This is Lon Jefferies, a NAPFA registered Certified Financial Planner in Salt Lake City. Thanks for the opportunity to contribute to this discussion.
Welcome to our monthly Jump-Start Your Financial Plan live chat! With us today are Debbie Frazier of Frazier Financial Consultants, Lon Jefferies of Net Worth Advisory Group and David John Marotta of Marotta Wealth Management, Inc. We'll start with questions in just one moment...
Ok, Lon and Debbie, here comes the first question:
Welcome to the chat David! We just had our first question: When investing money or doing business with investment firms, how can you be certain they are not laundering or funneling money to illicit entities?
Lisa - My clients are always comforted by the fact that I, as the advisor, never take physical possession of their funds. Invested dollars are housed by a custodian they are comfortable with and confident in, such as Fidelity, Charles Schwab, etc. If you have concerns about fraud, do your best to ensure the advisor can't access your money even if they tried. Additionally, ensuring that the custodian is ensured by SPIC coverage is an additional reassurance.
Cool link David. I especially like the type about working with a fiduciary.
Alocacoc - That is a pretty tough question to answer without knowing more about your situation. The first thing I would do is ensure you have an emergency fund, which is a cash account that could pay your bills from 3-6 months in the event of a job loss or medical emergency. After that base is covered, you can start looking at investment vehicles. Is saving for retirement a priority? If so, does your employer offer a 401k with a match? That is always a good place to start. If not, perhaps other tax-advantaged vehicles like Roth IRAs would be a good thing to look into.
Alocacoc, Having to invest 12k depends on lots of factors, age, other investments, goal of the investment. The best way is to decide how much risk you can take, how long the money is going to be in the investment and choose a good balanced fund. Vanguard has a couple as does Fidelity. If you qualify and this is long term money, it would be a good idea to open a ROTH IRA with $5000 or $6000 depending on your age. I agree with the emergency funding mentioned in Lon's answer
Regardless of the investment vehicle used, you are looking to invest in a nice diversified portfolio. We don't want to have all our investment eggs in one basket. As Deborah mentioned, I believe both Vanguard and Fidelity have some great options that fit this purpose.
Yep. That Star fund is a good option for diversification, and it is cost effective. Assuming that matches your risk tolerance, it is a great place to start.
We hope everyone has a little bit in their emergency funds for a rainy day! Next question coming at you...
RC, this is a common question. I think the concern is am I getting the best return on my social security payments. The decision is a mortality one, if you wait until 70 and pass away shortly after, you will have missed several years of monthly income. I would opt to take it at normal retirement age, usually 66.
RC: Again, this is a question that can best be answered through a fee-only financial planner who is familiar with your situation. When to take Social Security can often depend on your cash flow. However, regarding the viability of SS being adjusted downward, that is a bit of a guessing game. However, the SSA has communicated that it is not on pace to have problems meeting their needs until around 2035. Additionally, I frequently make the case that any politician who proposed reducing benefits for current retirees would have a hard time getting elected. My guess is that your heirs will have more problems with SS than you will. Consequently, I would focus on your personal circumstances and when the best time to take benefits is for you rather than the sustainability of SS.
zams88: Of course, an element we have left out is your spending level. I'm sure you could retire, but it would be at a standard of living you are happy with? The easiest solution for your problem is to use an online retirement calculator. Search for one in google and you could likely find the answer you are searching for.
Yep, that is a good one too.
zams88, There is no way of knowing this from your email BUT, if this is your goal, I would recommend investing in taxable accounts (non retirement). From age 45 to 59.5 you will be using these accounts to live on. Tapping retirement accounts and paying penalties is not a good idea. I would work on getting as much money saved as possible, then look at the option of retiring early. Do not use any of your potential inheritance in any calculations. Your parents could live another 30 years.
Greetings Steve D., The most important practice is savings 15% of your salary for retirement. That might be 10% in retirement vehicles and 5% in a taxable investment account or it might all be in retirement vehicles. But saving 15% over a working career should adequately save for retirement.
Pushing your savings above 15% will allow you to put some aside for your daughter's many future needs. And don't just save, save and invest.
Steve D: You have a nice start (no debt). I'd look at an emergency fund first, and maxing out retirement accounts second. Again, if your employer offers a match on a retirement plan, that is free money! Do some research to determine if a tax-deferred investment vehicle like a 401k or Traditional IRA is your best route, or whether a tax-free account like a Roth 401k or Roth IRA is a better investment. (Hint: the answer frequently depends on your current tax rate as opposed to your anticipated future tax rate.) Of course, make sure you are adequately insured to ensure your daughter is protected. Lastly, focus on your retirement planning first, and an educational account last. You can always get a loan for school, but you can't get a loan for retirement.
Great note about the 15% rule David. People who save and invest 10% are frequently on the cusp of meeting their retirement needs, but people who save 15% are usually in a position where they have options like retiring early.
Steve, That is a question all financial advisors like to answer. We probably will all have different answers. You have already done well, having no debt. I am not sure what a "good income" is, but if you quality, I would open a ROTH IRA. Single income limits are from 112,000 to $127,000. The second piece of advice would be to stay out of trouble. What is financial trouble: investing in a company on a friend's advice, lending money to basically anyone you know, buying a house that you can't afford. When faced with a financial decision, there are many NAPFA members in your area that would meet with you for an hourly fee.
fees, this is an industry problem with commissioned sales people, they do not have to disclose all of the fees, they meet their due dilligence by providing a prospectus of 100+ pages. Keep calling your advisor and request a meeting to go over your portfolio and get a total fee. You might want to see a fee only advisor. I agree with David, we use all online tools for mailings. the paper clogs up my shredding service.
Fees: Good question. It sounds like you might have two sources of fees: fees charged by your actual investments, and fees charged by your advisor. Concerning your investment, you are looking for the expense ratio, which is the equivalent of an annual fee. You also want to know how your advisor is compensated. The fund paid to the advisor could be another annual fee each year, or it could be a larger fee of approximately 5.5% for loaded investments.