Author Topic: HELP! I'm sold on FI, I'm disciplined, but I don't understand financial lingo  (Read 1601 times)

FIallday

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Hi all,

Without writing a novel about my backstory, I came from humbled beginnings that succumbed to lifestyle inflation the 1st year I started working out of college. When you've been poor all your life and then start earning something more than minimum wage, it feels like you've hit the lottery? After the 1st year of working, I had little to show for it, aside from a bigger waistline. Reflecting, I was like I am TRULY happier? I was disappointed in myself because I spent little money growing up :(

First book I read was Millionaire Teacher (I'm a teacher) then I stumbled upon MMM, JLCollins blog/podcast, Paula podcast, rest is history.

Here is my issue...

In short, I'm financially illiterate and don't know the "step-by-step." The book/blogs say get vanguard index funds, I call up my school district and the lady is even more clueless than me? So now we have two clueless individuals talking to each other, I want to get Vanguard but she says it's not on the list of "vendors/suppliers" and the "popular" most used by teachers in our district is a company called American Fidelity (they have a contract with the district so automatically, I'm weary of that). Anyway, I scroll through their vendor list and the only one I think I've seen before is Fidelity (no Vanguard).

Any idea where to start to make sense of all this? I'm ready to execute the plan except I feel like I've been given a broad plan with no specifics. Been listening to podcasts and reading blogs but its like tidbits here and there so I never get the full picture. I like detailed explanations and understanding the why, anyone able to help me out or point me in a good direction? I love reading/learning so where exactly can I go for Step 1 if that makes sense.

  I'm ~40-50% savings rate but that money just sitting in a bank is probably getting eaten up by inflation. I don't even have a credit card to my name as I was taught "if you can't pay it in cash you can't afford it" growing up. My only debt is a ~$18,000 student loan @ 5.85% interest, I pay the minimum on since that will be forgiven after teaching 5 years since I teach in a STEM field (so no rush to pay that off quickly right?)

Apologies it turned into a novel, but would some more stats help?

marty998

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Do you get a choice where your retirement contributions are invested? If so can you post up the list of Funds here and the community will help you advise which is the best one.

Not having a credit card is probably a good thing for you to be honest. No need to get one just yet.




Kronsey

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First of all, congrats on getting your spending under control and achieving a 40+% savings rate! That is no small feat on a teacher's salary.

As general advice, I would encourage you to not get overwhelmed and in a hurry. There are a lot of good blogs, podcasts, and books out there, so keep learning. But don't feel like you have to make a decision TODAY with your money. Yes, you want to take advantage of the miracle of compounding interest, but if you take a few months to educate yourself you haven't lost anything in the grand scheme of things. After all, it is better to make wise decisions after a few months of learning than to try to make a decision too quickly that you don't quite understand and make a BAD one.

In short, I'm financially illiterate and don't know the "step-by-step." The book/blogs say get vanguard index funds, I call up my school district and the lady is even more clueless than me? So now we have two clueless individuals talking to each other, I want to get Vanguard but she says it's not on the list of "vendors/suppliers" and the "popular" most used by teachers in our district is a company called American Fidelity (they have a contract with the district so automatically, I'm weary of that). Anyway, I scroll through their vendor list and the only one I think I've seen before is Fidelity (no Vanguard).

Are you trying to figure out the best investments for inside your retirement account? Can you shed some more light on your retirement savings options through your district? It is very common for retirement plans to have poor investment options (no Vanguard index funds), so you then have to make the best decision possible based on the funds available. You want to shoot for low expense ratio index funds that usually follow the entire market (total stock market or S&P 500 are popular index options). If there are no options exactly like those, you still want to choose a broad market mutual fund with the lowest expense ratio available. I think it would be most helpful if you provided some more background here so we can provide more detailed advice.

My only debt is a ~$18,000 student loan @ 5.85% interest, I pay the minimum on since that will be forgiven after teaching 5 years since I teach in a STEM field (so no rush to pay that off quickly right?)

Yes, take advantage of the loan forgiveness. No use to avoid free money unless you see yourself getting out of teaching before the 5 year mark.

....but would some more stats help?

Yes, more detailed info is needed to provide specific advice.

FIallday

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I attached an image of the list of vendors we can choose from.

@Kronsey
Thank you! I think it helps that the things I truly enjoy are pretty cheap in comparison to other things i.e., gym, jogging, biking, pretty much any verb with -ing lol
I think my question is: I read the max contribution is now up to $19,000. I just want to contribute a fixed amount every month so it maxes out at the end of the year in a Vanguard low-cost indexed like fund, doing a Couch Potato like portfolio. But because they don't offer Vanguard, I'm unsure in which to one to choose since all the bloggers and the book say do Vanguard.

Regarding the student loan, I think I read that whatever amount is forgiven gets counted as gross income for that year? Let's say I make $50,000 - $19,000 (403(b) contribution) = $31,000 + $18,000 (amount that was forgiven) = $49,000 gross income. Is that correct? It also doesn't seem to change tax brackets so that shouldn't be any issue?

I'll be writing a case study with more specifics.

P.S. I will be responding in both threads until one gets deleted as there are different responders in each thread.
P.S.S. Loving and appreciating the support thus far!

Kronsey

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I'm not an expert on the student loan forgiveness stuff, so maybe others can chime in. I know there are certain forgiveness programs where the benefit is taxable as in your example, and others that are not.

Though most of your options for the 403b are terrible, Fidelity is an option listed, and they provide very similar low cost index funds comparable to Vanguard.

See this Boglehead Wiki for a good explanation on your Fidelity options:

https://www.bogleheads.org/wiki/Fidelity

It should be very easy for you to create the couch potato portfolio using Fidelity index funds.

letired

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The reason everyone says 'Vanguard' as the short answer is that that company pioneered the low-cost indexed mutual fund. Fortunately, the concept has proved popular and many companies now offer similar low-cost indexed mutual funds.

The next question to ask of your school district is what investments are available from each provider. Most companies/programs will limit what investments you can buy within their program, usually to a list of mutual funds. That list sometimes (but not always) can include mutual funds that follow a broad index (which is why they're called index funds).  With this information, you can do some research and find out which one offers low-cost index funds. Fidelity is probably a good bet, but you'll want to see what your investment options are first. If you can get that info, folks here can help you figure out the best choice! You've got a huge list of providers, so one of them should have some good investment choices!

cchrissyy

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I don't think "American Fidelity Assurance" from your list is "the" Fidelity everybody talks about as in the same league as Vanguard. Don't get confused by the similar name!

letired

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I don't think "American Fidelity Assurance" from your list is "the" Fidelity everybody talks about as in the same league as Vanguard. Don't get confused by the similar name!

No, but Fidelity Investments probably is the right company :)

Kronsey

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I don't think "American Fidelity Assurance" from your list is "the" Fidelity everybody talks about as in the same league as Vanguard. Don't get confused by the similar name!

"Fidelity Investments" is about a 3rd of the way down the list. I don't think anyone is confusing American Fidelity Assurance with Fidelity, but maybe I'm wrong.

nsmall

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What state are you in?

Do you have access to a 457?  I am a teacher too in Cali and just found out about 457's and they are good as you can have access to them once you quit working.  No penalties.  Keep reading and reading here and jlcollins stock series.  I have been reading non stop for 4 weeks and have learned so much.

Thanks,

Neil

Fields of Gold

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You may not want a credit card, but that doesn't stop identity theives from taking advantage to get one in your name.  In the USA, you can freeze your credit reports (Experian, Equifax, TransUnion) to prevent this from happening.  Also do the CHEX system freeze, so checking accounts cannot be opened in your name (unless you unfreeze with a PIN number).  Or subscribe to a credit monitoring service.  It's a mess when an indentity thief somehow manages to open & use accounts for weeks with one's personal info.
« Last Edit: December 15, 2018, 10:52:46 PM by Fields of Gold »

Linea_Norway

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You say that you also have money in a bank account. Some of that money, you could invest in a cheap index fund of your choice. There it can make money higher than inflation, if the market continues to grow like it did on average in historic years.

MrOnyx

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Hey, friend! If it's any consolation, I was also overwhelmed by the financial lingo when I started back in Q1 this year. Without an education in finance - or even in any field that heavily uses maths - I felt a bit disadvantaged. Like others have said, just breathe and take your time. Look at your options, and consider the costs of each. We're all here to help you make good decisions, so don't be afraid to continue asking questions like this.

I'm not a financial genius at all, but I got there eventually. I know most of what I need to to get by now, and if I learned it, you can, too! (I was never that good at maths...)

Once you've decided where your savings are going to go, that's the hard part done. From then on, you just continue working - your savings build up automatically because you'll automate the process of tucking away X amount of money every pay cycle. You'll be able to forget about it, and it'll all build up on its own. Still, continue reading and learning, though, because knowledge is power! Good luck!

Dee18

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Call Fidelity Investments and find the representative who handles accounts for your employer.  They will walk you through it.  The rep may even meet with you in person.  Mine did last month when I was making a major transfer fromTIAA-CREF that had been dragging its feet.  We did a call from my office and the TIAA guy quickly facilitated the transfer with the Fidelity guy right there to help me get the correct account numbers in the correct places on the electronic form.  It all went through smoothly.

My company just added Fidelity as a provider a couple years ago and they do not offer all Fidelity funds, but they do offer the Fidelity S &P 500 which has very low expenses. 
« Last Edit: December 17, 2018, 02:13:32 PM by Dee18 »

FireAnt

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Hey, friend! If it's any consolation, I was also overwhelmed by the financial lingo when I started back in Q1 this year. Without an education in finance - or even in any field that heavily uses maths - I felt a bit disadvantaged. Like others have said, just breathe and take your time. Look at your options, and consider the costs of each. We're all here to help you make good decisions, so don't be afraid to continue asking questions like this.

I'm not a financial genius at all, but I got there eventually. I know most of what I need to to get by now, and if I learned it, you can, too! (I was never that good at maths...)

Once you've decided where your savings are going to go, that's the hard part done. From then on, you just continue working - your savings build up automatically because you'll automate the process of tucking away X amount of money every pay cycle. You'll be able to forget about it, and it'll all build up on its own. Still, continue reading and learning, though, because knowledge is power! Good luck!

Ditto! We started delving into this in October 2018 and we're still navigating the waters. We are disciplined but have little knowledge of the financial world (I mean, I'm a social worker... I talk for a living which requires zero math). I've learned A TON over the past 2 months, but I have so much more to learn. This forum has been so helpful! We'll get there! :) 

Bracken_Joy

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So as a bit of a primer here:
when you look at retirement accounts through work, like 403b (yours), 401k (the "usual" non teacher/non gov one), or 457s, usually you have a fixed list of not just providers, but actual funds available. So you're operating from a list. You have a list of providers right now, but what you need is a list of funds. That list *should* provide the "expense ratio" and a description of the fund. For example, while VTSAX is recommended a lot of places, my 401k's only vanguard option is an S&P500 index fund- same idea but a different index is being used. It's still a low expense ratio though, and the best there was, so I chose that. Likely there will be something similar as a fidelity option. You can definitely post a list of all the specific funds and people can help you choose =)

As for *non* work retirement accounts, that's where it's easy to choose vanguard yourself. You get to pick where your IRA (roth or traditional) is invested. If you do any after tax investing, you get to choose where you do that. There's not really a fixed list you're operating from.

Hope that helps some and didn't just muddy the waters more. A LOT (I would venture to say most!) of us started with very little financial knowledge. Keep working at it though, and I promise you'll get there!

radram

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I attached an image of the list of vendors we can choose from.

@Kronsey
Thank you! I think it helps that the things I truly enjoy are pretty cheap in comparison to other things i.e., gym, jogging, biking, pretty much any verb with -ing lol
I think my question is: I read the max contribution is now up to $19,000. I just want to contribute a fixed amount every month so it maxes out at the end of the year in a Vanguard low-cost indexed like fund, doing a Couch Potato like portfolio. But because they don't offer Vanguard, I'm unsure in which to one to choose since all the bloggers and the book say do Vanguard.

Regarding the student loan, I think I read that whatever amount is forgiven gets counted as gross income for that year? Let's say I make $50,000 - $19,000 (403(b) contribution) = $31,000 + $18,000 (amount that was forgiven) = $49,000 gross income. Is that correct? It also doesn't seem to change tax brackets so that shouldn't be any issue?

I'll be writing a case study with more specifics.

P.S. I will be responding in both threads until one gets deleted as there are different responders in each thread.
P.S.S. Loving and appreciating the support thus far!

WELCOME! Congratulations on getting started.

Using the website listed on your image (403compare.com), I agree you need to know the funds from each company, as well as the company you are dealing with.

It looks like you have some fantastic choices. Too many choices, in fact. Just keep is simple to start, focusing on something that tries to imitate the total market, or part of it, with a really low fee. Like this Fidelity fund:

https://www.403bcompare.com/subProducts/672



Keep us posted on what you decide and how things are going.

terran

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From the image you attached I see CalSTRS pension, so I assume that means you teach in California. I search "california teacher 403b" and found https://www.calstrs.com/403bcomparecom which led me https://www.403bcompare.com. This is also listed on your image, but I didn't know this was a California only 403(b) website.

From their I went to Browse Vendors and, from your list, found Fidelity Investments, clicked Product List, then selected the 403b, and found the investment options. From there I clicked the Expense Ratio Heading until it sorted from lowest to highest and found Fidelity Total Market Index Premium (FSTVX, ER 0.02%), FidelityŽ US Bond Index Premium   (FSITX ER 0.03%), and Fidelity International Index Premium (FSIVX ER 0.05%). These 3 funds would be perfect options to build a classic 3 fund portfolio from and are the equivalents of the Vanguard VTSAX, VBTLX, and VTIAX that you'll most commonly see referenced.

For an even simpler option, look at any of the index target date funds with names like Fidelity Freedom Index 2050 Investor (FIPFX ER 0.14%). These are made up the previous 3 funds plus an international bond fund and handle all of the rebalancing for you, so you can just put everything in the one fund and forget about it. These are a perfectly good option if you're rather set it and forget it. Pick one with a date close to when plan to retire. Be careful to pick one that says "Index" in the title as your plan also has funds like Fidelity Freedom 2050 (FFFHX ER 0.75%), which is also a target date fund, but is actively managed, and as you can see has a much higher expense ratio.

I also happened to find that at least some people with California 403(b)s must have Vanguard as a vendor, because they're also listed on the 403(b) compare site (Vanguard Investment Options). It's strange that they're not on the list you posted, so maybe not all plans are available at all schools, or maybe your list is outdated, so it might be worth digging some more and seeing if that's the case and Vanguard actually is an option now, but the Fidelity funds I posted above actually have lower expense ratios than the available Vanguard equivalents, so I'd probably just go with Fidelity and not bother digging.

It also looks like CalSTRS Pension2 could be a good option as it has a number of Vanguard funds available (Investment Options).

You can look at other vendors using the process I described above, but I wouldn't both going beyond those two.

You'll notice that there is an "annual cost" listed for each of the vendors I linked to above. This is a good quick metric, but it's a little misleading because it's made up of actual fees plus the cost of the average expense ratio for the vendor on a $10,000 investment (which invisibly comes out of the investment return). You can see the breakdown between the two expenses by clicking "Cost Details" under the amount. The reason it's misleading is that it favors low expense ratio vendors (like Vanguard) over mixed expense ratio vendors (like Fidelity), but if you pick the low expense ratio investments from Fidelity you'll actually save money as you'll spend the same (or less) on the expense ratio, but Fidelity has a $24 Custodial Fee while Vanguard has a $60 Record keeping fee. CalSTRS Pension2 has a $25 Administrative Fee and good low expense ratio Vanguard funds available.

You might also find it worthwhile looking around the Compare Products or Find Employer to confirm what I found since both appear to let you select your actual district or school so you can see what's available.

Assuming you can confirm what I found above (record keeping fee and available investments) is accurate for your employer, I would go with Fidelity.

As other have said, also look into whether you have access to a 457(b). I search for "california teacher 457" and it seems like at least some California state employees are eligible for a 457, but I couldn't tell if that included teachers. Governmental 457(b)s are cool because, unlike a 403(b), you can withdraw from the without penalty before you are 59.5 without jumping through hoops (still possible with 403(b), there are just some hoops, so still put money there) -- this makes them perfect for early retirees. They also have their own contribution limit, so, if you can afford to, you can contribute $19k (2019 limit) to both a 403(b) and a 457(b). Non-govermental non-profits can also have 457(b), but these are subject to the creditors of the institution, which makes them somewhat risky, but since you're a government employee you don't need to worry about it, so I wanted to mention it so you don't get worried if you run across something about that. 

SquirrelStache

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I don't think "American Fidelity Assurance" from your list is "the" Fidelity everybody talks about as in the same league as Vanguard. Don't get confused by the similar name!

I can 100% confirm that's a different company. American Fidelity Assurance does offer annuity options (403b/IRA/RIRA etc.) to schools in various states (including CA), but I'm not familiar with the investment options themselves.