Waiting To Start Investing Until 40 Could Cost You Over $4 Million?
Albert Einstein has been credited with saying, “Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.” (Source: Goodreads; link below) I want to review a few scenarios to show you how powerful compounding interest can be when you start early and are consistent with investing. Hopefully, this will help you be the person who earns it throughout your life instead of the person who pays it!
Disclaimer: All these scenarios are calculated to earn the same interest rate every year. Your actual numbers in real life will be different since some years it might be higher, lower, or even negative. The average stock market return over the long term has been around 10% per year. (Source: Forbes; link below)
The Early Investor
Source: Calculator.net; link below
Iron Man has read Heath’s blog posts and knows that starting to invest early is very important so he starts investing right after high school. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 18 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $318,500. The total interest earned over those 49 years would be $4,973,043. Iron Man’s total balance when he turns 67 would be $5,291,543. That means 94% of the money inside the account is from compounding interest!
Investing A Decade Later
Source: Calculator.net; link below
Loki wants to have fun in his 20s. He goes on fancy vacations, drives fancy cars, and lives his best life. When he turns 30 he decides to start investing for retirement. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 30 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $240,500. The total interest earned over those 37 years would be $1,590,093. Loki’s total balance when he turns 67 would be $1,830,593. That means 87% of the money inside the account is from compounding interest! Still good, but $3,460,950 less than Iron Man. Those 12 years of additional investing were very powerful.
The Mid-Life Investor
Source: Calculator.net; link below
Captain America was unfortunately in cryosleep for many years so he wasn’t able to start investing until he turned 40. He starts with $0 and begins investing $6,500/year into his Roth IRA from age 40 until he retires at 67. He earns a 9% interest rate per year. The total contributions that he deposited into the account would be $175,500. The total interest earned over those 27 years would be $552,293. His total balance when he turns 67 would be $727,793. That means 76% of the money inside the account is from compounding interest! That is still good but again $4,563,750 less than Iron Man who started 22 years sooner.
Which superhero do you want to be?
It takes discipline to start investing early like Iron Man at 18 years old but the rewards down the road can be tremendous
If you look at the graphs in all three scenarios you will notice that compounding interest doesn’t really start to ramp up until after the first 10-20 years. Don’t get discouraged in the first 5 years if you don’t see your money growing dramatically yet
There’s a Chinese proverb that the best time to plant a tree was 20 years ago but the second best time is now
If you would like help to harness the power of compound interest schedule a time when we can discuss your particular situation.
Sources:
https://www.goodreads.com/quotes/76863-compound-interest-is-the-eighth-wonder-of-the-world-he
https://www.forbes.com/advisor/investing/average-stock-market-return/
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
MoneyGeek Feature: Women’s Guide to Making Financial Moves After College
Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “Women’s Guide to Making Financial Moves After College”.
Leanne discusses challenges women face as they begin their financial journey after college and what they can do to set themselves up for a fruitful financial life.
Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
MoneyGeek Feature: How to Find the Best Car Insurance for Women
Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “How to Find the Best Car Insurance for Women”.
Leanne discusses her recommended insurance professionals and why gender is used for calculating premiums.
Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
How to Improve Financial Plan Success
We all want to improve the odds of reaching our financial goals.
If that is the case, how should we construct our investment portfolios so they might help accomplish that intended purpose?
In this video, we review the theoretical results of a variety of portfolios and see how diversification can potentially improve your financial plan success.
We all want to improve the odds of reaching our financial goals.
If that is the case, how should we construct our investment portfolios so they might help accomplish that intended purpose?
In this video, we review the theoretical results of a variety of portfolios and see how diversification can potentially improve your financial plan success.
The Monte Carlo simulations shown in this video can be found at the links below.
“I am passionate about helping people improve the efficiency of their finances!”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Is a Financial Advisor Worth It?
If you have extra time, are interested in finances, and are willing to research the actions needed to become successful financially; then you might not need a financial advisor. There are a lot of great free resources available if you are willing and able to put in the time and effort. That being said, there are also many reasons why you might choose to work with a financial advisor.
You might:
Be too busy with work/life to complete research on your own
Deal with analysis paralysis and need some guidance on how or where to invest
Get nervous during periods of market volatility and need someone to give you reassurance and prevent you from making an emotional investing decision that could cost you a lot of money
Need someone to help keep you accountable and consistent with investing
Not be interested in finances/investing and would rather pay someone to help so you can spend more time on things that you enjoy
Whether you are currently working with a financial advisor or looking to work with a financial advisor, here is a review of some ways financial advisors could add value to your investing plan according to Vanguard. If you do not need/want a financial advisor you may still want to focus on these areas as you manage your own financial plan. (Source: Vanguard Advisor’s Alpha; link below)
Value a Financial Advisor Could Bring
As I review the seven modules that Vanguard presents, please keep these quotes from the paper in mind.
“Paying a fee to a professional who follows Vanguard’s Advisor’s Alpha Framework described here can add value in comparison to the average investor experience, currently advised or not. We are in no way suggesting that every advisor—charging any fee—can add value. Advisors can add value if they understand how they can best help Investors.”
“We do not believe this potential 3% improvement can be expected annually; rather, it is likely to be very irregular.”
“Some of the best opportunities to add value occur during periods of market duress or euphoria when clients are tempted to abandon their well-thought-out investment plans.”
1. Suitable Asset Allocation Using Broadly Diversified Funds/ETFs Value: >0.00%
Asset allocation is the percentage of investments you have in stocks, bonds, cash, and alternative investments. Factors to help determine your asset allocation are your risk tolerance, risk capacity, and the goals you have for that particular sum of money. Having the right mix of investments for your specific situation and goals is very important. Vanguard found this value add to be significant but stated it was too unique to quantify.
2. Cost-Effective Implementation (expense ratios) Value: 0.30%
After determining your asset allocation, the next step would be to decide what investments to invest in. One thing that you have a lot of control over is how much you pay to be invested in the stock market. The difference between the returns you achieve and the cost you pay is your net return. Vanguard recommends keeping your expense ratios low, and I agree. A high expense ratio for a fund could be greater than 1% whereas a low-cost index fund could be as low as 0.04%. Vanguard found this value add to be 0.30%.
3. Rebalancing Value: 0.14%
Your asset allocation can drift over time. Let’s say you originally invested 80% in stocks and 20% in bonds. One year later if stocks perform better than bonds, you might now be 90% stocks and 10% bonds. If you want to control your risk and stick within your risk tolerance, then rebalancing back to the original 80% stocks and 20% bonds may make sense for you. Rebalancing can also help you buy low and sell high. It forces you to buy the investment that underperformed and sell the investment that overperformed. This is easier said than done. If you had an investment that did really well, emotionally you may not want to sell some of it and buy the investment that underperformed. A financial advisor could do this automatically for you. Vanguard found this value add to be 0.14%.
4. Behavioral Coaching Value: 0.00%-2.00%
As human beings, we all have emotions. During periods of market volatility and downturns, having an advisor to help prevent you from changing your investment strategy could be very valuable. When COVID initially started, the market took a huge dive as the economy shut down. I know a few people who sold completely out of the stock market because of fear. Then when the market recovered they missed out on the huge gains that followed. They let their emotions get the best of them and ended up locking in their losses by selling. If they would have had an advisor to help them stick to a financial plan they might be in a better position today. Vanguard found this value add to be 0.00%-2.00%.
5. Asset Location Value: 0.00%-0.60%
There are three main types of accounts where you can keep invested assets: Tax-deferred accounts, Tax-free accounts, and Taxable accounts. Having the right investments inside of the correct accounts could help you pay less in taxes, which would leave more money left over for you. Here is a figure from the Bogle Heads forum which reviews which funds might be better for the three different account types. A financial advisor could help you decide which investments should be inside which accounts. Vanguard found this value add to be 0.00%-0.60%.
(Source: Bogleheads Wiki; link below)
6. Spending Strategy (withdrawal order) Value: 0.00%-1.20%
If you only have investments inside of one account type then this module wouldn’t bring any value to you. On the other hand, if you have some investments inside of a 401(k), a Roth IRA, a Health Savings Account, and a taxable brokerage account then which account you withdraw money from first could add a lot of value and help you save on taxes.
You might withdraw from your 401(k) for your required minimum distributions for that year first, then you might consider taking money out of your taxable brokerage account, after that you might decide to withdraw money from your Roth IRA, saving your HSA for later. Having money invested in different account types can allow you to adjust how much tax you pay during your retirement years. Withdrawing money in a sub-optimal order could cause you to pay more taxes! Vanguard found this value add to be 0.00%-1.20%.
(Source: Vanguard Advisor’s Alpha; link below)
7. Total Return Versus Income Investing Value: >0%
This includes helping investors decide what kind of bonds to include in their portfolio such as short-term, long-term, and high-yield. Guiding investors to not focus solely on retirement income with bonds but to also consider capital appreciation that could add value over the long term. This could also help decrease risk and increase tax efficiency. Vanguard found this value add to be significant but stated it was too unique to quantify.
So Is Having a Financial Advisor Worth It?
That is a value judgment, so only you can decide if having a financial advisor is worth it. Vanguard has shown that advisors can add up to, or exceed, 3% in net returns by following their Advisor’s Alpha framework. Over a long period that could add tremendous value to your financial plan. That’s if you are being charged reasonable fees for the services provided. This figure shows the median advisory fees based on account size.
If you want to do it on your own, make sure to do your research so that you can invest well
If you currently work with a financial advisor, make sure you what they are charging you and evaluate if they are following Vanguard’s best practices in wealth management
If you want to work with an advisor then feel free to reach out to as I would happily meet with you to explain how I would be able to help you with your financial plan
(Source: Kitces Blog; link below)
Sources: https://advisors.vanguard.com/content/dam/fas/pdfs/IARCQAA.pdf
https://www.bogleheads.org/wiki/Tax-efficient_fund_placement
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Optimize Your TSP Using the Mutual Fund Window
The Thrift Savings Plan (TSP) Mutual Fund Window opened in June 2022. It provides TSP participants with access to thousands of mutual funds that can provide diversification to their core TSP holdings.
In this webinar, we will review what the Mutual Fund Window is, how it works, and whether using it might be beneficial for you. We will also discuss its limitations and review alternatives you may want to consider to improve your retirement portfolio.
The Thrift Savings Plan (TSP) Mutual Fund Window opened in June 2022. It provides TSP participants with access to thousands of mutual funds that can provide diversification to their core TSP holdings.
In this webinar, we will review what the Mutual Fund Window is, how it works, and whether using it might be beneficial for you. We will also discuss its limitations and review alternatives you may want to consider to improve your retirement portfolio.
Links to the backtest data shown in the presentation:
“I am passionate about helping people improve the efficiency of their finances!”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
The Power of the Roth IRA
5 benefits the Roth IRA provides that you won’t want to miss out on.
Ah, the Roth IRA. A wonderful, magical, beautiful savings vehicle. Ok, maybe not really magical but pretty darn close. I’m going to share with you, undoubtfully, some powerful benefits the Roth IRA has to offer and why you might consider contributing to one. Everyone’s situation is different and it may not be the best vehicle for all - but that’s why I’m here (wink-wink). My contact info is down at the bottom so you know where to find me. Alright, let’s jump into the world of Roth.
Let’s start with what is a Roth IRA anyway.
A Roth IRA is a savings vehicle designed for retirement. The main difference between a Roth and your traditional retirement account is that this vehicle is funded with after-tax dollars. You’ve already paid taxes on the dollars you contribute to the Roth account. In return, when you go to pull the money out in retirement (more on that to come), you won’t pay taxes because you already have. Your traditional retirement account works the exact opposite: you contribute with pre-tax dollars and pay taxes when you withdraw in retirement.
There are some things to note about who can contribute to a Roth IRA. First, not everyone is eligible to contribute to a Roth IRA. The IRS has certain income limits you must take into consideration before you can start dumping money into your account. Secondly, the max you can contribute for 2023 is $6,500. This amount does change based on where you fall within the IRS income limits. If you are 50 years or older, the IRS so generously allows you to make an additional $1,000 contribution for 2023. You can find the IRS’s income limits and respective contribution amounts here.
You will benefit from tax-free growth (yes, you read that correctly).
Remember how I said you put dollars in that have already been taxed? Well, those same dollars will be sowed into the market and grow into a luscious, fruitful nest egg free of tax on your earnings. This is what I was talking about when I said Roth IRAs are pretty close to magical. Don’t skim over that sentence lightly. Think about this for a second. If you start investing and watch your savings grow over the next twenty, thirty, forty years, can you begin to see how much growth is in the picture? If not, I’ll fill you in - it’s a lot (assuming you are in a growth-oriented portfolio, keeping investment fees low, maintaining a long-term mindset, and so on). All that growth is tax-free. Yours to keep - not the government’s. As I said, it’s beautiful.
You will benefit from tax-free withdrawals.
As I mentioned, when you withdraw funds from your Roth IRA, you will not be paying taxes on them. Now, there are some rules that go along with that. You must be 59 ½ years old when you withdraw your earnings and the account must be opened for at least 5 years to avoid any penalties and taxes. If those two boxes are checked, then you are in the clear.
What if you are younger than 59 ½? What if your account hasn’t been opened for at least 5 years? You can do more of a deep dive into all the specific withdrawal rules here.
Now let’s talk about this thing called RMDs.
RMD stands for Required Minimum Distribution. This is an amount that the IRS requires you to withdraw each year from your qualified retirement accounts. So what does this have to do with a Roth IRA? You are not required to take an RMD from a Roth IRA. In other words, you get to decide if, when, and how much you want to withdraw from your Roth. More power to you.
Speaking of more power to you, you have withdrawal power over your contributions - at any time.
Yep, any contributions you make to your Roth IRA are 100% available to you to withdraw, free of tax and penalties, at any time. Notice, I said contributions - not contributions and earnings. Any earnings within your account will follow the rules we talked about earlier. However, your contributions are fair game. (This doesn’t mean it’s always wise to treat this as available cash at all times. However, it does allow more flexibility, freedom, and control over the money you set aside).
There are benefits for your kiddos too.
Did you know that there is no age limit to who can open a Roth IRA as long as they have earned income? Earned income includes both formal employment income and self-employment income. So yes, that means those babysitting dollars can be put to work. Just note that contribution amounts can’t be more than the annual IRS contribution amount or the amount of the child’s earned income (whichever is less).
Thanks to the new Secure 2.0 Act, unused 529 Plan funds can be rolled over into a Roth IRA for your child. As you’d expect, there are rules that apply to this new offering, but this could be a great way to not let those unused education savings go to waste by redirecting them to a Roth IRA. If you’re curious about the rules, let’s connect.
Do you believe me now that the Roth IRA can be a very powerful tool in your financial life? With benefits ranging from taxes, more control, all the way down to your kids, I sure hope you believe me. Let’s chat to determine if this vehicle can play a role in your growth journey. And just because you are over the income limits doesn’t mean there isn’t opportunity for you (hint: backdoor Roths, Roth 401ks, Roth self-employed plans). If you aren’t excited about a Roth IRA, go back and read this again (you’re welcome).
Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Fiduciary Financial Advisors LLC does not give legal or tax advice. The information contained does not constitute a solicitation or offer to buy or sell any security and does not purport to be a complete statement of all material facts relating to the strategies and services mentioned. Past performance is not a guarantee or representation of future results.
About Leanne…
Leanne Rahn is a Fiduciary Financial Advisor working with clients all over the US. If you don’t know what a Fiduciary is, Leanne encourages you to look it up (or even better - check out her website!). She swears you won’t regret it. Women entrepreneurs, newlyweds & engaged couples, and families who have special needs children are Leanne's specialties.
She loves a good glass of merlot, spending time with her hubs and baby boy, and all things Lake Michigan. She could listen to the band Elevation Worship all day long and is a sucker for live music.
Here, at Fiduciary Financial Advisors, we take our fiduciary oath seriously. We hold these five principles:
I will always put your best interests first
I will avoid conflicts of interest
I will act with prudence; that is, with the skill, care, diligence, and good judgment of a professional
I will not mislead you, and I will provide conspicuous, full, and fair disclosure of all important facts.
I will fully disclose, and fairly manage, in your favor, any unavoidable conflicts
The Problem With (Most) Workplace Retirement Plans
Most workplace retirement plans are great at providing access to low-cost stock and total bond market index funds along with target-date retirement funds. Unfortunately, it often stops there.
There is a whole world of diversification outside of these assets that can potentially improve your portfolio.
In this webinar, we will:
Review the concept of diversification and take a look at the math behind why diversification can improve your portfolio
Compare standard 401k offerings against this diversification framework to understand the limitations of most plans
Discuss other assets that you may want to consider adding to your portfolio
Review other accounts you may want to use to access these assets
Most workplace retirement plans are great at providing access to low-cost stock and total bond market index funds along with target-date retirement funds. Unfortunately, it often stops there.
There is a whole world of diversification outside of these assets that can potentially improve your portfolio.
In this webinar, we will:
Review the concept of diversification and take a look at the math behind why diversification can improve your portfolio
Compare standard 401k offerings against this diversification framework to understand the limitations of most plans
Discuss other assets that you may want to consider adding to your portfolio
Review other accounts you may want to use to access these assets
The data used in this video can be found at the links below.
“I am passionate about helping people improve the efficiency of their finances!”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
What is money? Isn't it really just time?
Time in Place of Money
What is money? If you live in the United States, you probably think of money as the US Dollar. People in Japan might think of the Yen. People in France, Germany, and Italy might think of the Euro. Economists Milton Friedman and Allan Meltzer describe money as, “a commodity accepted by general consent as a medium of economic exchange. It is the medium in which prices and values are expressed; as currency, it circulates anonymously from person to person and country to country, thus facilitating trade, and it is the principal measure of wealth.” (Source: Britannica; link below)
What if you thought of money a little bit differently? When thinking about money, try substituting my time in place of money because time is what you have to give up to receive money.
Exchanging Crops for a Phone
Let's say a farmer wants a new phone. He knows how to grow crops but can’t build his own phone. The farmer sacrifices his time to grow crops that he can sell to others for money. Once he obtains this money he can buy a new phone. The owner of an electronics store sacrifices her time working at the store selling phones to earn money. What does she do with that money? She might buy the farmer's crops at the grocery store. The money is just an intermediary for the time between the farmer and the electronics store owner.
While this is a simplistic example, this is how many transactions happen in our society. If you start thinking about money as actually being your time, then it could make you wiser with your money. Being wiser with your money could lead you to be more efficient with your time!
How to Apply to Your Life
Here is a real-world scenario where you could apply this money as time principal. The average new car price as of November 2022 was $48,681. (Source: Kelley Blue Book; link below) Economics is all about opportunity costs. If you spend $48,681 purchasing a new vehicle then that is $48,681 that you do not have to purchase something else. Let’s assume that you make the average hourly wage of $32.80/hour. (Source: St. Louis Federal Reserve Bank; link below) We can find how many hours you would have to exchange for purchasing a new vehicle by dividing $48,681 by $32.80: 1,484 hours! Once you take taxes into account the number of hours will probably be even higher.
While you might normally ask if the car was worth $48k, instead ask yourself if it’s worth 1,484 hours of time working at your job. Are you willing to spend 74% (1,484/2000) of a year working to purchase that new vehicle? If the answer is “yes,” then go for it and enjoy your new vehicle. If the answer is, “Hmmm I think I might be able to use those 1,484 hours more effectively somewhere else in my life”, then keeping your current vehicle could result in a wiser use of your time!
I am currently in this scenario right now in my own life. I drive a 2011 Prius that only has around 75,000 miles. It runs great, does not need any major repairs, and gets 50 MPGs! I don’t need a new vehicle but have been intrigued with the 2023 Rav4 and 2023 Prius. I utilized this process in my head and determined that was too many hours of my working life to pay for a newer vehicle that I might want but don’t need. I would rather use those hours spending time with my friends/family, writing blog posts, creating YouTube videos, and staying healthy by playing beach volleyball/pickleball.
Words to Live By
You can utilize this thinking in many different scenarios. Just take the price of what you are considering buying and divide it by your hourly wage. That will tell you how many hours it will take you to work to pay for that next big purchase. Then decide if you are okay with that tradeoff.
Here is one of my favorite quotes from the book, “The Psychology of Money,” by Morgan Housel. He states, “The ability to do what you want, when you want, with who you want, for as long as you want, is priceless. It is the highest dividend money pays.” Make sure you are being wise with your money so you can enjoy your time to the fullest!
Sources: https://www.britannica.com/topic/money
https://www.kbb.com/car-news/average-new-car-price-sets-record/
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Balancing Your Portfolio
A 60% stock, 40% total bond market portfolio is often considered to be a "balanced" portfolio.
As it turns out, it isn't very balanced.
In this video, we literally use a balance to better understand how unbalanced the 60/40 portfolio is and alternatives we may consider to find better balance.
A 60% stock, 40% total bond market portfolio is often considered to be a "balanced" portfolio.
As it turns out, it isn't very balanced.
In this episode, we literally use a balance to better understand how unbalanced the 60/40 portfolio is and alternatives we may consider to find better balance.
Portfolio Visualizer data shown in this episode can be found here.
“I am passionate about helping people improve the efficiency of their finances!”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Artificial Intelligence Reveals the Secrets to Being Healthy
Health and Why it is Important
I recently posted about how I was able to have Artificial Intelligence (AI) write a blog post on how to become a successful investor. I thought it was amazing to see what the AI was able to generate on the topic. Click here to read that post. Since wealth and health usually are intertwined, I thought it would be interesting to see what AI also had to say about staying healthy. Here are two responses that the AI wrote when prompted with, “Write a blog post on how to stay healthy.” (I used the website https://openai.com/)
AI’s First Response
When it comes to staying healthy, there’s no one-size-fits-all solution. Everyone’s body is different and requires different types of care, so it’s important to find a plan that works for you. Below are some tips that can help you stay healthy and make sure you’re getting the most out of your body.
1. Exercise regularly: Exercise isn’t just good for your physical health, but it can also help improve your mental health as well. Whether it’s taking a walk, going for a run, or taking a yoga class, find an activity that works for you and make it part of your routine.
2. Eat a balanced diet: Eating a balanced diet is essential for staying healthy. Make sure you’re getting enough fruits and vegetables, whole grains, and lean proteins. Also, try to limit your intake of processed foods and sugary drinks.
3. Get enough sleep: Sleep is an important part of staying healthy. Aim for seven to nine hours of quality sleep per night and make sure you’re getting enough rest.
4. Manage stress: Stress can have a huge impact on your physical and mental health, so it’s important to find ways to manage it. Try yoga, meditation, or simply taking some time for yourself to relax and unwind.
5. Stay hydrated: Drinking enough water is essential for staying healthy. Make sure to drink at least 8 glasses of water a day.
AI’s Second Response
Staying healthy can be a challenge, especially when it comes to maintaining a healthy lifestyle. But with a little planning and dedication, it’s possible to keep your body in tip-top shape and enjoy a happier, healthier life. Here are some tips to help you stay healthy:
1. Eat a Balanced Diet Eating a balanced diet is essential for maintaining good health. Focus on incorporating plenty of fruits, vegetables, and whole grains into your meals. Limit saturated fats, trans fats, and processed foods, and make sure you’re getting enough protein, fiber, vitamins, and minerals.
2. Exercise Regularly Regular exercise is just as important as diet when it comes to staying healthy. Aim for at least 30 minutes of moderate activity each day. This can include walking, jogging, swimming, or biking. Strength training is also beneficial for maintaining muscle mass, bone density, and overall health.
3. Get Enough Sleep Getting enough sleep is vital for your body to function properly. Try to get about eight hours of sleep each night. If you have trouble sleeping, consider making lifestyle changes such as limiting caffeine consumption, avoiding screens before bed, and establishing a regular sleep schedule.
4. Manage Stress Stress can have a major impact on your physical and mental health, so finding ways to manage it is essential. Consider activities such as yoga, meditation, or deep breathing to help keep your stress levels in check.
5. Practice Self-Care
Wealth and health! The healthier you are, the less money you need to spend on healthcare. The wealthier you are, the more resources you have available to stay healthy. Instead of a downward spiral, this is an upward spiral! If you want to get wealthy and stay wealthy, you should probably focus on one of your most important assets, your health! If you need help changing any of your health habits, one of the best books I read in 2022 was “Atomic Habits” by James Clear and I would highly recommend it. https://jamesclear.com/atomic-habits
“If you can get 1% better each day for one year, you’ll end up 37 times better by the time you’re done.”
“It is only when looking back 2, 5, or 10 years later that the value of good habits and the cost of bad ones become strikingly apparent.”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
How Do I Improve Investment Efficiency? - Part 1
Engineers are very familiar with the equation for efficiency:
Efficiency = Output/Input
We want to know we are getting the most productivity out of a system or machine in order to make the best use of resources or energy.
Our investment portfolio should not be any different. We should want to get the most return for the amount of risk we are taking.
In this episode, we take a look at the types of risk we can use as inputs in our investment machine. We will also review the Sharpe ratio, which is the widely used measure for efficiency of investment return and consider how we can go about increasing the Sharpe ratio of our portfolio.
The data included in this video was obtained from Portfolio Visualizer’s Asset Class Allocation tool found here.
“I am passionate about helping people improve the efficiency of their finances!”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
Why Should I Care About Volatility?
When most investors think about volatility, they think about riding a roller coaster or a wave. They know the path of more volatile portfolios has a larger amplitude than smaller portfolios but the additional risk may lead to higher returns over time. While many investors think about how bumpy the ride may be, not many investors consider the variability of outcome that comes with higher volatility.
In the first episode, we saw how diversifying across a basket of companies can lead to a portfolio that has similar expected return with less volatility than investing in a single company. In this episode, we will take a look at why that matters and how that lower volatility can lead to a higher probability of success in your financial plan.
The data included in this video was obtained from Portfolio Visualizer’s Monte Carlo simulation tool found here.
“I am passionate about helping people improve the efficiency of their finances!”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
MoneyGeek Feature: How to Start Saving and Investing
Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “How to Start Saving and Investing”.
Leanne answers the questions of how much should you invest, how you choose the best stocks and bonds, how to start investing while living paycheck to paycheck, and her take on investment apps.
Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
Should We Pay Off the House Early?
Is paying off your mortgage early the smart thing to do? It sounds great having that extra cash flow in your pocket each month by not having that monthly mortgage payment. That being said it is not quite that simple, lets see if paying off the house early makes sense for you.
Consider these factors:
Once your mortgage is gone you will be missing out on your mortgage interest tax deduction.
Dependent on your interest rate you may be earning more on investments rather than paying off the bill.
Lets look at an example, say your mortgage is $400,000 and you are in year 5 of your 30 year loan with a 3.5% interest rate. In this example that makes your monthly payment roughly $1,800. If you decided to pay $3,600 a month instead of your $1,800 you would shorten the loan term all while spending less money on the house. This sounds greatly appealing I understand. My goal here is to simply bring math and facts to the table.
As you can see with the increase payment schedule your mortgage will cost you 532k rather than 646k. At the same time you saved more than 100k on interest. The downside to this is the fact that all of this interest can be deducted and create tax savings in the tens of thousands of dollars.
The largest point I would like to address here is the fact that I believe there is a better use for that additional $1800 a month.
Rather than cut down the mortgage what if we took that extra cash and invested it into an index fund? If we took the $1,800 a month and did just that, given a 10% rate of return you would accumulate $368,720.96 in just a 10 year span. Now what if we did it for the remainder of the loan? Investing that extra $1,800 a month for the 25 remaining years on the loan will accumulate a value of $2,388,300.13! That’s one expensive house…
Now this math has changed somewhat in the current marketplace we reside in. With mortgage rates anywhere from 5 to 7 percent the math becomes less appealing and there is definitely a stronger argument to pay down that mortgage. The rule of thumb should be, can I use this money to out earn the 6% I am paying the bank to borrow for my home? If not then consider paying down that mortgage.
One final thought, I am fully aware that owning a home is an emotional decision and not just one to be solved by math. There is something to be said about you owning your home and the dirt under it, not the bank. With that in mind I am not directly telling you to keep the mortgage payment we often find a healthy balance of investing and early payment being the most logical answer for our clients. As I said before, I wanted to present to you the math and logic around the process.
I would love to help you analyze your own situation. Please reach out!
MoneyGeek Feature: Finding the Right No Annual Fee Card
Leanne Rahn had the privilege to be featured in MoneyGeek to talk to readers about “Finding the Right No Annual Fee Card”.
Leanne discusses the pros & cons of no annual fee credit cards and what consumers should consider when paying for an annual fee credit card.
Fiduciary Financial Advisors, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.
Should I Own My Employer's Stock?
Many engineers have the opportunity to own stock in the company they work for. Whether it’s through a 401k match, Employee Stock Purchas Plan (ESPP), Restricted Stock Unit (RSU) grants, stock options, etc., owning a piece of your company can be a great way to build wealth. However, that doesn’t necessarily mean it’s the best way to build wealth.
In this video, I take a look at the difference between owning shares of an individual engineering company vs. owning a diversified portfolio of engineering companies. I break down the math to show that diversifying across many companies is generally going to be your best bet.
The data shown in this video was obtained from the Portfolio Visualizer backtest available here.
“I am passionate about helping people improve the efficiency of their finances!”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.
How Saving for Your Retirement Has Changed
Leanne Rahn had the privilege to be featured in West Michigan Woman’s Magazine to talk to readers about “How Saving for Your Retirement Has Changed”.
Retirement isn't what it used to be, which means we need a new way to plan for it. Not sure of the best way to do so? You're not alone.
529 to Roth IRA Conversions Under New Cares Act 2.0 Rules
Under the Cares Act 2.0 passed in December, savings from 529 education savings accounts can now be rolled over to a Roth IRA (starting in 2024).
This is an important update for parents or grandparents saving for their children or grandchildren’s future. A major concern with 529 accounts has always been “what if my child/grandchild doesn’t end up going to college”? Previously this would have triggered income tax and a 10% penalty to distribute that unused money. Under these new rules, the balance could now be rolled over to a Roth IRA for the beneficiary of the 529 (in this example the child/grandchild).
Under the Cares Act 2.0 passed in December, savings from 529 education savings accounts can now be rolled over to a Roth IRA (starting in 2024).
This is an important update for parents or grandparents saving for their children or grandchildren’s future. A major concern with 529 accounts has always been “what if my child/grandchild doesn’t end up going to college”? Previously this would have triggered income tax and a 10% penalty to distribute that unused money. Under these new rules, the balance could now be rolled over to a Roth IRA for the beneficiary of the 529 (in this example the child/grandchild).
This new rule creates a few major opportunities for savers:
You can take advantage of 529 account tax advantages to save for a child’s future education without as much concern you may be penalized in the future.
You could use a 529 as a “stealth Roth account” for a child to get savings growing tax-free for them long before they have an income that would allow you to fund an actual Roth IRA for them. An extra 15 to 20 years of compounding gains is a powerful thing!
In the “stealth Roth account” situation you may get the dual-benefit of state income tax deductibility as a bonus (this applies for states with income tax that allow a deduction for 529 contributions and assumes they won’t tax 529 conversions which is yet to be determined).
Open a 529 account for a child immediately and fund it with $1 or $25. This gets your 15 year conversion clock going (details on this below).
If your child received grants or scholarships that cover most of their costs they can be rewarded with a head start to their retirement savings by converting their 529 balance to a Roth IRA.
If you’re fortunate enough to be able to pay for your child or grandchild’s college out of pocket without using all of their 529 account, you could choose to transfer up to $35,000 to a Roth IRA for them instead of using it for college expenses.
Because this is the US Congress and tax code they couldn’t let it be toooo simple… there are some important rules to understand:
Funds must roll to a Roth IRA for the beneficiary of the 529 plan. If the 529 beneficiary is your child, that means it must roll to a Roth IRA for your child. Quick note - changing the beneficiary of a 529 is quite easy, congress and the IRS still need to clarify whether you could get around this provision by making you or your spouse the beneficiary of the account thereby allowing you to roll the 529 funds to a Roth IRA for you or your spouse.
Funds must be moved directly from the 529 plan to the Roth IRA, you can’t take the distribution as a check from a 529 and then separately go deposit to a Roth for the beneficiary.
The 529 plan must have been maintained for 15 years or longer before funds can be rolled over to a Roth IRA. Because of this requirement, I would strongly recommend most people open a 529 for a child when they are born and fund it with the minimum amount allowed (for example $1 or $25). This “starts the clock” toward the 15 year requirement in case you ever need to use this provision in the future.
The maximum amount that can be moved from a 529 plan to a Roth IRA during an individual’s lifetime is $35,000. This means you still don’t want to “overfund” a 529 account if you’re worried the beneficiary may not end up using the money for college.
Any contributions made in the past 5 years (and the earnings on those contributions) are not eligible to be moved to a Roth IRA. This doesn’t mean you can never move those funds, you just have to wait until they’ve been in the account for 5 years until you do.
Conversions from a 529 to a Roth IRA count toward the annual contribution limit for Roth IRAs ($6,500 for 2023). So only $6,500 could be converted in one year and no “regular” Roth contributions could be made if $6,500 was converted. If only $5,000 was converted during the year for example, the beneficiary could still make $1,500 in “regular” contributions for the year. This means to convert the full $35,000 lifetime limit would likely take 5 or more years.
Income limits do NOT apply for these conversions. Even if the beneficiary is over the income limit to make “regular” Roth IRA contributions, a 529 rollover to their Roth IRA would be allowed.
The beneficiary must have earned income equal to or greater than the converted amount. For example, if you want to convert $6,000 from a 529 to a child’s Roth IRA they must have at least $6,000 in earned income. If they only have $2,000 in earned income you can only convert $2,000. These are the same rules that apply for “regular” Roth contributions. Many kinds of income can qualify including summer jobs, babysitting, etc. If in doubt, consult a tax professional.
I know, that’s a lot of fine print and may be a bit confusing! I’d strongly suggest reaching out to an advisor if you think a 529 to Roth conversion may make sense for you or if you have questions about how this may impact you. I’m always available to answer questions by phone at 616.594.6205 and email at ryan@ffadvisor.com.
Artificial Intelligence Reveals the Secrets to Becoming a Successful Investor
Technology and why it is Important
My brother once asked me; would you rather be who you are today with the resources you currently have, or would you rather be John D. Rockefeller back in the early 1900s? Rockefeller was estimated to have a net worth of $24.7 billion, adjusted for inflation to 2021 dollars. After considering, I decided I would rather be who I am today with my current resources even though my net worth is just slightly lower than $24.7 billion because the average person today lives a far more luxurious life than the richest person in the world did a century ago. We have:
Indoor plumbing
Air conditioning for our homes and vehicles
Penicillin to literally save our lives
Fast reliable planes that transport us around the world
The Internet and WiFi
Computers that automate many tasks for us
Amazon delivers almost anything to our doorstep within 2 days
Miniature supercomputers in our pockets that have Apps to do almost anything
I bring this up to remind us to remain grateful/humble for the things we do have instead of being jealous or resentful of the things we do not have. Some people get scared of new technology instead of embracing how it can improve our lives.
Artificial Intelligence
One upcoming technology is Artificial Intelligence (AI). Just as I am not a billionaire, I am also not a computer programmer, so I don’t know how the technology works but find it interesting that AI is now able to write articles/blog posts. It will be interesting to see what the pros and cons of AI will be as technology advances. Below are two responses the AI wrote when I prompted, “Write a blog post on how to be a successful investor.” Let me know what you think about the AI’s advice! (I used the website https://openai.com/)
AI’s First Response
Investing can be a great way to grow your wealth over time. It can also be intimidating for many people, especially those who are new to it. Whether you are just getting started or you’ve been investing for years, there are some key steps you can take to be a successful investor.
1. Develop an Investment Plan. Before you begin investing, it’s important to create an investment plan. This plan should include your goals, what types of investments you’d like to make, how much you are willing to invest, and your timeline for achieving your goals. This plan should be regularly updated as your goals and circumstances change.
2. Diversify Your Portfolio. Diversification is an important part of any successful investment strategy. Investing in different types of assets, such as stocks, bonds, mutual funds, and real estate, can help you reduce your risk and increase your potential returns.
3. Research Your Investments. It’s important to do your homework before investing. Research the companies or funds you’re considering investing in, and make sure you understand the risks and potential rewards.
4. Monitor Your Investments.
AI’s Second Response
Are you looking to become a successful investor? Investing can be a great way to make money, but it can also be a huge risk. To be a successful investor, you need to have a clear investment strategy and understand the risks associated with investing. Here are some tips to help you become a successful investor.
1. Educate Yourself: Before you start investing, you need to take the time to educate yourself. Do your research and learn about different types of investments and the associated risks. You should also learn the basics of financial markets, such as how stocks and bonds are traded.
2. Set Goals: Before you start investing, you need to set some goals. What are your long-term and short-term goals? Are you looking to make regular income or grow your wealth over the long-term? Knowing your goals will help you decide which investments are best suited to your needs.
3. Create a Plan: Once you’ve set your goals, you should create a plan to reach them. This plan should include a timeline of when you should invest, how much money you should invest, and what types of investments you should consider.
4. Diversify: To reduce the risk of losses, it's important to diversify your investments. Don't put all your eggs in one basket - diversify across different asset classes, such as stocks, bonds, and cash.
“The future is already here. It’s just not evenly distributed yet.”
Fiduciary Financial Advisors, LLC is a registered investment adviser and does not give legal or tax advice. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities. The information contained herein has been obtained from a third party source which is believed to be reliable but is subject to correction for error. Investments involve risk and are not guaranteed. Past performance is not a guarantee or representation of future results.