Author Topic: So I'm pretty clueless about investing... (closed for now)  (Read 4013 times)

ulzxhi

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So I'm pretty clueless about investing... (closed for now)
« on: January 20, 2018, 08:25:23 AM »
I am closing this thread for now

I feel like I have a good grip on getting started. I may open it again for a part 2 in a few months, but I'm feeling really good so far. I'm always open to PMs, and if anyone would like to share some wisdom in my journal as well. Thank you all again for your support, advice, knowledge, and guidance. Hopefully I'll be able to dish out advice like a pro within the next year and help our future-fledgling-mustachians as well :)


Spoiler: initial post • show
(and please forgive me if this is posted in the wrong spot)

I am very financially illiterate, so I get confused pretty easily. This makes it difficult to figure out where to start. So I'm trying to wrap my head around investing, and on gathering my bearings. I was hoping you guys wouldn't mind being my springy springboard ;D


What I know:
[list][li]I've been maxing out my Roth and 403b.[/li]
[li]I also have a small pension and 2 savings accounts (let's call them SavA and SavB).[/li]
[li]My employer has a dude that picked my portfolio for the Roth and SavA. I am not sure of his professional title, but he is some sort of independent financial guy who works under something called Lincoln. I contribute money. I can log in to my Roth and SavA accounts (which, for whatever reason, is actually through something called American Funds, not Lincoln). I log in maybe twice a year, and see that my contributions have been growing.[/li]
[li]I don't know anything about my 403b, other than I see that the money is being withdrawn directly from my paycheck.[/li]
[li]I don't know anything about my pension, other than the fact that I have one.[/li]
[li]I get $0.08 to $0.09 interest every month on my $10k stashed in SavB, which is through my bank.[/li]
[li]Eventually I'd like to backdoor or ladder my 403B to a Roth (not sure what the difference is between a backdoor and a ladder, though. But basically I plan on making a lot less income eventually, and on using that lower tax tier to my advantage).[/li][/list]


This is just about all of my investing knowledge. My goal is to become more financially literate. As mentioned earlier, now that I made time to get started, I am at a loss with the finer details.


So, getting started...


I'd like to begin putting my little buggers to work. Since my EF is stashed in my checking account, I figured SavB would be a good place to start withdrawing from. Would it be foolish of me to invest all of SavB's immediately-liquid excess cash? I haven't touched it in the 3 years its been open. Investing it seems like the right move, but I'm afraid I may be missing something and also afraid to take the plunge. I don't know if it's just nerves or habit or domineering cultural norms...

MMM mentions Vanguard often. What is Vanguard, and what sets it apart from the other places like it? What are these places called? Investment hubs? On a side note, I see that Vanguard can manage retirement accounts. Am I allowed to move my Roth and 403b to Vanguard, or does it have to be contracted through my employer?

Lastly, I keep reading that a 5% rate of return is favorable. How do I calculate the rate of return for my SavA? I've been contributing $600 per month since June of 2015 (31 months = $600 * 31 = $18,600). Its current total balance is $20,941.82. So, I have $2341.82 more than I did 31 months ago.

And one more thing, what's the difference between contributing to a Roth (where my contributions are locked-in for 5 years before I can withdraw them) and investing my post-tax dollars in something like stocks, bonds, where I can withdraw (from the most part, from my understanding) as I please? Is it the growth potential? Asset security?
« Last Edit: February 07, 2018, 11:33:52 PM by ulzxhi »

testtest

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Re: So I'm pretty clueless about investing...
« Reply #1 on: January 20, 2018, 10:07:31 AM »
That's a lot of questions. I'll try to provide some feedback on the things I know about:

Quote
what's the difference between contributing to a Roth (where my contributions are locked-in for 5 years before I can withdraw them) and investing my post-tax dollars in something like stocks, bonds, where I can withdraw (from the most part, from my understanding) as I please? Is it the growth potential? Asset security?

The deal with a Roth IRA is this: it gives you considerable tax advantage because you do not have to pay taxes on the gains in that account. You pay taxes on the front end - when you earn the money / get paid - then invest in XYZ account (ie S&P 500 index) of type Roth. You get gains in the account over time, but you do not have to pay taxes on those gains when you withdraw from that account. If you simply invested in the same XYZ account without it being a Roth, when you withdrew funds you would have to pay taxes on on the gains. To be clear though, a Roth is not the best account type for everyone. Depending on your income level, time scale, current tax situation, etc. a traditional IRA could be mathematically superior.

Please look at the expense ratio associated with the account that the Lincoln Financial guy set you up with. You are making contributions to an account in a rising value equity environment; of course the value of the account is going up. This does not mean that you were set up with a good account. You should be able to provide a link or something to the fund that you are set up with. You should investigate the expense ratio (even what appears as a small % can significantly erode gains over time) and the asset allocation; are you invested in funds that you want to be invested in?

As far as holding cash, there are good options. You need to have a checking account to pay bills etc., but some local credit unions might offer 1% or more on cash. That's 100X better than 0.01% your bank might be giving you. For "excess" cash (or EF dollars) that you don't actually expect to need on a day-to-day basis, something like Ally Bank might be a good option. You can get 1.25% on cash, FDIC insured, totally liquid access, etc.

For calculators, you could find a good smartphone app. I have android and use an app from fncalculator.com, I think. Or just use google to find a calculator that has inputs for initial value, periodic contributions, number of time periods, and final value. It should then be able to calculate the APY over the period you've identified. Probably bankrate.com or something has a calculator that would do this work for you.

I don't know about backdoor or the 403B account type.

edited to fix something stupid

PDXTabs

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Re: So I'm pretty clueless about investing...
« Reply #2 on: January 20, 2018, 11:34:06 AM »
I highly suggest the book The Simple Path to Wealth by J L Collins. I borrowed it from my local library.

Also, CIT bank currently has a savings account with 1.55% APY.

markbike528CBX

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Re: So I'm pretty clueless about investing...
« Reply #3 on: January 20, 2018, 12:29:31 PM »
 ulzxhi, sounds like you might like a step-by-step tutorial.

scrubbyfish started the thread and asked all the basic questions
https://forum.mrmoneymustache.com/investor-alley/one-(investing)-question-at-a-time/


koshtra

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Re: So I'm pretty clueless about investing...
« Reply #4 on: January 20, 2018, 12:46:26 PM »
I do want to just hop in here and say: first of all, if you're maxing your Roth and your 403b, invested according to reputable advice -- which it sounds like you are -- you're basically doing it right already. Let's not lose sight of that :-)

Can you improve your returns by a few percent, or even several percent, per year? Probably. But you're doing great.

ulzxhi

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Re: So I'm pretty clueless about investing...
« Reply #5 on: January 20, 2018, 04:23:14 PM »
@testtest Thank you for the thorough answers. To clarify that I am understanding you correctly: I put post-tax dollars into a Roth. I will not have to pay taxes on anything withdrawn from it, including profits. If I invested my post-tax dollars into something other than a roth, I'd have to pay taxes on anything in excess of my contribution.

There was also some terminology I did not understand:
The deal with a Roth IRA is this: it gives you considerable tax advantage because you do not have to pay taxes on the gains in that account. You pay taxes on the front end - when you earn the money / get paid - then invest in XYZ account (ie S&P 500 index) of type Roth.

Please look at the expense ratio associated with the account that the Lincoln Financial guy set you up with. You are making contributions to an account in a rising value equity environment; of course the value of the account is going up. This does not mean that you were set up with a good account.

What are gains? Also, what is S&P 500? What is an expense ratio? Could you also please explain how, if my assets are rising, it still may not be a good account? Is this because of inflation? Also, good advice about having a checking account that pays interest. I will definitely be looking into this.


@PDXTabs Thank you for pointing me in the right direction. Do you feel that Collins' book would be good for beginners? One of my biggest struggles is that, even in "beginner" articles, they still use terminology and concepts that I am not familiar with, and never explain them. If this books really breaks it down, that would be wonderful. There's a library close to my house, and it's been years since I've been. A daycation is in order :)


@markbike528CBX  What a perfect find! This suits me very well. I poked around and it is still more advanced than what I know, but is definitely a great way to bite-size my way to financial literacy. Practice, practice, practice. This is very hopeful. Thank you.


@koshtra I appreciate your support. You're right, I need to keep sight of what I've accomplished so far. Even though I may be able to do better, doing something is still better than doing nothing (or going in the opposite direction! hehe). I just have to keep going at it and continue to better myself. I am hopeful that my portfolio will grow as I grow.

PDXTabs

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Re: So I'm pretty clueless about investing...
« Reply #6 on: January 20, 2018, 04:25:59 PM »
@PDXTabs Thank you for pointing me in the right direction. Do you feel that Collins' book would be good for beginners? One of my biggest struggles is that, even in "beginner" articles, they still use terminology and concepts that I am not familiar with, and never explain them. If this books really breaks it down, that would be wonderful. There's a library close to my house, and it's been years since I've been. A daycation is in order :)

Absolutely! He specifically wrote it for his daughter who (like most people) doesn't actually care about knowing all this stuff, but really needs to know it.
« Last Edit: January 20, 2018, 04:27:50 PM by PDXTabs »

harvestbook

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Re: So I'm pretty clueless about investing...
« Reply #7 on: January 20, 2018, 04:40:37 PM »
I'd start by seeing what funds the "dude" put you in and look at the expense ration (ER). It is the percentage you are paying to use the funds. Cheap funds are generally great. Expensive funds are bad. You may not have a broad range of choices.

Vanguard is the world's largest investment firm because it is generally the cheapest and simplest. Some like Fidelity or Schwab which are also fine. Better to get a little education before making too many decisions--you may find a simple three-fund portfolio of total US stock market, total international stock market fund, and total bond fund work just fine. Many people do. Good luck!

Mighty-Dollar

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Re: So I'm pretty clueless about investing...
« Reply #8 on: January 20, 2018, 10:34:35 PM »
  • My employer has a dude that picked my portfolio for the Roth and SavA. I am not sure of his professional title, but he is some sort of independent financial guy who works under something called Lincoln.
Beware of anyone and everyone who provides "free" money advice. These people are salesmen -- not "advisors". Because of their conflicts of interest, they are gonna try to get you into things like expensive actively managed mutual funds and annuities, which are highly inferior financial products.
Even though these people now fall under fiduciary duty when it comes to pre-tax money (retirement funds), the DOL fiduciary rule does not go far enough. These people are still leading people astray. If you need money help then ONLY work with a fee-ONLY fiduciary. Fee-only means NO backdoor commissions for Mr. Advisor. Backdoor commissions come INDIRECTLY out of your investment whether you know it or not.
Stick with total stock market and total bond market index funds whenever possible.
[/list]

ulzxhi

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Re: So I'm pretty clueless about investing...
« Reply #9 on: January 26, 2018, 08:34:10 AM »
@PDXTabs I started reading his blog, not realizing it was the same dude. I can understand most of what he says, and it's definitely the easiest (actually, the only one) I've found to digest. C'mon day off, I need you! I have 4 consecutive days off soon. Looking forward to chowing down on learning a new skill that has always been over my head.


@harvestbook Thank you for the advice on helping me figure out how to be in control of my investments. Finding out my ER is now at the top of my list. I've been reading JLCollins' articles on money management dudes. Pretty scary stuff! I did not realize I've most likely been inadvertently throwing money out the window. Eek!

I like your portfolio model. It sounds familiar. I think that this is similar to what the financial dude set up for me. So I just logged into my portfolio, and it is a mix of US stuff, international stuff, and some US bonds. I also have bond funds, not sure what those are though...


@Mighty-Dollar I just finished reading some of JLCollins' posts about these types of salesmen. Yikes! I figured he was taking a percentage somehow, but didn't realize that some take a huge chunk! What are managed mutual funds, fiduciary duty, and the DOL? Also, what are total stock market and total bond market index funds? Is that what Vanguard does?

GOFU

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Re: So I'm pretty clueless about investing...
« Reply #10 on: January 29, 2018, 02:53:25 PM »
Keep it simple. Minimize expenses. The "advisors" will fleece you.

"I highly suggest the book The Simple Path to Wealth by J L Collins. I borrowed it from my local library."


Before you buy the Jim Collins book, read his Stock Series. http://jlcollinsnh.com/stock-series/

Keep reading everything you can, and pay attention. Did I mention the "advisors" will fleece you? Because they will, and you probably won't even notice.

There is so much information it can be overwhelming, but that also means there is no excuse for being "financially illiterate." I have known people who think it's cute that they are so clueless and financially illiterate. It's not cute. It's quite unattractive. 

At your stage the learning curve is very high. With some work, with a short time, say 1 year, you will be fluent with the ideas and 10 times more powerful in regard to your money and your financial future. 

ulzxhi

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Re: So I'm pretty clueless about investing...
« Reply #11 on: January 29, 2018, 04:28:24 PM »
@GOFU Hi GOFU, thank you for the tips. I will definitely check out JL's stock series. I've already saved a lot of his posts that interest me. Moving this one to the top of my list though! And I know that financial advisors will fleece me, but I do not understand how. Everyone keeps telling me what I know, and not explaining what I do not know. So I feel that I am really stuck in a rut here. I see that my money is growing, so being misled doesn't make sense to me. I'm sure that I still am being suckered, and just haven't figured out how. Apparently everyone else knows it but me.

I agree that playing off ignorance as something adorable is not cute, and that was not my intention. I'm sorry but what have I done that came across that way? I am determined to keep reading and furthering my knowledge, and never implied to stop, so I do not understand how you got this idea about me. Is asking questions to learn and to clarify what I do not understand really that mindless? Or replying to every post to open a dialogue really that senseless? Because if you know of something that works better, I'd love to have another gadget in my toolbox.

I know that I will only improve by continuing on, but I seriously feel like an English-speaking three year old being expected to read the unabridged Russian edition of The Brothers Karamazov and type a political dissertation on it. Expecting to be enlightened, with no aptitude, no tools, and no support. Not necessarily directed at you, but at the US education system (not sure where you're from?) where finances are never taught as core-education, yet it is something around which our culture revolves.


 

markbike528CBX

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Re: So I'm pretty clueless about investing...
« Reply #12 on: January 29, 2018, 05:16:31 PM »

Quote
And I know that financial advisors will fleece me, but I do not understand how.
They do so by snagging the assets as they grow (or shrink).   Advisors typically take a percentage of your money that they control.  That money does not go to you or get folded back into your money to grow more.
Rarely is the advice worth the money.

I'd REALLY suggest reading scrubbyfish's thread I mentioned earlier.   It is a step, by step, by step (did I mention a step-by-step?) intro to the lingo and concepts of personal finance from a pretty basic start.   Since many people here on the forum contributed, doing so again (and again) gets old for those who have done so .  Sorry, you're not the first person to need this level of explanation.  The JL stock series might start out at a higher level than you are ready for at this time.

Quote
but I seriously feel like an English-speaking three year old being expected to read the unabridged Russian edition of The Brothers Karamazov and type a political dissertation on it.
 
No one expects a dissertation yet, but you should know that there are brothers and their surname is Karamazov. 
You are trying  (or thinking you are expected) to run before you've crawled.   
Relax, this stuff takes time and reading.   

I've been thinking about personal finances for 25 years, and there are still questions.    I've been watching baseball all my life, and I'm still at the point of "people hit the ball, and run to touch bags on the ground, and lots of other stuff happens". 


GOFU

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Re: So I'm pretty clueless about investing...
« Reply #13 on: January 29, 2018, 07:20:42 PM »
@GOFU Hi GOFU, thank you for the tips. I will definitely check out JL's stock series. I've already saved a lot of his posts that interest me. Moving this one to the top of my list though! And I know that financial advisors will fleece me, but I do not understand how. Everyone keeps telling me what I know, and not explaining what I do not know. So I feel that I am really stuck in a rut here. I see that my money is growing, so being misled doesn't make sense to me. I'm sure that I still am being suckered, and just haven't figured out how. Apparently everyone else knows it but me.

I agree that playing off ignorance as something adorable is not cute, and that was not my intention. I'm sorry but what have I done that came across that way? I am determined to keep reading and furthering my knowledge, and never implied to stop, so I do not understand how you got this idea about me. Is asking questions to learn and to clarify what I do not understand really that mindless? Or replying to every post to open a dialogue really that senseless? Because if you know of something that works better, I'd love to have another gadget in my toolbox.

I know that I will only improve by continuing on, but I seriously feel like an English-speaking three year old being expected to read the unabridged Russian edition of The Brothers Karamazov and type a political dissertation on it. Expecting to be enlightened, with no aptitude, no tools, and no support. Not necessarily directed at you, but at the US education system (not sure where you're from?) where finances are never taught as core-education, yet it is something around which our culture revolves.

No you did not come across that way and I did not mean to suggest you did. I've been lurking about here for years but just recently decided to get in the fray of discussion. Responses are encouraged when people comment in your thread, to keep the conversation going.

Just keep reading and letting the information wash over you. It is getting in, and soon you will be able to get it out in a useful way.

I wish you every success.

JumpInTheFIRE

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Re: So I'm pretty clueless about investing...
« Reply #14 on: January 31, 2018, 10:15:49 AM »
https://investor.vanguard.com/investing/how-to-invest/
1. What is Vanguard, and what sets it apart from the other places like it?
2. What are these places called? Investment hubs?
3. Am I allowed to move my Roth and 403b to Vanguard, or does it have to be contracted through my employer?
4. And one more thing, what's the difference between contributing to a Roth (where my contributions are locked-in for 5 years before I can withdraw them) and investing my post-tax dollars in something like stocks, bonds, where I can withdraw (from the most part, from my understanding) as I please? Is it the growth potential? Asset security?
5. What are gains?
6. Also, what is S&P 500?
7. What is an expense ratio?


Since you did ask some specific questions that may have not have gotten clear answers I'll answer those -- yes it's basic stuff for most of the people here but it's great that you are taking the initiative to increase financial knowledge and I don't want to discourage that.  I numbered the questions I pulled from your posts for ease of reference.

1. Vanguard is a "brokerage house" or "mutual fund provider".  Their founder (Jack Bogle) basically invented the concept of an index fund (a mutual fund that tracks an index, like the Dow Jones or S&P 500).  They are the largest mutual fund provider and they are structured so the owners of their funds are also the owners of the company, so the profits of the company are generally returned to the investors in the form of lower fees and expenses.  More info: https://investor.vanguard.com/investing/how-to-invest/

2. Generally "financial advisor", "brokerage house", or "mutual fund provider" depending on the services offered. 

3. You can move your IRA (I assume you are talking about a Roth IRA when you say "Roth", but it's also possible to have a Roth 401k/403b) to another provider, no problem (it's an INDIVIDUAL retirement account, it is managed by you and belongs to you).  Your 403b is employer-dependent, they choose the provider and what mutual funds or other investments they provide.  You cannot change this, although you can roll the money into an IRA, generally when you leave the employer.

4. The only difference between a Roth and just buying funds/stocks/bonds, etc. (generally called a "taxable account") is the tax treatment.  In a taxable account you will be taxed on any gains you have (see "gains" definition in Q #5), in a Roth you pay taxes on the contributions but the gains are tax free.  In exchange for that, you are not allowed to withdraw those gains until you are 59.5 years old (this tax treatment is to encourage you to save for your retirement).  You can pull out Roth contributions at any time and you can pull out Roth rollovers (money converted to Roth from other types of retirement accounts) 5 years after the transaction. 

5. Gains are the amount your investments have increased in value.  For stocks, these gains are generally in the form of "capital gains" or "dividends".  Capital gains means you sold the stock (or mutual fund) for more than you paid for it.  If you bought a fund at $100/share and you sold it at $120/share you made $20 in capital gains and you are taxed at the capital gains rate on that $20.  Dividends are money a company pays to its stockholders (its owners) to distribute profits, usually you get a certain amount for each share you own.  People who are in the accumulation phase generally have their account set to reinvest the dividends back into the stock or fund, instead of paying you a cash payment the dividend is used to purchase additional shares of the stock. 

6. The S&P 500 (Standard & Poors 500) is an index (https://www.investopedia.com/terms/m/marketindex.asp) of the top 500 companies in the american stock market.  It is often used as a benchmark to compare your investments against and serves as the basis of many index funds (https://www.investopedia.com/terms/i/indexfund.asp).

7. An expense ratio is the money that a mutual fund provider charges you to manage the fund, usually expressed as a percentage.  Mutual funds cost money to run, they have to hire people to buy and sell stocks to meet the funds goals, have trading costs associated with that, etc.  For index funds these expenses are generally quite low, for example the expense ratio on Vanguard's S&P 500 index fund is 0.04%, so for every $100 you have invested in the fund you pay $0.04 per year for fund management.  This in in contrast with most of American Funds' offerings, which have can have expense ratios over 1% as well as front-load fees -- basically money taken off the top of money you contribute, if a fund has a 2% front load and you contribute $100, only $98 goes to actually purchase the fund and the other 2% goes to the guy who sold it to you.  Obviously these "financial advisers" are going to push you toward the funds that make them the most money, not necessarily the funds that make you the most money.  Expenses are charged no matter the performance of the fund, so if you have high expenses you could be getting charged a lot of money even when your investments lost money for the year.  Retirement accounts generally display the expense ratio for their offering prominently, you might want to make another post showing what's available in your 403b and get some recommendations on where to invest your money.  If you are currently in an American Fund offering, you are most likely paying too much.  I assume the "Lincoln" guy is from this outfit: https://www.lfg.com/public/individual, it sounds like he's just another guy who wants to insert himself into your savings so he can siphon off some of that money to his pocket.  Financial advisers can make sense for people who aren't financially literate, but you are almost certainly better off using a flat-fee adviser than someone who makes his money off front loads or charging a percentage of your investments (or both!). 


In general, people saving for retirement should stick to index funds and stay away from individual stocks and managed mutual funds.  To quote Warren Buffett (usually #3 or #4 on the world's wealthiest people list and arguably the most successful investor of all time):

"Consistently buy an S&P 500 low-cost index fund, I think it's the thing that makes the most sense practically all of the time."

Wayward

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Re: So I'm pretty clueless about investing...
« Reply #15 on: January 31, 2018, 02:08:13 PM »
Hi and welcome ulzxhi!

I was also financially illiterate a little over a year ago. Growing up in the US, I agree with you that the educational system is awful - not even teaching basic finances and my parents, unfortunately, weren’t much help either. 

The first book I read that really opened my eyes was Your Money or Your Life (the investing advice is outdated, but the rest is golden) and I definitely recommend borrowing it! 

+1 to everything JumpInTheFIRE stated and it’s excellent you are maxing out your IRA and 403b! You are way ahead there.  Everything else is about optimizing to make sure you not overpaying for necessary items, going into debt, paying excessive fees, etc.

1. The 403b – you can’t control which company your job uses for the 403b, but if you ever leave you can do a “rollover” basically transferring the balance to a different company.  You should be able to have an account online so you can view your 403b though, ask the adviser for the website.  Once you have access to your account online, see what funds you are invested in and the expense ratios (you might have to do some digging).  A lot of times advisers will stick you in funds that make them good commissions.  Just because your balance goes up doesn’t mean they aren’t taking excessive fees!  Is your 403b a traditional (pre-tax) or a Roth (after-tax)?

2. Where is your Roth IRA?  If the Roth is your personal account (i.e. you fund it through your checking account) I would transfer it to Vanguard*, if possible.  If you want 100% stocks, either use Vanguard Total Stock Market Index Fund Investor Shares (VTSMX)** minimum $3,000 to start with .15% expense ratio or Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)*** minimum $10,000 to start with .04% expense ratio.  It is recommended to be more aggressive (more stocks, less bonds) when you are young and gradually increase bonds as you get older for more security.  Your ratio of stocks and bonds is called "asset allocation".

2. Why do you have two savings accounts?  I have a checking account with a local bank for monthly expenses and an Ally account (1.35% interest) for my emergency fund.  A good emergency fund should have at least 3-6 month’s worth of expenses at all times so $10,000 in your SavA is probably more than enough.  Is SavB a money market account or something?  Are you generating interest or is it invested in stocks/bonds?  Check out: https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

3. For the pension you would need to talk to your HR department.

4. The backdoor Roth is for people whose income is higher than the limit to contribute to a Roth normally so unless you make way over $100k per year, don’t worry about that. 

5. The Roth Conversion Ladder is basically where you convert funds from a traditional 401k/IRA to a Roth IRA over time so you can use the money before you turn 59 ˝ years old.  After you “retire” your income goes down to $0 or very little so you can transfer chunks of pre-tax money every year to a Roth and not pay much, if any, tax on it.  Again, it’s all about paying as little as possible in fees/taxes/etc. so your money can work for you.  Check out: https://www.madfientist.com/how-to-access-retirement-funds-early

6. About the 5% rate of return. That is a conservative average of how the market has done over time (7% on average minus 2% for inflation).  In reality, the market goes up “bull market” like now when it is high or stagnate "bear market" or it can crash like in 2009 when stocks went on sale.  It is very important to understand market ups and downs and not get scared and pull all your money out.  http://jlcollinsnh.com/stock-series/ is great for investing advice.

Hope that was helpful.  The hardest part is at the beginning so try not to get frustrated, you will be an expert in no time! ;)  If you have any more questions, please ask.

* https://www.investopedia.com/articles/investing/110515/who-are-owners-vanguard-group.asp
https://about.vanguard.com/what-sets-vanguard-apart/why-ownership-matters/
https://investor.vanguard.com/account-transfer/

**https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0085&funds_disable_redirect=true
***https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT&funds_disable_redirect=true

Further reading about why fees are so important:
https://www.physicianonfire.com/investment-fees-will-cost-millions/

ulzxhi

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Re: So I'm pretty clueless about investing...
« Reply #16 on: February 02, 2018, 08:44:49 AM »
@markbike528CBX
They do so by snagging the assets as they grow (or shrink).   Advisors typically take a percentage of your money that they control.  That money does not go to you or get folded back into your money to grow more.
Rarely is the advice worth the money.

Oh hey! I just finished reading one of your threads, congrats on being able to coast to FIRE! Thank you for explaining more about the financial advisors. I now have a better understanding now of how it works. I set up a vanguard account last week and am actually planning on pulling out all of my money from the Lincoln dude. I just found out that my last contribution for my Roth IRA for 2017 wasn't withdrawn. The guy who's helping me invest my money kept avoiding the issue, and now wants me to fix it myself. My mindset is: well if he expects me to do all of this stuff anyway, then what does he do besides freeload off of my ignorance? I'm not going to pay him for me to be stupid. I'd rather keep my money and be a fool than give it to someone else and still be a fool. Since he's shown that he's not interested in actually helping me (which is what I had figured, but now have actually experienced first hand), I don't need someone like that in my life. Especially when it involves my finances and my future. As soon as my laptop's battery gets low, I'm going to make that phone call and transfer my funds while the battery recharges.

I'd REALLY suggest reading scrubbyfish's thread I mentioned earlier.   It is a step, by step, by step (did I mention a step-by-step?) intro to the lingo and concepts of personal finance from a pretty basic start.   Since many people here on the forum contributed, doing so again (and again) gets old for those who have done so .  Sorry, you're not the first person to need this level of explanation.  The JL stock series might start out at a higher level than you are ready for at this time.

I did check it out but it was still too advanced for me. Some of that gap has been clarified by you and others, and I feel better equipped to dive in again. I understand the redundancy, so no need to apologize. The comments in MMM's blog have been extraordinarily helpful as well. I was hoping for more interaction in the forums but either way I am slowly getting up to par. I've also been checking out the case studies to understand the math and practice number crunching. It is disheartening to know that there's not as much support for rock-bottom beginners like myself, but again I understand it. I really appreciate you and the others who have taken the time to reply and check back in, as I do learn much faster in a collective group than on my own when starting out.

Quote
but I seriously feel like an English-speaking three year old being expected to read the unabridged Russian edition of The Brothers Karamazov and type a political dissertation on it.
 
No one expects a dissertation yet, but you should know that there are brothers and their surname is Karamazov. 
You are trying  (or thinking you are expected) to run before you've crawled.   
Relax, this stuff takes time and reading.   

I've been thinking about personal finances for 25 years, and there are still questions.    I've been watching baseball all my life, and I'm still at the point of "people hit the ball, and run to touch bags on the ground, and lots of other stuff happens".

This is just semantics and syntax at this point, but when it's in Russian there is no way to know which part alludes to the brothers and which part alludes to their surname, or even if there are any allusions. But honestly this is just more of a "me" problem. I tend to be anxious and think too much (and also dealing with the snowball effect of being laid off, changing jobs, being bullied at said new job, being the perpetual atm-machine-and-otherwise-denigrated-black-sheep of my family who have not talked to me since being laid off, all happening right before the holidays... There's just a lot of mental "noise" and life adjustments going on right now). Sorry this turned into a rant... What I was trying to say is, you're right, I just need to relax (and also have more patience). It's difficult to do as I've only ever had myself to rely on since I was young, but also a big fatty reminder to stop this bad habit since it now holds me back more than it helps. I've just got to relax and keep going. It's comforting to know that financial literacy is a perpetual journey. I often feel like everyone else has it all figured out except for me. Girl, relax.




@GOFU
No you did not come across that way and I did not mean to suggest you did. I've been lurking about here for years but just recently decided to get in the fray of discussion. Responses are encouraged when people comment in your thread, to keep the conversation going.

Just keep reading and letting the information wash over you. It is getting in, and soon you will be able to get it out in a useful way.

I wish you every success.

Hi GOFU, glad to know I'm not that type of frustrating person. It sounds like we're in a similar boat: long time lurker, new contributor. I agree that the more exposure and experience I read, the more it will all come together. Another good piece of encouragement I am stowing away and will fall back on when I feel stuck. I wish you all the the best as well. Cheers to FIRE!



@JumpInTheFIRE
Since you did ask some specific questions that may have not have gotten clear answers I'll answer those -- yes it's basic stuff for most of the people here but it's great that you are taking the initiative to increase financial knowledge and I don't want to discourage that.  I numbered the questions I pulled from your posts for ease of reference.

Hi JITF, I dig your username. I really appreciate you taking the time to put together such a thorough response! Yes my Roth is a ROTH IRA. Good to know that I can move it myself. I have to fix a snafu with one of my contributions for my Roth IRA from last year, and after it's resolved I'm moving it to Vanguard. No more money-siphoning off of me--I've worked too hard for my cash cow!

https://investor.vanguard.com/investing/how-to-invest/
https://www.investopedia.com/terms/m/marketindex.asp
https://www.investopedia.com/terms/i/indexfund.asp

Thank you for those links! The Vanguard one especially--it really lays the information down for a beginner like me. I am really impressed with investopedia as well--I assumed it was geared more towards investor-savvy readers, but I was able to follow most of it and find more clarification when needed with a little additional prodding. I feel that these two sites will really close the gap in my confusion and enable me to hold my own. Thank you, thank you, thank you.

So I just have a few clarifying questions to make sure that I am understanding everything correctly: Vanguard has a much lower ER because it cuts out the "middleman" (my guy who uses American Funds, for example)? In managed mutual funds, various people pool money together and then an authorized adviser invest their money for them. Or in other words, various people pool together for 1 (or more) fund(s) and there is a middleman who supplies / distributes the fund(s) and in return takes a cut of the clients' contributions. Or in other other words, I am investing my money with an authorized adviser who places it into fund(s) where others invest it. Vangaurd, on the other hand, uses index funds, which measure the strength of the market index which is a collection of... stocks in said market?

Also, are index funds safer than managed mutual funds, since index funds are a reflection of the market? For example, in an index fund a good portion of its stocks would have to go "belly up" for me to lose my investment, whereas with a managed mutual fund, I can lose my money if that 1 fund was a bad investment? And in an index fund, even if 1 or 2 stocks don't perform well, if the index is doing well overall, then the other stocks in the index fund should act as a cushion as the index market is performing well overall?

Gains are the amount your investments have increased in value.  For stocks, these gains are generally in the form of "capital gains" or "dividends". Capital gains means you sold the stock (or mutual fund) for more than you paid for it.  If you bought a fund at $100/share and you sold it at $120/share you made $20 in capital gains and you are taxed at the capital gains rate on that $20. 

Capital -- finally, a term with which I am familiar! Now that I know that capital gains are the same as gains  tis makes everything much easier (should've been obvious but, smh, I didn't put 2 + 2 together...)  



Hi and welcome ulzxhi!

I was also financially illiterate a little over a year ago. Growing up in the US, I agree with you that the educational system is awful - not even teaching basic finances and my parents, unfortunately, weren’t much help either. 

The first book I read that really opened my eyes was Your Money or Your Life (the investing advice is outdated, but the rest is golden) and I definitely recommend borrowing it! 

+1 to everything JumpInTheFIRE stated and it’s excellent you are maxing out your IRA and 403b! You are way ahead there.  Everything else is about optimizing to make sure you not overpaying for necessary items, going into debt, paying excessive fees, etc.

Hi Wayward! I had the same experience with my parents. My dad retired at 70, and my mom (who is nearly 70) is still working with no mention of retirement yet. It is definitely a cultural norm for us to work to the bone and keep retirement an impossible dream. But hey, at least I know how to find the derivative of a derivative, bore you to death with carbon circles, say dirty words in Spanish and German, run a cash register blindfolded...

Thank you for the tips and recommending YMOYL. I hope my library has it -- moving it to the top of my list!

I've been debt free for a couple of years now (score!), so my priorities are to better managing my expenses (like that ER that I didn't know I have until starting this thread!), and learning how / where to invest.

1. The 403b – Once you have access to your account online, see what funds you are invested in and the expense ratios (you might have to do some digging).  A lot of times advisers will stick you in funds that make them good commissions.  Just because your balance goes up doesn’t mean they aren’t taking excessive fees!  Is your 403b a traditional (pre-tax) or a Roth (after-tax)?

Good call on monitoring my 403b online -- I didn't even think that was a thing! Ah, still learning... My 403b is pre-tax, and the Roth IRA is post-tax. I recognize the names VTSMX and VTSAX from MMM and JLCollins, (so I am retaining information after all... This is kinda pretty sweet to know that I am starting to get a grip on all of this, hopefully in a year I'll be able to dish out advice like you and everyone else)

As for having 2 savings accounts, One is total liquid (the $10k) and one is invested (the $20k). I guess I have 2 different accounts more out of psychological habit / fear than actual need. When I was younger, I was supporting myself on a $7k income (yes that is a four-figure income, and not a typo) in a HCOL just outside of SF. It sucked. I never want to be in that situation again. It most likely won't ever happen, but those years have stayed with me. I really just don't want to have to endure a hardship like that ever again. So letting my money "roam free in the market" where it can just vanish is such a mental roadblock. I also have an extra couple thousand in my checking account on top of my 2 savings accounts... I guess my experience has made me hoard my money.  Testtest mentioned Ally for an EF as well. I got intimidated by all the terminology, it's on my list of things to revisit and hash out on a fresh brain.

4. The backdoor Roth is for people whose income is higher than the limit to contribute to a Roth normally so unless you make way over $100k per year, don’t worry about that. 

5. The Roth Conversion Ladder is basically where you convert funds from a traditional 401k/IRA to a Roth IRA over time so you can use the money before you turn 59 ˝ years old.  After you “retire” your income goes down to $0 or very little so you can transfer chunks of pre-tax money every year to a Roth and not pay much, if any, tax on it.  Again, it’s all about paying as little as possible in fees/taxes/etc. so your money can work for you.  Check out: https://www.madfientist.com/how-to-access-retirement-funds-early

Thank you for clarifying the difference between a backdoor Roth and a Ladder. So in a few years, I plan to ladder. Do you know if I can exceed the $5,500 Roth contribution when I ladder (or, in other words, is the amount that I ladder included or separate from the $5,500 annual contribution)? I was having trouble finding information on this last bit.

6. About the 5% rate of return. That is a conservative average of how the market has done over time (7% on average minus 2% for inflation).  In reality, the market goes up “bull market” like now when it is high or stagnate "bear market" or it can crash like in 2009 when stocks went on sale.  It is very important to understand market ups and downs and not get scared and pull all your money out.  http://jlcollinsnh.com/stock-series/ is great for investing advice.

Hope that was helpful.  The hardest part is at the beginning so try not to get frustrated, you will be an expert in no time! ;)  If you have any more questions, please ask.

* https://www.investopedia.com/articles/investing/110515/who-are-owners-vanguard-group.asp
https://about.vanguard.com/what-sets-vanguard-apart/why-ownership-matters/
https://investor.vanguard.com/account-transfer/

**https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=0085&funds_disable_redirect=true
***https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT&funds_disable_redirect=true

Further reading about why fees are so important:
https://www.physicianonfire.com/investment-fees-will-cost-millions/

So I’ve basically been living under a rock for the past 20 years … What happened in 2009? Is that when the housing market crashed? I was too mad at the world to care about what was going on around me… Also, even though the market is high, from my understanding, it’s still a good time to invest? Lastly, how would I know the market is high if you didn’t tell me so (what is the scale for measuring high vs low)?

Thank you for the additional links—I have a lot of homework to do!



And again, thank you everyone for the support! You have no idea how grateful I am. I feel like I am finally getting a leg up on all of this :)


markbike528CBX

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Re: So I'm pretty clueless about investing...
« Reply #17 on: February 02, 2018, 10:28:36 AM »
Index funds ARE mutual funds.
Index funds pool lots of people's money ( the mutual part) into a fund.

The fund buys stuff ( stocks , bonds, etc).
What stuff to buy is determined by either an active manager (most mutual funds) or an index ( list).

There are various indexes ( lists).  Usually they large lists of every possible stock ( for example).

Wayward

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Re: So I'm pretty clueless about investing...
« Reply #18 on: February 02, 2018, 11:49:02 AM »
- I check my 401k all the time online, it's very motivating for me to see it and have control over allocations.  We have a similar mindset, I have had to support myself on very little so I understand the habit/fear.  You will need liquid funds for emergencies and to live on for the first 5 years doing the Roth Conversion Ladder, just make sure you are getting the highest interest rate/lowest fees possible in the meantime.  I would check into where that $20,000 is stashed, are they taking fees, etc?  See the link in my signature regarding the 5% savings account too, there's some legwork involved but it's been going well for me. Feel free to PM me with any questions.

- You start the Roth Conversion Ladder the year after you retire because you don't want much income to show, otherwise you will have to convert less that year or owe taxes!  The rule of thumb is 25 times your annual spending to retire for good, but depending on your goals it could be more or less.  You are not limited to the $5,500 annual contributions when you rollover funds from traditional to Roth.  That limit is only for "new contributions" like from your checking.  Just remember you need to get through 5 years without withdrawing these funds by using savings or staggered CDs (set them up so they mature at different times).

- Yes 2008-2009 was the housing market crash and a whole lot of panic for many people, but some people made millions.  In the words of Baron Rothschild, an 18th century British nobleman, "the time to buy is when there's blood in the streets."  That being said, many people here agree not to time the market.  Time in the market is key, not just how much you have in the market, so yes start investing. Make sure to read the entire JL Collins stock series, but regarding this topic: http://jlcollinsnh.com/2013/05/22/stocks-part-xviii-investing-in-a-raging-bull/.  In my opinion, I would take that $20,000 (or at least half of it) and follow JL Collins investing advice, then set up automatic deposits each month for "dollar-cost averaging" https://www.investopedia.com/terms/d/dollarcostaveraging.asp, after making sure to fully fund your tax advantaged 403b and Roth IRA as per the investment order post https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153 (just ignore the debt parts for you, lucky!!!).

- Basically, stocks go up and down all the time (even in a bull market). When the prices are in an upward trend for at least several months you can consider it a bull market, and vice versa for a bear market.

More good reading:
https://www.investopedia.com/ask/answers/03/060203.asp
https://www.forbes.com/sites/mayakachroolevine/2017/09/18/should-you-invest-as-usual-when-stocks-are-this-high/#2f77e65b29a1
http://www.mrmoneymustache.com/2017/06/20/next-recession/

Also, sorry to hear about the 2017 Roth with your adviser.  You are allowed to fund the 2017 ROTH IRA until you do your taxes or April 2018 (whichever comes first)!  It may not be too late for you :)

robartsd

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Re: So I'm pretty clueless about investing...
« Reply #19 on: February 02, 2018, 01:13:27 PM »
You are allowed to fund the 2017 ROTH IRA until you do your taxes or April 2018 (whichever comes first)!  It may not be too late for you :)
You are allowed to contribute until the tax filing deadline even if you've already file. If your contributions (or re-characterizations) made after you file change any results on your return, you need to file an amended return (generally this is not the case for Roth contributions, but it could affect the Saver's Tax Credit); so it is recommended that you finish up your IRA business for the tax year before filing.

Wayward

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Re: So I'm pretty clueless about investing...
« Reply #20 on: February 02, 2018, 01:33:42 PM »
You are allowed to fund the 2017 ROTH IRA until you do your taxes or April 2018 (whichever comes first)!  It may not be too late for you :)
You are allowed to contribute until the tax filing deadline even if you've already file. If your contributions (or re-characterizations) made after you file change any results on your return, you need to file an amended return (generally this is not the case for Roth contributions, but it could affect the Saver's Tax Credit); so it is recommended that you finish up your IRA business for the tax year before filing.
Thank you robartsd for the correction!

markbike528CBX

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Re: So I'm pretty clueless about investing...
« Reply #21 on: February 02, 2018, 06:14:36 PM »
You asked
Quote
Also, are index funds safer than managed mutual funds, since index funds are a reflection of the market? For example, in an index fund a good portion of its stocks would have to go "belly up" for me to lose my investment, whereas with a managed mutual fund, I can lose my money if that 1 fund was a bad investment? And in an index fund, even if 1 or 2 stocks don't perform well, if the index is doing well overall, then the other stocks in the index fund should act as a cushion as the index market is performing well overall?

Generally, yes indexes are better, as well as cheaper.   

The better part:
Managed mutual funds are often concentrated on few stocks. If just those few stocks tank your down too.
Managed mutual funds, are managed, implying you need to pick a manager who is:
   1 smarter than 99% of other managers
   2 will be managing the fund for a really long time while being smarter than 99% of other managers
   3 is honest ( google Bernie Madoff)
   4 doesn't charge much for his services

The cheaper part:
Managed mutual funds, are managed, implying that the funds holdings change a lot.
Changing holdings generate costs that get passed on to you.   
# 4 above too.




ulzxhi

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Re: So I'm pretty clueless about investing... (closed for now)
« Reply #22 on: February 07, 2018, 11:35:25 PM »
@markbike528CBX
Index funds ARE mutual funds.
Index funds pool lots of people's money ( the mutual part) into a fund.

The fund buys stuff ( stocks , bonds, etc).
What stuff to buy is determined by either an active manager (most mutual funds) or an index ( list).

There are various indexes ( lists).  Usually they large lists of every possible stock ( for example).

You asked
Quote
Also, are index funds safer than managed mutual funds, since index funds are a reflection of the market? For example, in an index fund a good portion of its stocks would have to go "belly up" for me to lose my investment, whereas with a managed mutual fund, I can lose my money if that 1 fund was a bad investment? And in an index fund, even if 1 or 2 stocks don't perform well, if the index is doing well overall, then the other stocks in the index fund should act as a cushion as the index market is performing well overall?

Generally, yes indexes are better, as well as cheaper.   

The better part:
Managed mutual funds are often concentrated on few stocks. If just those few stocks tank your down too.
Managed mutual funds, are managed, implying you need to pick a manager who is:
   1 smarter than 99% of other managers
   2 will be managing the fund for a really long time while being smarter than 99% of other managers
   3 is honest ( google Bernie Madoff)
   4 doesn't charge much for his services

The cheaper part:
Managed mutual funds, are managed, implying that the funds holdings change a lot.
Changing holdings generate costs that get passed on to you.   
# 4 above too.

Hi mark, thank you for the clarification on index funds vs managed mutual funds. Now that I have a better understanding of both, I am more confident in deciding where to invest and how to allocate my investments. Still learning of course, but it's assuring to know that I am making better-informed choices.



@Wayward
- I check my 401k all the time online, it's very motivating for me to see it and have control over allocations.  We have a similar mindset, I have had to support myself on very little so I understand the habit/fear.  You will need liquid funds for emergencies and to live on for the first 5 years doing the Roth Conversion Ladder, just make sure you are getting the highest interest rate/lowest fees possible in the meantime.  I would check into where that $20,000 is stashed, are they taking fees, etc?  See the link in my signature regarding the 5% savings account too, there's some legwork involved but it's been going well for me. Feel free to PM me with any questions.

- You start the Roth Conversion Ladder the year after you retire because you don't want much income to show, otherwise you will have to convert less that year or owe taxes!  The rule of thumb is 25 times your annual spending to retire for good, but depending on your goals it could be more or less.  You are not limited to the $5,500 annual contributions when you rollover funds from traditional to Roth.  That limit is only for "new contributions" like from your checking.  Just remember you need to get through 5 years without withdrawing these funds by using savings or staggered CDs (set them up so they mature at different times).

- Yes 2008-2009 was the housing market crash and a whole lot of panic for many people, but some people made millions.  In the words of Baron Rothschild, an 18th century British nobleman, "the time to buy is when there's blood in the streets."  That being said, many people here agree not to time the market.  Time in the market is key, not just how much you have in the market, so yes start investing. Make sure to read the entire JL Collins stock series, but regarding this topic: http://jlcollinsnh.com/2013/05/22/stocks-part-xviii-investing-in-a-raging-bull/.  In my opinion, I would take that $20,000 (or at least half of it) and follow JL Collins investing advice, then set up automatic deposits each month for "dollar-cost averaging" https://www.investopedia.com/terms/d/dollarcostaveraging.asp, after making sure to fully fund your tax advantaged 403b and Roth IRA as per the investment order post https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153 (just ignore the debt parts for you, lucky!!!).

- Basically, stocks go up and down all the time (even in a bull market). When the prices are in an upward trend for at least several months you can consider it a bull market, and vice versa for a bear market.

More good reading:
https://www.investopedia.com/ask/answers/03/060203.asp
https://www.forbes.com/sites/mayakachroolevine/2017/09/18/should-you-invest-as-usual-when-stocks-are-this-high/#2f77e65b29a1
http://www.mrmoneymustache.com/2017/06/20/next-recession/

Also, sorry to hear about the 2017 Roth with your adviser.  You are allowed to fund the 2017 ROTH IRA until you do your taxes or April 2018 (whichever comes first)!  It may not be too late for you :)

Hi Wayward, thank you for weighing in again. It's sad yet comforting to hear that we come from the same financial background. I would never wish it upon anyone, but at the same time a relief to know that I am not alone. You pulled through and hopefully I will find my own way as well. I've decided that I'm going to start laddering this year. I've crunched some numbers and with my new job I am taking a significant pay cut (I have to look at the new tax tiers again, but I believe that I am dropping 2 tax brackets). Time to cash in! I'm laddering sooner than expected, but it doesn't sound like such a bad gig if I can jump-start my long-term FIRE plans. I will probably post a cast-study after double-checking my numbers.

Also, thank you again for more ample resources.


@robartsd
You are allowed to fund the 2017 ROTH IRA until you do your taxes or April 2018 (whichever comes first)!  It may not be too late for you :)
You are allowed to contribute until the tax filing deadline even if you've already file. If your contributions (or re-characterizations) made after you file change any results on your return, you need to file an amended return (generally this is not the case for Roth contributions, but it could affect the Saver's Tax Credit); so it is recommended that you finish up your IRA business for the tax year before filing.
Thank you robartsd for the correction!

Hi Wayward and robartsd, thank you for helping me sort out my Roth mess. So it's fixed now, and the rep whom I spoke with looked into my contribution history. He said that my adviser cancelled my last contribution for 2017. That definitely set the fire under my bum to stop feeding him my money! Not only was the adviser shorting me on my retirement, he also wanted me to fix the problem myself. My ultimate fix: DROP HIM. So I cancelled all my planned ROTH IRA contributions for 2018 (due to his mistakes I haven't made any yet, so it's nice that it actually worked out in my favor), and I closed my savings account with him. Thank you for letting me rant.



I am closing this thread for now.

I feel like I have a good grip on getting started. I may open it again for a part 2 in a few months, but I'm feeling really good so far. I'm always open to PMs, and if anyone would like to share some wisdom in my journal as well. Thank you all again for your support, advice, knowledge, and guidance. Hopefully I'll be able to dish out advice like a pro within the next year and help our future-fledgling-mustachians as well :)

2Birds1Stone

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Re: So I'm pretty clueless about investing... (closed for now)
« Reply #23 on: February 08, 2018, 03:10:42 AM »
Testing ;)