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by
J.L. Collins
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January 22 - March 5, 2021
Here’s an important truth: Complex investments exist only to profit those who create and sell them.
Try saving and investing 50% of your income. With no debt, this is perfectly doable.
The stock market is a powerful wealth-building tool and you should be investing in it. But realize the market and the value of your shares will sometimes drop dramatically. This is absolutely normal and to be expected. When it happens, ignore the drops and buy more shares.
When you can live on 4% of your investments per year, you are financially independent.
Do you think the average cost of a new car would be pushing $32,000 without E-Z financing? Or that a college education would cost over $100,000 if it were not for readily available student loans? Think again.
If you intend to achieve financial freedom, you are going to have to think differently. It starts by recognizing that debt should not be considered normal. It should be recognized as the vicious, pernicious destroyer of wealth-building
building potential it truly is. It has no place in your financial life.
If your interest rate is... Less than 3%, pay it off slowly and route the money to your investments instead. Between 3-5%, do whatever feels most comfortable: Either put the money to debt payment or investments. More than 5%, pay it off ASAP.
Waste no time. Debt is a crisis that needs immediate attention. If you are currently in debt, paying it off is your top priority. Nothing else is more important.
There are many things money can buy, but the most valuable of all is freedom. Freedom to do what you want and to work for whom you respect.
Those who live paycheck to paycheck are slaves. Those who carry debt are slaves with even stouter shackles. Don’t think for a moment that their masters aren’t aware of it.
Spend less than you earn—invest the surplus—avoid debt
Stop thinking about what your money can buy. Start thinking about what your money can earn.
And successful investing is by definition long term. Any investing done short term is by definition speculation.
Everybody makes money when the market is rising. But what determines whether it will make you wealthy or leave you bleeding on the side of the road is what you do during the times it is collapsing.
VBTLX—Vanguard’s Total Bond Index Fund—most
When you decide to sell your bond you must offer it to buyers on what is called the “secondary market.”
If rates have gone up, the value of your bond will have gone down. If rates have gone down, the value of your bond will have gone up.
When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. In either case, if you hold a bond to the end of its term you will, barring default, get exactly what you paid for it.
With separate funds, I can keep my bonds in my tax-advantaged bucket, protecting the dividends and interest from taxes. If you decide to own TRFs, they too are best held in a tax-advantaged bucket.
Target Retirement Funds have become very popular as options in the 401(k) and 403(b) retirement plans offered by employers.
If your company’s retirement plan offers TRFs from Vanguard or low-cost equivalents from another fund company, they are well worth your consideration.
VTSAX (Vanguard Total Stock Market Index Fund) VBTLX (Vanguard Total Bond Market Index Fund)
The first three are for us individual investors: Admiral Shares: VTSAX .05%/$10,000 Investor Shares: VTSMX .17%/$3,000 ETF: VTI .05% (ETF=exchange traded fund)
These next three are “Institutional Shares” and you might find them in your 401(k) or other employer-sponsored retirement plan: VITPX: .02%/$200,000,000 VITNX: .04%/$100,000,000 VITSX: .04%/$5,000,000
Here’s what you are looking for: A low-cost index fund. For tax-advantaged funds you’ll be holding for decades, I slightly prefer a total stock market index fund but an S&P 500 index fund is just fine. You can also look for a total bond market index fund if your needs or preferences call for it. Most plans will also offer these. TRFs (Target Retirement Funds) are frequently offered in 401(k) plans and these can be an excellent choice. But look closely at the fees. They are always higher than those for index funds, sometimes by a lot. For instance, the TRFs from Vanguard have expense ratios
...more
From Go Curry Cracker: Never Pay Taxes Again: http://www.gocurrycracker.com/never-pay-taxes-again/ GCC vs. The RMD: http://www.gocurrycracker.com/gcc-vs-rmd/
From The Mad Fientist: Early Retirement Strategies and Roth Conversion: http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/ Traditional IRA vs. Roth IRA - The Final Battle: http://www.madfientist.com/traditional-ira-vs-roth-ira/ Retire even earlier without earning more or spending less: http://www.madfientist.com/retire-even-earlier/
When you leave your employer you can roll your 401(k) into an IRA, preserving its tax advantage.
Roth 401(k) These are relatively new and not yet widely available. It is worth comparing these bullet points to those of the Roth IRA we’ll discuss shortly. Contributions you make are NOT deductible from your income for tax purposes. All earnings on your investments are tax-free. All withdrawals after age 59 1/2 are tax-free. Once you reach age 70 ½ RMDs take effect. There is no income limit for participating.
Individually-based tax-advantaged buckets: IRAs IRAs are buckets you hold on your own in addition to and separate from any employer-sponsored 401(k)-type plans you may have.
There are three types of IRAs. For 2016, the total contribution cap is $5,500 per year, or $6,500 for those age 50 and older. Note: This is in addition to the money you can contribute to your employer-based plan.
