Graduated Learning: Life after College

I got my degree, I got a job…now what?

Where should you open your IRA account? April 9, 2014

Filed under: Uncategorized — Stephanie @ 9:47 pm
Tags: , , ,

This blog post is more of a survey for my readers and a reminder (to open/fund their IRA) than advice.  But I hope everyone who comments has some great insight!

Here’s the deal.  I’ve been obsessed with personal finance since I graduated college in 2006.  I opened a Roth IRA in 2007 and have fully funded it every year.  My fiance and I have also been together since 2007, and he’s read all of my posts about IRAs (Opening an IRA:  No excuses, Should Everyone Contribute to a Roth IRA? and even How often should I contribute to my Roth IRA?).  But he never opened one.  And until we were engaged, I thought “well, that’s none of my concern” and barely nagged him about it.  But now that we’re in this for the long haul, I realized I need to amp up my nagging and get him to open and fund an IRA before the April 15th deadline for 2013 (yes, that’s right, you can fund last year’s IRA up until this year’s Tax Day).  As a note, for 2013 and 2014, the contribution limits for IRAs is $5,500 (or $6,500 if you’re 50 or older).

I thought he had all the information he needed.  But he came back with one more question:

Where should I open my IRA?

It’s a valid question.  There are lots of companies out there.  Most banks, credit unions, and discount brokerages offer an IRA.  But they all have different fee structures and funding options.  Some will waive fees if you set up automatic contributions.

Unfortunately, I don’t actually have the answer for what company to go with.  I opened my IRA at Fidelity mostly because it was a company I had seen my parents using in the past, and it was a well-recognized name.  It later worked out that my new (current) job runs their 401(k) through Fidelity, which proved to be convenient for a number of reasons:  only one login to remember, and I could analyze my entire portfolio in one place.

I put out a quick tweet to seek advice for where to open an IRA.  From DQYDJ, I heard Fidelity, Scottrade, T. Rowe Price, and Tradeking.  Jeff Rose seconded the advice for Scottrade. (Then Scottrade chimed in with a link to an incentive to open an IRA with them).  My (real life!) friend Brian says he has his IRA with USAA, holding Vanguard funds (I agree with the Vanguard funds, I’ve heard really good things about their low-cost index funds).  Then the Debt Free Guys said they like their Schwab account.

So, I don’t know if that helps at all.  Unfortunately, my best advice is to shop around at different companies and see what sort of fees they have, what kind of funds they offer and what (if any) minimum investment requirements there are!  Some funds have very high minimum requirements, though the minimums may be waived if you sign up to auto-contribute to your account.

Lastly, check out the comments as they (hopefully) come in.  I’m always looking to friends for advice, and this is no exception!  Tell me what companies you like (and don’t like) for retirement accounts!  And share your insight for what else to look for in a company!

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Reading Books: Pound Foolish August 4, 2013

I think I first heard about Helaine Olen and her book, Pound Foolish:  Exposing the Dark Side of the Personal Finance Industry, from Marketplace (or maybe Marketplace Money).  I’m always listening to those shows, either on the radio or through their podcasts.  I also caught her interview (pt 1, 2, and 3) on The Daily Show, where she went into quite a bit of detail about the topics in her book.

The idea of taking on the personal finance industry and exposing the not-so-pretty realities definitely appealed to me.  I get sick of all the sneaky fees and “sponsored” financial products.  So I was interested to hear what she had to say about the personal finance movement.

The author takes on quite a few topics, from personal finance “personalities” to the “flip this house” mentality.  A common theme throughout the book is that the industry is just that, an industry, and so the focus of many advisers, authors, and companies is, in reality, to make money for themselves.  While they may also be helping us save money, they’re not ready to do it for free, out of the kindness  of their hearts.

The start of the book reviews the beginning of the personal finance movement.  Olen talks about the sometimes wrong/changing talking points that come from personalities like Suze Orman and David Bach.  She also emphasizes the point that all the frugality in the world can’t make up for stagnating wages and increasing medical costs and housing prices.

She goes into great detail about how screwy the whole retirement plan is now with 401(k)s, 403(b)s, etc.  A move from pensions to individual retirement accounts mostly means a much more uncertain future.  So much money can end up going to fees for managed funds and portfolios.  Fees cut into EVERYTHING.  Individual investors are left to fend for themselves, and they end up falling for expensive funds or buying investment products they don’t need.  Yes, sometimes we can find no load, low fee funds for our retirement accounts.  But it’s not always the case.   This chapter led me to want to learn more about Teresa Ghilarducci, one of the main opponents to the current 401k system.  She believes that leaving all the retirement planning to the individual was flawed and leaves most people woefully unprepared for retirement. (see one of her recent articles).  I also learned about a Brightscope, a website that helps you see how your employer’s retirement plan stacks up.

Olen discusses many more topics in her book, including the focus on stock picking (and CNBC stock market obsession, Jim Cramer, etc.).  She also talks about the recent push to specifically help women control their finances, noting that while there are plenty of women who are lost when it comes to managing their money, there are just as many men in the same boat.  But that women are at a disadvantage mainly because “[w]omen have less money than men for most of their lives for a basic reason:  they earn less and live longer.”  There are other reasons, of course, and Olen goes into much more detail on the many misconceptions about Women and Money.  And while she is fine with young people learning the basics of personal finance, she is not so comfortable with the way that kids learn about it:  through branded experiences and sponsored programs by the big banks, all trying to get in on their lives early.

There’s plenty more to read, and Olen has pages upon pages of references and notes to back up her information.

Reading this book was a bit depressing, because it reminded me of quite a few of the harsh realities of personal finance.  She doesn’t quite present any “answers” to all these problems, though she does list a few suggestions on her website as to what should be done.

I did still enjoy reading  her book, since I did find myself agreeing with most of her points.  It’s a lot easier to read a book that you agree with!  It’s a serious read, but got me thinking a bit more about what I’m doing with my money and to be a little more skeptical of all the big money personalities and financial companies.  And to watch out for fees!

Have you read Pound Foolish?  What did you think of it?  Did you agree or disagree with certain points?  And aren’t you glad that I give away my advice completely for free? 😀

 

A Graduate’s Guide to Being a Grownup: Retirement Plans June 30, 2013

This is the first in my “Graduate’s Guide to Being a Grownup” series.  I’m hoping to give some introductions as well as in-depth information to help newly minted graduates (and really, anyone who has questions) .

As a reminder/disclosure, I am NOT a financial advisor.  Nor am I an investing expert.  I’m just someone who has been there, done that, and (thinks I) know what I’m doing.

Retirement Plans.  They’re a big topic.  A confusing, frustrating, and sometimes depressing topic.

The basic idea is this:  You work for a while.  Then eventually you retire.  You want enough money to keep you going until you, erm, don’t need money anymore.  So you need to put money away now for WAY in the future, but you don’t really know how much, since expenses and prices will be different when you’re older, and you don’t know how long you’ll need money for.

See, I told you it’s a tough topic.

But here’s what you need to know about retirement plans.

Most of the ones that you get on your own or through work are ways to put away money now so that you’ll have money later.  The main benefit of most of these accounts (over a basic savings or investment account) relates to taxes.  Either you contribute money to your accounts with dollars that haven’t been taxed yet (like Traditional IRAs and 401(k)s) and then get taxed on the money you take out later, or you contribute money that has already been taxed (like Roth IRAs and Roth 401(k)s) and then get to take your money out tax-free when you retire.  For both of these, that means that you’re not paying taxes on the gains in your account EVERY YEAR at tax time.

Some additional benefits can include contributions to your account from your employer (often correlated to how much you contribute).

There are usually quite a few options for what to put into these accounts.  They might be mutual funds, individual stocks, bonds, or even just cash savings.  Basically, you’re saving and investing within an account, just as you would with regular saving and investing accounts.

There is a limit to how much you can contribute per year to different kinds of accounts.  There are income-related limits for some of the IRAs.  And there are maximums allowed for many accounts, though there are catch-up amounts allowed if you’re closer to retirement age (over 50 years old).

Most of these accounts will not let you take out the money until you’ve hit retirement age.  If you do, you may be required to pay penalties or additional taxes.  It’s NOT recommended in most cases to take the money out, though there are some exceptions (depending on account, the reason you are withdrawing)

I’ll go into more detail about the different retirement plans available (in the U.S.) in future posts.  This is just to get you started thinking about saving for your retirement.

For now, you can check out my past posts on IRAs and 401(k)s.  Once I finish the next posts, I’ll link to them below.

Short version:

Retirement plans are accounts you save and invest money in.

A main benefit over regular savings accounts or investment accounts is that you can save on taxes either when you contribute or when you withdraw your money (after you retire).

There are some limits to how much you can contribute each year.  There are maximum contribution limits as well as (in some cases) income limits.

The earlier you start saving, the (likely) better off you’ll be, thanks to compounding interest, or gains on top of reinvested gains.

Your balance can go up or down.  If you’re invested in pretty much any stock, bond, or other tradeable asset, there is risk involved.

This money is meant for your retirement, so there are penalties associated with early withdrawal.

Okay, how’s this so far?  What questions do you have (about retirement or any other post-graduate topics)?  Did I cover everything?  Miss something?  Let me know what you’d like to see in the next Graduate’s Guide to Being a Grownup!

 

Would you pay for someone to manage your portfolio? November 24, 2011

Filed under: Personal Finance — Stephanie @ 11:00 pm
Tags: , , , , ,

The other day I got an envelope in the mail.  It was an offer (through my 401(k)) to sign up with a retirement advice company.  My employer signed up through them to offer a retirement portfolio management service.

My first response was:  No Way.  I’m not paying some people to do something I could do for free!

But then I read the paperwork they sent me.  Apparently I have two options available to me.  I can use their site for free to continue to manage my 401(k) on my own.  Or I can pay a fee to have them plan out, monitor, and rebalance my portfolio. Of course, the paperwork tries to point out how much better things would be if I did pay them for help.  They included stats/graphs showing that if you get their help, you’re likely to improve your return over the long run.

So, will I sign up?  Turns out they’re offering a few free months to hook you onto the “paid” plan.  The fees actually aren’t horrible, and it’ll be nice to actually talk to someone about my fund selection.  Plus, I can import my other retirement accounts (like my Roth IRA and rollover IRA).  I’ve tried out their free program, and it has some decent advice (like how to reallocate my funds to have a slightly more aggressive portfolio) and what other funds I could invest in within my IRAs.  It also told me to increase my contributions from 5% to 7%.  So, I actually already changed the contribution amount.  It was an easy change that made sense.

As for the fund recommendations, they aren’t quite right.  For example, one of the funds they suggested I invest my Roth IRA in has a $1million minimum investment.  Um, no.  But it’s putting me on the right track, I guess.  I could look for similar funds that don’t have outrageous minimums or high fees.

I think I’ll try out the paid program, get my portfolio in order, then switch to the free advice system.  It sounds like Krystal is also thinking about briefly trying a financial advisor, then continuing to manage her portfolio herself.

So, like Krystal asked, would you pay for someone to manage your portfolio?  Would you pay for just advice?  I’ll admit, while I think I’ve got personal finance stuff covered, I’m not very confident about my investing skills.  So, trying this out to start, but then trying to learn more along the way (and shifting back to the free plan after the trial period is over) is the best way for me to approach this.

 

Should everyone contribute to a Roth IRA? November 10, 2011

Filed under: Personal Finance — Stephanie @ 5:26 pm
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The short answer?  No.  It’s not perfect for everyone.  And actually, not everyone is eligible for it.

Roth IRAs are the Big Thing these days for younger people looking to save for retirement.   We’re all encouraged to open one, and contribute to it.  Seems like it doesn’t matter what fund you buy.  Your mission (from the personal finance gurus) is to put money in there.  Put all $5k in there if you can.  If you’re doing that and contributing to a 401(k) up to at least any employer match, you are on the right track (according to gurus, and to be honest, according to me, too!)

My younger sister is currently in grad school.  She sent me a message the other day, with the basic question:  Should I open a Roth IRA?  What are your thoughts on this?

My response?  A combination of advice and general information.  Read on:

They’re a good idea.  It’s good to start saving for your retirement now.  Plus with the stock market down, you buy funds “on sale” 😛

I maybe sound like a salesperson.  Ooops.

You can contribute up to $5000, or your income (what shows up on your W-2s), whichever is lower.  But I’m assuming your stipend is more than $5000!

Also, not sure what your stipend is, but if you make less than $27,750, you can get up to $1000 tax credit if you contribute to a retirement fund

The benefit of contributing to a Roth IRA right now is, of course, “The Power of Compounding”.  There’s a common example that if you contribute now and for only a few years, you’ll have more money than if you start later and contribute longer.  Magic.  Assuming the markets go up!

With a Roth IRA, you’re paying in money that was already taxed (through your employer), so when you contribute to your Roth, it can now grow tax-free (and be withdrawn tax-free when you retire).  And since your income level isn’t super high right now, your tax rate is relatively low.  Presumably, in the future, your tax rate will be higher, so if you had used a traditional IRA, while you don’t pay tax now (or you get a tax refund now, depending on how you do the IRA), you’d have to pay taxes on the money you take out of the account (when you retire).  So taxes might be higher then.  It’s a bit of a hedge, because it’s hard to know for certain what rates will be.

Lastly, if you’re mildly freaked out by the idea of putting a lot of money into an account, don’t worry.  Two parts make it less scary:  1.  You are able to withdraw your CONTRIBUTIONS at any time without penalty.  So, you can take out that money.  2.  You don’t have to put the whole $5000 (or however much you decide to contribute) all at once.  I contribute 1/12th of the total amount every month, and buy into a fund every month.  The idea of “dollar cost averaging” will work in your favor, here.  The basic idea is that you buy some of the fund every month, and you buy more when it’s “cheaper” (when the stock price is down), and less when it’s more expensive.  That way you don’t have to worry so much about putting all your eggs in one basket and trying to time the market perfectly.  Because that’s basically impossible.

As for what fund to invest in, most companies offer a fund geared at your particular retirement year.  So you can just contribute to the 2055 fund or something like that, and it’ll start out being more aggressive, then transition to being more conservative as you get older.  Another good option (often with much lower fees) is an index fund.  You’ll want to put your money in a fund with a low expense ratio (read:  cost) so that more of your investment goes to you and less to fees.  Usually it’s hard to buy certain other funds or individual stocks/bonds when you’re just starting out, because you need to have a pretty large minimum amount.  So you can build up your retirement fund until you have enough money to diversify, or you can just keep it in the lifecycle fund that fits your age or an index fund.

So.  If you want to start saving for your retirement (and you should!) I think Roth IRAs are a really good way to start, and it’s good to start now when you make less money (you can’t contribute if your AGI is over $107k…you know, SOMEDAY you might make that much!) and while you’re in a relatively low tax bracket.  It’s hard to know where the markets or tax rates will go, but I’ve found my Roth IRA to be a great balance to my employer’s 401k plan.

(Reminder, I’m not a financial advisor…I’m just a girl who likes talking about money!  But if you have any questions, I’ll answer them!)

Do you have a Roth IRA?  Traditional IRA?  Do you max out your contributions every year?

 

Reading Books: Get a Financial Life June 19, 2011

Filed under: Books,Personal Finance — Stephanie @ 3:53 pm
Tags: , , , ,

No matter how much I think I know about personal finance, I’m always willing to learn more.  So when I heard about Beth Kobliner‘s updated edition of Get A Financial Life:  Personal finance in your twenties and thirties, I knew I had a book to add to my reading list.

My overall impression of this book:  READ THIS BOOK!  I think it’s a great book, both for the recent grads as well as people still trying to take control of their finances.  Plus, the updated version reflects the current economic situation as well as newer tax codes, so you won’t hear the old general advice that has since been debunked.  The book is divided into sections that guide you how to get your financial life in order by examining your budgetmanaging/paying off your debt, finding the right banks for your checking AND saving needs, and other steps and decisions like investing, setting up and contributing to retirement funds, buying vs. renting, selecting insurance (health, disability, life, car, homeowners/renters, etc.), and filing your taxes.

The thing I really liked about these different sections was that they had actual information and resources included.  It wasn’t merely things like “make a budget”, “open a 401(k)”, and “check out mutual funds”.  There were actual explanations about the benefits and drawbacks of a lot of financial choices, as well as in-depth information and examples of the consequences if these decisions.  I definitely learned some things I didn’t know before!  I learned a lot about the different income limits for different retirement funds, and the amount of coverage I should be buying for my car insurance.  I got a better idea about all the different investment options, and the difference between mutual funds, bond funds, and the tax implications of investing in these different funds.  She includes lots of information that, had it been my personal copy (and not a library copy) I would have gotten out highlighters and post-its to remind myself of the important information.  Throughout, she provides links to websites and calculators (which would be even more handy in an ebook format where you could click-through to the sites), as well as recommended books for further reading on each subject.

So, I’ll reiterate:  Read this book.  I took a lot of notes for myself while reading this book.  It got me thinking about my current financial setup and how I can improve it.  And maybe I might even buy myself a copy so I can highlight the important points that I will want to come back to (there was a lot of useful information for homebuyers that I don’t need right now, but will need in the future). Plus there’s a great list of resources at the end of the book (more books, magazines, blogs, websites, etc.) that will help me add to my to-read list.

Have you read the book?  What do you think?  I’d recommend it to pretty much anyone!  Buy it for recent grads!  They’ll grumble at being told what to do, but they’ll appreciate it 🙂

 

Paying attention to my retirement accounts May 4, 2010

Filed under: Personal Finance — Stephanie @ 8:23 pm
Tags: , , , , , ,

In the past few days, I’ve paid attention to my retirement accounts.  Not sure what came over me, but I’d been debating making some changes, weighing short-term financial plans vs. retirement plans.  So what have I done these past few days?

I examined (and modified) the asset allocation mix of my retirement portfolio.  I have my rollover IRA, Roth IRA, and 401(k) all at Fidelity; with all my accounts with one firm, they could easily show me a nice pie chart of my asset mix.  And it was definitely not what my goal mix was supposed to be!  I am far enough away from retirement that I should have a pretty aggressive portfolio.

When I rolled over my old 401(k) to a rollover IRA, I didn’t really do much with the money.  I invested some of the money in a target fund, and left the rest in “cash”, i.e. a really low returns money market account.  It wasn’t until the other day, when I looked online and realized that my entire portfolio was way too heavy in short-term (i.e. cash) that I knew I had to do something to rebalance my portfolio.  So I used some of the money in “cash” to buy more of the target fund.  I’ll probably buy more of that later.  I figure I can use a little dollar cost averaging to my favor! 😛

I also decided that I might as well contribute more to my 401(k).  I had said that I was going to hold off increasing my contribution amount until I reached a goal amount in my savings accounts.  But then I realized that was kind of a silly plan.  I have enough extra cash in my checking account that I’ll still be able to continue my automatic savings plan even with a reduced net income.  I also realized raising my contribution by just one percent doesn’t really impact my cashflow, and I know that the more I contribute now, the better!  So, as of now, I’m contributing 5%, and getting matched on 4%.  I might be increasing the amount even more in the near future, once I finish doing a few more calculations.

Have you checked on your retirement accounts recently?