles. I also believe that the largest US companies are inherently global, and that there is effective international diversification in holding their stocks -- which you do in a US Index Fund.

All that to say I don't think international stock funds are the place for the Basket Case household.

Regardless of whether you agree or disagree, I truly think you'll find the above podcast time well spent.

 

[B1GTide]

Here's a link to the best investing podcast I've listened to this year. It's free from Bogleheads On Investing, and is well worth about an hour of any investor's undivided attention.

Episode 77: Aswath Damodaran, the Dean of Equity Valuation from the Stern School of Business, host Rick Ferri | Bogleheads On Investing Podcast

Aswath Damodaran is one of the great minds in investing, and specializes in valuation of assets. He does a great job of distinguishing between valuation vs. pricing. He also does a great job of reiterating the value of index funds.

At the risk of sounding like an Econ 001 student challenging Warren Buffett's investment allocation, Damodaran did raise one thing I disagreed with: He believes that international exposure deserves a share of an investing portfolio just as Large Cap, Small Cap, Growth, Value, etc. sectors do.

I disagree. Not because of the 20 years of underperformance Global funds have generated, but because the demographics of too many established non-US economies are so bad -- Germany, China and Russia are in deep trouble and not fixable anytime soon, if ever. Britain and France would be except they still have decent immigration from former colonies -- which is causing internal political problems in both countries. If you believe that demography is destiny, all of those are major red flags.

Other less established economies have better demographics, but their political situations are often a mess, and too many of them are effectively governed by a mob boss.

As opposed to the US. Whose demographic problem does exist but is (1) nowhere near as severe as the other countries I named, and (2) is a lot more solvable due to the relationship with Mexico, whose demographics are awesome.

I do believe there will be a fair amount of economic upheaval in the next few years. And I believe that the US is uniquely positioned to benefit....after the dust settles. I also believe that the largest US companies are inherently global, and that there is effective international diversification in holding their stocks -- which you do in a US Index Fund.

All that to say I don't think international stock funds are the place for the Basket Case household.

Regardless of whether you agree or disagree, I truly think you'll find the above podcast time well spent.

Thanks - I have about 15% of my assets in international funds. I will give it a listen

 

[BamaNation]

Thanks 4Q-

The Bogleheads podcast is pretty much the only podcast I listen to. Rick Ferri is great - as are all of his books.

as for the Morningstar books, I have and have read the Benz, Piper and Pfau books. They are good reads to help you think about developing and executing your own “philosophy” of how to spend what you have saved for retirement.

 

[UAH]

Here's a link to the best investing podcast I've listened to this year. It's free from Bogleheads On Investing, and is well worth about an hour of any investor's undivided attention.

Episode 77: Aswath Damodaran, the Dean of Equity Valuation from the Stern School of Business, host Rick Ferri | Bogleheads On Investing Podcast

Aswath Damodaran is one of the great minds in investing, and specializes in valuation of assets. He does a great job of distinguishing between valuation vs. pricing. He also does a great job of reiterating the value of index funds.

At the risk of sounding like an Econ 001 student challenging Warren Buffett's investment allocation, Damodaran did raise one thing I disagreed with: He believes that international exposure deserves a share of an investing portfolio just as Large Cap, Small Cap, Growth, Value, etc. sectors do.

I disagree. Not because of the 20 years of underperformance Global funds have generated, but because the demographics of too many established non-US economies are so bad -- Germany, China and Russia are in deep trouble and not fixable anytime soon, if ever. Britain and France would be except they still have decent immigration from former colonies -- which is causing internal political problems in both countries. If you believe that demography is destiny, all of those are major red flags.

Other less established economies have better demographics, but their political situations are often a mess, and too many of them are effectively governed by a mob boss.

As opposed to the US. Whose demographic problem does exist but is (1) nowhere near as severe as the other countries I named, and (2) is a lot more solvable due to the relationship with Mexico, whose demographics are awesome.

I do believe there will be a fair amount of economic upheaval in the next few years. And I believe that the US is uniquely positioned to benefit....after the dust settles. I also believe that the largest US companies are inherently global, and that there is effective international diversification in holding their stocks -- which you do in a US Index Fund.

All that to say I don't think international stock funds are the place for the Basket Case household.

Regardless of whether you agree or disagree, I truly think you'll find the above podcast time well spent.

Thank you for the link. I agree that International stocks have disappointed for decades. I just sold a Matthews Asia fund that I held for over twenty years due to the headwinds it faces from the Chinese economy. It was a five star fund when purchased but the ratings have declined over time. The problem with international investing has been that they are so heavily influenced by the US and Chinese economies. When the large economies sneeze global stock markets catch a cold.

 

[DzynKingRTR]

Fubotv stock shot up yesterday. too bad I don't have it.

 

[BamaNation]

Fubotv stock shot up yesterday. too bad I don't have it.

If you have a total market index, you have it

 

[DzynKingRTR]

If you have a total market index, you have it

then I guess I do have it

 

[Bamaro]

New year so Series I bonds are available again. Currently 3.11%

 

[BamaNation]

Morningstar's Christine Benz ...
Here’s how to figure out how big your emergency fund should be and how you should invest it.
paywall: https://www.morningstar.com/personal-finance/how-set-invest-your-emergency-fund

Summary: Ideally 3-6 months of monthly expenses saved in an accessible account to pay for things in emergencies or when you have a temporary loss of income. But when you're trying to get finances in order, that target may seem impossible. Really do need these savings in emergency to pay for housing, insurance, utilities, and food (and maybe gas/car pmt). [Also, could be used for unexpected expenses (medical, HVAC, car repairs, etc.] So, where to start?

1. Determine monthly expenses. Dont include things you could live without in an emergency situation (cable, clothing purchases, restaurants, etc). Multiply by 3.
2. Determine how much you have right now. sum up all your holdings including checking/savings, investments, CDs. Exclude anything you've already earmarked for other expenses; exclude cash holdings in investments. Remainder is current emergency fund.
3. Set your emergency fund target. Subtract #2 from #1. This is your target EF. Should be at least double monthly expenses or more. Gap is how much you need to save at minimum. Set money aside each month until you hit that target.
4. Where to put it? High-yield savings, CDs, money market accounts. Liquidity matters because you'll want to be able to access it in an emergency.
5. Customize as needed

It is possible that you can pay for most emergencies with a credit card (because getting access to some funds (CDs, High-yield savings, etc.) might take a few days and then use those funds to immediately pay off charges.

The whole idea is to try to not go into debt when emergencies happen. Building up over time takes a disciplined approach and controlling unnecessary spending when an emergency occurs.

 

[BhamToTexas]

Morningstar's Christine Benz ...
Here’s how to figure out how big your emergency fund should be and how you should invest it.
paywall: https://www.morningstar.com/personal-finance/how-set-invest-your-emergency-fund

Summary: Ideally 3-6 months of monthly expenses saved in an accessible account to pay for things in emergencies or when you have a temporary loss of income. But when you're trying to get finances in order, that target may seem impossible. Really do need these savings in emergency to pay for housing, insurance, utilities, and food (and maybe gas/car pmt). [Also, could be used for unexpected expenses (medical, HVAC, car repairs, etc.] So, where to start?

1. Determine monthly expenses. Dont include things you could live without in an emergency situation (cable, clothing purchases, restaurants, etc). Multiply by 3.
2. Determine how much you have right now. sum up all your holdings including checking/savings, investments, CDs. Exclude anything you've already earmarked for other expenses; exclude cash holdings in investments. Remainder is current emergency fund.
3. Set your emergency fund target. Subtract #2 from #1. This is your target EF. Should be at least double monthly expenses or more. Gap is how much you need to save at minimum. Set money aside each month until you hit that target.
4. Where to put it? High-yield savings, CDs, money market accounts. Liquidity matters because you'll want to be able to access it in an emergency.
5. Customize as needed

It is possible that you can pay for most emergencies with a credit card (because getting access to some funds (CDs, High-yield savings, etc.) might take a few days and then use those funds to immediately pay off charges.

The whole idea is to try to not go into debt when emergencies happen. Building up over time takes a disciplined approach and controlling unnecessary spending when an emergency occurs.

I was adamant that my wife and I do this early in our marriage even when we didn't have much at all. That emergency fund (at different values) has been there now for 20+ years. The math is one thing, but I do not think you can put into words the financial peace that it brings to you and your spouse, your marriage, the decisions you make, etc.

 

[Bazza]

I realize that there are many who are opposed to having extra cash on hand for emergencies, as mentioned above, due to no return/interest. And it will be different for everyone.

The next most available place that still works for quick access - high yield savings account ?

Thanks!