@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 I just found out that my last contribution for my Roth IRA for 2017 wasn't withdrawn.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.
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 ½ 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 :)