Category Archives: Investing

Are 401k Accounts a Scam?

I’m no financial expert, but I try to follow the basic principles of investing and retirement savings in order to hopefully not be dirt poor in old age. One of these principles has been to consistently max out my 401(k) each year, which I’ve done faithfully now for many years, ever since I finally had access to a retirement account at work. As soon as as started making too much money for a Roth IRA, I socked away $18k a year in my 401k… and now, between all my pre- and post-tax retirement accounts, I have about $235k locked away, compounding over time.

However, after reading more propaganda on 401k investing, I started to suspect something fishy is up. Most of the anti 401k content focuses on issues with high fees — which, indeed, are a big problem with 401ks. But, really, the most suspicious piece of messaging out there on the benefits of the 401k is that you don’t have to pay taxes now so you get the “benefit” of paying them later. Continue reading

crowdfunding

How to Become an Accredited Investor

There are many benefits to being an “accredited investor,” primarily centered around being able to invest in securities not registered with financial authorities. In other words, the government blocks non-wealthy folks from making “high risk / high reward” investments. Is this fair? Shouldn’t I be allowed to invest my money in any investment if I earned that money?

While investments open only to accredited investors are high risk, there are many other investment types open to any income level which are extremely high risk. Even investing in one individual public stock – which anyone can do – is nearly the equivalent of putting all of one’s money on red in Vegas. Continue reading

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Current Investment Portfolio ($323k)

Some of you have emailed asking, so here is an overview of my current portfolio:

STOCKS – now @ $144,385 (2016 goal = $200k … which may be a stretch!)

  • $18402 – AAPL
  • $8665 – AMZN
  • $1891 – DIS
  • $1130 – FTR
  • $2783 – GE
  • $649 – GOOG
  • $20408 – IHI
  • $7315 – JNJ
  • $7862 – MCD
  • $6951 – SBUX
  • $2935 – VOO
  • $8178 – VZ
  • $33392 – VGHCX
  • $13690 – VMGMX
  • $5634 – Loyal3 Account (multi-stock)
  • $4500 – Robinhood Account (multi-stock)

RETIREMENT (mostly pre-tax) – now @ ~ $154,824 (2016 goal = $190k)

  • $9172 – DVY
  • $1487 – GLD
  • $2898 – XRT
  • $3088 – AMZN
  • $2199 – GOOGL
  • $2299 – NFLX
  • $347 – TEL
  • $2106 – VTI
  • $4658 – VFWIX
  • $12867 – VEMAX
  • $21943 – VIGAX
  • $16169 – VTIAX
  • $31170 – VTSAX
  • $12612 – VDADX
  • $5078 – VDIGX
  • $10928 – VSGAX
  • $15803 – 401k to rollover

OTHER ($24,164)

  • $6464 – 529 plan
  • $873 – Prosper
  • $427 – Lending Club
  • $16.4k – stock options that will likely be worth $0 in 2016

How I Increased My Networth 13% in 2015

Last year I increased by net worth from $309,894 in January of 2015 to $352,066 in January of 2016 (increase of $42,112 or 13% YoY increase.) This is not accounting for the last week of declines, which may or may not hinder 2016 growth. With a total net worth of $352k to start this year, I’m focused on my goal of hitting $400k by the end of 2016. Although this isn’t my original goal of $500k by the end of 2016, I think $400k is still a very aggressive and challenging goal for this year.

Screen Shot 2016-01-11 at 9.28.52 PM

In 2015, my stock portfolio increased from $144k to $171k. My retirement portfolio increased from $152k to $171k. Thus, the year concluded with approximately $342k in active investments (mostly stocks.) This is why when the market dips my portfolio significantly decreases. Since I have a substantial amount of funds in the stock market I tend to wait now a bit before putting large sums into play beyond what is already invested.

Goals for 2016:

Stocks: $200k, including $15k additional in Vanguard admiral healthcare fund, which has a $50k minimum. This would = $29k in net new investment, or ~$2.5k per month. If the market drops lower than monthly investments will have to increase to make up the difference.

  • $1250 / month — Vanguard Healthcare Fund (to get to $50k admiral minimum)
  • $400 / month — loyal3 fee-free partial stock investing
  • $850 / month — Vanguard fund TBD to get to $10k admiral (might reinvest in the dividend growth fund I sold for losses after a month or so. We’ll see.)

Retirement: $190k (max out 401k and IRA for 2016 — $23.5k additional investment, or $2k per month)

  • $18k = 401k max
  • $5.5k = vanguard IRA (post tax)

Cash: $10k – I’d like to close out the year with a $10k emergency fund.

This = a total monthly investment of approximately $4.5k per month, up to $6.5k if the market drops further. $6.5k is fairly impossible w/ my general monthly expenses plus the wedding, so I think the $4.5k goal (esp with some of it in pre-tax dollars) is a reasonable objective. If the market sucks this year then I probably won’t get to $400k, but I’ll still be buying discount stocks which will hopefully go up at some point in the next 10 years to make up for any losses.

If I can do this then and maintain my job I should be able to close the year out with $400k net worth. This would be a very exciting achievement for this year, as I’d still be on target to hit $500k prior to 35 (2018.)

Fun with Tax Loss Harvesting When the Stock Market Goes South

What’s a girl to do when her short term and long term “gains” are actually bright red losses?

Sell! Sell! Sell!

Now, before you berate me for selling when the market is down, let me explain, I am not selling to get out of the market.

My Vanguard shares were down significantly enough that I wanted to take action. Investing in index funds, I don’t have a strong opinion on one or the other. I had a dividend appreciation fund and a small-cap fund that today were mutually down about $500. That’s a $500 loss I can take against any gains made this year. I could wait for it to go down even more (it probably will) or, I could just pull out the money now and plop it straight into another “different” investment to reap the potential gains (or further losses) of being in the stock market this year.

I pulled out a good $23k from these two investments, and moved them into my Vanguard Healthcare fund which I’m slowly but surely plugging away at the $50k minimum for the Admiral version (I love me a good low-fee admiral fund.) So now my healthcare fund is at about $34k and I’ll have $500 in losses to write off come tax time next year. Not so shabby.

Note I’m not a tax professional and I don’t actually know what I’m doing, so get some real advice before you take any of mine. 🙂

Hello 2016! A Toast to an Amazing, Productive, Healthy, and Sane Year

I’ll admit it, 2015 was rough. With my long commute to and from work, my sanity and health sank to perhaps an all-time low. Although I achieved networth growth over the year, it wasn’t nearly as much as I had targeted. In fact, in the year when I made significantly more than I had ever made before, I ended up saving less than I had in the past (including interest.) I closed out the year with $344k in total assets with the exception of my car (I don’t count that in my networth calculations, though, I guess I suppose I should.) I wanted to be at $400k in networth, but between some bad investments, general stock market blahs, and being unemployed for a brief while, I just didn’t get anywhere near that.

What I try to remind myself is that $344k at 32 is not too shabby. If I don’t touch that, don’t add anything else, and it manages to grow at 5% YoY that’s $1.3M by the time I’m 60. Ok, so I want to get to $4M by 60 (which requires about a 10% YoY annual return with my current principal and no annual additions), but even if I get to $1.3M by 60 I think I could remain working and manage to grow that another 5  years, which gets me to $1.7M and that isn’t counting any savings from future Mr. HECC.

The plan was to hit $500k net worth, have a kid and save for a house while living in an apartment with young kid, and then over the next five years save enough for a 20% downpayment ($300k) on top of the $500k plus annual interest that I wouldn’t touch. That goal is looking rather unlikely right now, and I’m actually ok with that. I’ve gotten to this point where I’ve accepted that the life I am going to lead as an adult is going to be at a lower class level than the one I was used to as a child. While I grew up in an upper-middle class household, my family will be squarely in the middle class (for my region of the country), and we’ll be fine. We’ll still be doing much better than the majority of households in the country, even if we can’t afford a house for a long time, if ever.

Right now, my focus must be 100% on excelling in my job. With my current salary and responsibilities, I have the opportunity to set myself up for a very successful next 20 years of my career. I also am very seriously confronting the reality that if this doesn’t work out for any reason, if this is a failure, then it means a significant shift my career trajectory and networth projections. I very well might return to school – which I’ve been talking bout for a while but haven’t seriously pursued – to study to become a psychologist or design researcher with a psychological focus. But I don’t want to think about that right now, I’m heads down, fully in the game, trying to relax and thrive despite the many challenges at hand. In other words, I refuse to mess this up.

Beyond work, this year is just a huge year of major life changes. I get married in a few months (tax bill goes up next year, woohoo), and I also likely start trying to have kids, confronting the soon-to-be-proven fact that conceiving doesn’t come so naturally to me (thanks PCOS.) I’m hyper-focused on losing weight, eating healthy and exercise right now. My weight fluctuates significantly — in 2012 I was at 180lbs (my highest ever, which is very heavy for a woman who is 5’3), to 155lbs a year later, to 176lbs a year later than that, dropping and holding steady at 170 through 2014 and most of 2015, ending 2015 at 160lbs. I hired a personal trainer 3x a week ($50 a session which is a really good deal for this area) so we’re working on getting my weight down to about 130 in the next couple of months (5 pounds a month is my goal to lose, which is a good, achievable goal.) It’s mostly so I can feel happy with how I look in my wedding pictures, but it’s also just something I need to do in order to save myself from premature aging. Plus, I just feel mentally more clear and balanced when I’m eating healthy and exercising. It’s good to have such short-term goal so I am focused the entire way through, no matter how hard it gets.

This year, my goals are going to be a little less intense on the networth side. I’d like to get to $400k in networth, including $23.5k in new retirement savings (401k & IRA). That leaves $31.5k to make up for in interest and other savings, or about $2.6k per month. I’m planning to try to save an additional $2k per month on average, and hopefully the rest (~$7200) will come from interest on, say, $250k of invested, interest-earning assets, which is about a 3% gain on those investments. I’d prefer to go well over this, but trying to be realistic with the goals, especially with the wedding spending. I don’t think this is going to be a hugely profitable year but I could be wrong.

2016 Goal Summary

1) $400k networth – including $23.5k in retirement savings, $24k in taxable investments, and about $7k in interest.
2) Be 130lbs by summer
3) Thrive at my job (and be gainfully employed and loved by my colleagues when Jan 1, 2017 rolls around)
4) Get pregnant before I’m 33!?!

Well, here’s to kicking off what is sure to be a crazy year. Fingers crossed it’s a good one. I think it will be. I hope it will be. Oh god, it better be. 🙂

 

 

 

November Networth Check-In and Retirement Update

Now that I am “in between incomes,” so to speak, I am re-focusing my objectives for total assets this year, and beginning planning for 2016 based on my potential earnings at my new opportunities.

As a reminder, my goal was to close out 2015 with $400,000 in net worth. That figure was always a stretch, but it isn’t going to happen this year. My new goal is to wrap up the year with at least $350,000 in net worth, which is about a 15% increase in my nest egg – not bad but not great either. My goal is to give birth to my first child in the summer of 2017, when I’m about to turn 34 (yikes.) That means getting pregnant in the fall of 2016 or soon after would be ideal. That means that I still want to aim for $500k in net worth by the time I have my first kid (let’s call that July of 2017.) This is about 19 months to increase my net worth by $150k.

Let’s start with where I am today — according to www.networthIQ.com my current net worth is $380,783. I will subtract my car ($8000) and stock options that will soon be worth nothing from that ($16,000) to what is my “actual” net worth — so about $356k. I’m also losing money now since unemployment doesn’t cover my monthly expenditures, so assuming the stock market does decently this month and I land a new job for December start (which is looking quite likely) I should be able to close out the year about $350k. A reminder, in January of 2009 I had about $5k to my name (see graph below.)

november net worth

In order to hit my goal of saving $150k in 18 months (assuming ending 2015 with $350k), I need to “save” $8333 per month. How is THAT going to happen?

If I (knock on wood)  increase my income levels in my next job to $190k (which is super exciting and feels like too much yet if the market will pay that for my services, I’ll take it!), that is a take-home of about $9400 a month (which is a lot and really starts making this dream possible – this is where it gets exciting!) Even with my average spending of about $3500 a month,  I will have $5900 per month to put away. But this also, theoretically, is two years of 401k investment, which I can max out each year. So that’s $36,000 of the total $150k right there (assuming I can keep my job and do well at it!) Ok, so one opportunity has a 3% match of your salary on that, which is awesome (I’ve NEVER had a 401k match in my entire career!) That means each year I’d make an extra ~$5700 just for putting the money in my 401k (if I’m understanding the match thing correctly.) So that is $11,400 on top of the $36k. Ok, so that takes care of $47,400 of the $150,000, and leaves a slightly more realistic $102.6k left to save over 18 months, or, $5700 per month. Income is reduced a bit with the 401k investment, of course, by $18000 a year – but that’s all pre-tax. But with bonus, etc, it should balance out to still taking home somewhere around $9k a month, or maybe a little less. That’s still a lot for the short-term goal.

Now, let’s assume my stock portfolio / the market increases by an average of 5% each year. It could be less and it could be more, but let’s say 2% – 5%. That is somewhere between $7000 and $17500 for year one, and a max of $20.9k in year two (at 5%), minimum of $8368 (for the entire year, but I’ll count that in these numbers since even if I’m not working my portfolio will continue to gain interest.) Ok, so on the more conservative end with just a 2% year-over-year gain, I’ll have another $15,368 covered by investment interest…

$150,000 goal
$36,000 = 401k investment
$11,400 = 401k match @ 3% of income
$15,368 = portfolio interest at 2% YoY
———————————————
$87,232 to save in 18 months, or,
$4846 per month

This is very doable, as long as I select a job where I can stay a minimum of 18 months. One opportunity does not have 401k match, so I am leaning toward the one that does, since this clearly helps substantially in reaching my long-standing goal of $500k by childbirth.

Once I have kids, I am expecting to work part-time and see my annual savings levels decrease. Of course, I’ll have a husband who is also working, but he doesn’t earn as much as I do or invest his savings beyond a Roth IRA (which he’ll no longer be eligible for once we’re married – yeay marriage.) We’re not really combining incomes when we’re married – just continuing to split major household expenses. We’ll probably start to split a little more… right now we just split rent (I pay more since I make more) and food (we spend way too much on food for two people) — but in the future when we’re married I can see us splitting healthcare expenses, and maybe things like gas/transit. When we have a kid all those expenses will be split too. Luckily I have a penchant for household accounting. What a great hobby!

Seriously, though, if I can get to $500k before I have a kid, this frees me up so much from this looming fear of the future I have. It’s not exactly a nest egg that will make me rich, but it’s a very good start to be at $500k by 34. The goal was by 30 but so what… goals are meant to be hard to reach, but they keep you focused on getting to where you need to be.

With $500k, if I can manage to not touch that money until I’m 65, at an annual return of 5%, that gets me to about $2M in retirement (not counting any future earnings or my husband’s earnings/savings. At a 10% YoY return that’s about $8.7M in retirement. Heck, if that grows at 10% YoY in 20 years once hitting $500k, that will be worth $3.3M – not exactly placing me in the .01%, but certainly providing enough income for early retirement / starting my own business / doing what I want when I’m 55 years old. I know a lot of women in their early 50s and I can see this age being a good time to have that flexibility. You’re still healthy enough to trade and have fun, your kids are old enough to appreciate spending time with you (hopefully) and overall if you’ve been smart about saving over the years, you can take a moment to actually enjoy life.

So when people read this blog and comment about how this $500k goal is so silly, well, it really isn’t.

The MOST important thing right now for all of this is picking a job where I can stay stable at for the next 19 months, at a minimum. That’s a long time and I’m going to take it month by month and focus on being so productive my employer couldn’t even dream of replacing me. 18 months is just 6 quarters, and that will go fast, especially if I’m pregnant for half of them!

I really hope I can do it. I’ve come so far. This seems within reach. Having my first kid at 33/34 is not ideal, I’m going to have to have my second at 36 and if I want a third, well, that’s going to have to be pretty much right away after that. This leaves me little time to keep earning at the same rate, especially in my field, where having kids doesn’t seem to align with the amount of hours required to work. I have to make the money now, so I can leave the options open for the future.

 

 

 

 

 

 

 

 

One month left to recharacterize your IRA from Roth to Traditional or Vice Versa

On my to-do list for this month: recharacterize my IRA from a Roth to traditional IRA. Why? Roth IRAs have maximum income levels where you’re eligible for this type of investment – and it’s fairly impossible to know if you’ll hit these levels earlier in the year when you’re investing. Luckily, the government realizes you might not be trying to sneak your way into a Roth for the year, and gives you to Oct 15 to fix your classifications.

Fixing the classification isn’t as easy as filling out your simple taxes on TurboTax. It gets a bit complicated. This is why I’ve been putting it off… until now.

Not only do you have to follow the rules of the firm where you invested your money in the Roth IRA to recharacterize it, you also have to refile your tax return if you already submitted it earlier in the year (see IRA website).

If you have already filed your return, you can file an amended return and subtract the amount recharacterized from the taxable amount of the rollover or conversion reported on your original return. Form 1040XAmended U.S. Individual Income Tax Return (instructions), can be used to amend your return. Generally, for a credit or refund, you must file Form 1040X by the later of:

  • three years (including extensions) after the date you filed your original return, or
  • within two years after the date you paid the tax.

My Roth IRA is at Vanguard, so I will need to first go through their recharacterization process which I haven’t figured out yet. I am probably going to end up calling them to figure this out.

Have you recharacterized a Roth IRA before to a traditional IRA? Are there any gotchca’s I should be aware of?

Holy Hell the Stock Market is Down (Just Breathe)

I’m a bit obsessive about my networth. Ok, a lot obsessive. It’s this game I play which helps me weather the storm of the everyday ups and downs of life. I know you’re not supposed to monitor your stocks on a daily basis, but I do, because that’s what I do. It’s certainly thrilling when they go up. Not so much when they go… down… and down some more.

Today the stock market had its 9th biggest decline in history so – when I looked at my Mint account and my jaw dropped to the floor with little birdies flying around my head – well, that was not an overreaction. It’s pretty painful to see all this money you’ve been saving for the year just poof disappear, at least on digital paper. It could come back tomorrow, or more could disappear. Who knows. China is making everyone freak out. My Apple stock is tanking, but so is the rest of the market.

I am not going to sell. I am not going to sell. I am not going to sell.

My entry into the stock market was interestingly timed. I got in right before the great recession. I had enough money in to feel the pain of losing almost half of it, but I was making so little at the time that the amount I was able to invest wasn’t really significant enough to cause serious long-term damage. Then, as the market recovered, I obtained jobs where I made more money, and more money. And I didn’t really like to spend all that money at Sephora, so I invested it each month. As the stock market went up, so did my networth. It was incredible to be investing in the market at that time. It clearly wasn’t going to last forever…

Today the market is overvalued. It’s due for a few major corrections. The trick of corrections is to A) not sell and B) buy more each time your heart jumps to your throat when you check your life savings, but not too much more in case the market continues to drop, which it probably will do.

Think Long Term and Forget About the Short-Term Fluctuations

Today I bought $1000 worth of Vanguard funds and $500-ish of Tesla stock. I’m fighting my stock market fears by throwing money at it whenever it surprises me with a swift downturn. Hopefully that will pay off in the end. It’s not rocket science, but it seems to have worked thus far.

I’m holding my breath right now as I have a feeling 2015-2016 is going to be a majorly bumpy ride. Are you in buy mode right now? How much do you think the market will correct itself before it stabilizes? Do you have any favorite funds that perform well when China implodes on itself for its overvalued currency?

Oh, and forget about my $400k networth goal this year… now I think $350k networth is a much more reasonable goal to close out the year with. That’s still $50k more than I closed out last year, but given my salary increase I thought this year would be a lot stronger. The whole $500k before kids goal is seeming more and more unlikely — though if I can maintain my income level… my plan is to get pregnant in June/July 2016, and then have a kid in March/April 2017… that’s still about a year-and-a-half from now, so I could be somewhere in the $425k range at that point, which isn’t HORRIBLE. $425k growing at an average of 5% per year after 30 years, if I don’t touch it, will =$1.8M, just shy of my $2M retirement goal.  But if it grows at 10% over 30 years then that’s $7.4M. So all I need to do is not touch that future basis and hope that the economy doesn’t entirely crash for a long term depression. $400k-$500k before I have a kid is the NEW goal.

 

 

Question for my Readers: Should I do a Roth IRA conversion?

One of my biggest financial mistakes to date was rolling over my 401k – or at least, I think it was. By rolling over my 401k accounts I made a Roth IRA conversion of my post-tax “traditional IRAs” unwise. There is, however, a way go around my mistake in order to convert my post tax IRA accounts to a Roth. I’m just not sure if it makes sense to do this. In lieu of hiring a CFA, I pose this question to my readers: should I convert (by doing the following) or not?

The Data

I currently have $14,803 in a post-tax IRA (i.e., I thought I was ineligible for a Roth for two years, at which time I funded a post-tax IRA. This was probably a mistake to begin with, but nonetheless, I have $14,803 in the post-tax IRA. I’d like to convert it to a Roth.)

Where did this money come from?

2010 – $5000 contribution
2011 – $5000 contribution

Thus, I currently have $4,803 in unrealized gains in this account.

If I were to convert to a Roth I would have to pay taxes on this… which maybe not worth it to begin with. However, even if that would be worth it, I have another IRA account from my Rollover 401k. If I were to convert to a Roth I would not only have to pay tax on the $4803, but I’d also have to pay income taxes on the entirety of my 401k account (or a percentage of it, depending on the total conversion.)

The catch is — it is possible to rollover my prior 401k and current IRA account into my new work 401k. At least it looks like it’s possible to do this. By doing this I would no longer have an additional IRA so I’d be able to rollover my post-tax IRA into a Roth IRA and pay tax on “just” the $4803 in gains (or whatever it is at the time I do the conversion.)

However… the funds I have access to in my work 401k are not nearly as compelling as those I have access to in my Vanguard IRA. At the moment, most of my investments in this IRA have a .10 expense ratio. My employer 401k options seem to be mostly in the 1.10 expense ratio, with one S&P fund at .54 or something like that. So, ultimately, I would need to do the math to figure out if it would make any sense to bother with all this hassle to convert my two years of traditional IRA investing to a Roth. I’m really not even sure if I wasn’t eligible for a Roth at the time, but I’m pretty sure it’s too late to fix this error if it was an error. Hmm.

My thoughts are as follows:

1) Wait until the last minute to rollover my current IRA into my work 401k. The last minute mean whenever in the future I am about to leave my company, or, in the case of being laid off, filing the paperwork on the day I’m laid off.

2) If that works, I’d wait until the rollover cleared, and I no longer had an existing IRA beyond the Sharebuilder 2010/2011 contributed-to account.

3) Then I wait… until a year when my income is low (probably when I have my first child or when/if I go to grad school, though this is all a hypothetical time/year to begin with – and needs to happen before I get married!)… and convert the existing post-tax funds to a Roth, so my tax rate is low.

4) That said, does it really matter? In 35 years the account will be worth $415,916 if it makes 10% in interest per year. So I’d have to pay tax in retirement on $405,916. Or, I figure out how to do the conversion in the near future and pay tax now on $5000, give or take. I’m not sure if the tax comes out of the account or you can pay that separately, assuming you can pay it separately then I’d still have $15k or so to compound over the years for retirement, and just pay $2500 or whatever it is right now in taxes on the conversion – if I can actually rollover my old 401k IRA into my new 401k.

But… then I need to look at how much is lost due to the higher expense ratios in the 401k account on the $91k-ish that is in my current IRA. If I have to pay 1% more per year in expenses then…

According to this calculator, if I left my $91k in the new 401k for 5 years, paying an additional 1.00% in expenses each year, with a 10% YoY rate of return, the total fees would be $7885.21, including operating fees and opportunity costs, versus $731.32 if I left it alone in my Vanguard account w/ the .10% expense ratio. So, basically, for the five years waiting for a year when I don’t make that much money (assuming I don’t actually get married) then I’d lose $7500 or so waiting to convert the existing post-tax IRA to a Roth, plus I’d lose whatever tax I’d pay on the gains on the interest gained in the post-tax account. So I’d end up probably paying $10k now in order to avoid paying tax on my hypothetical $405k in retirement.

That seems like a fair trade, if it actually worked out. I’m sure there’s a catch somewhere, I just don’t know enough about finances to see it. That’s why I’m asking my readers…  should I rollover my $91k IRA to my 401k in order to convert my $15k post-tax IRA to a Roth?