It takes a lot of time and you have to go through a lot of bad ones. Before I had a baby, I thought the simplest way to figure out what kind of gear I would need was to read reviews on sites like Baby Gear Lab and Baby Center (if only parenting were this simple.) As ergo was consistently named one of the best carriers, I felt fortunate when my sister-in-law re-gifted me her never used ergo carrier. Unfortunately, my baby did not feel the same way. I quickly discovered why the ergo was never used by my sister-in-law. Whenever I put my baby in the ergo, he cried. Not cute little kitten squeals, but full on pterodactyl type shrieks. So desperate was my little one to escape from the ergo that he would arch his back and use his feet to launch himself off of me in some kind of deranged baby suicide attempt. There was nothing ergonomic about the ergo for my baby or I, so we moved onto the baby k’tan. I loved my baby k’tan – it was soft, comfy, easy to put on and oh so cuddly. It rem...
This post is for people who are self-disciplined and looking to invest money outside of their employer sponsored retirement plans. It is also for those who are aspiring to find ways to generate passive income.
As an educator in New York City, we are provided an employer sponsored 403-b called the Tax Deferred Annuity (or TDA for short). For more information on it, I wrote about some of my observations about educators and retirement in an earlier article called A little bit goes a long way.
For those who are not familiar with TDA, it offers a variety of investment options but the most promising is the guaranteed returned fix rate for UFT members at 7% annually, and 8.25% for all other members. The maximum contribution that an individual can make is $18,000 for the year, which is similar to a traditional IRA for everyone else.
If you find yourself in a unique situation where you still have money to invest then I would like to share some of my own ideas that I have put into practice.
Within the advice that I share, I will embed my core values within it also so that you can gain a perspective as to why I choose to do the things the way I do. If any of it seems unclear or if you have questions please comment or reach out!!
Core Values
1) I believe in long-term investing. By long-term I mean I will not touch this money until I am ready to retire.
2) I had set aside 6 months worth of expenses as savings first before I even considered investing a dollar into anything else. Also as my expenses increase (for example: having a newborn) I will adjust my savings pool accordingly.
3) I believe in allocating my funds between stocks and bonds following the rule of taking 100 and subtracting your age from it:
Percentage of stocks = 100 - your age
So for example: I am 33, so 100 - 33 = 67% in stocks
The remaining percentage goes in to bonds.
So for example: if 67% is in stocks then 33% is in bonds.
4) I will follow this rule until I hit 25/75. I will keep adjusting this proportion until I reach the age of 75. So my final allocation of stocks and bonds will be 25% stocks and 75% bonds.
- Note: If you are a young person, then you should reverse the rule. So for example: let's say you are starting your career and you are 22. Then you should do 75/25. This means 75% should be stocks and 25% should be bonds, and you should keep this allocation until you hit 26, then follow value #3.
5) Within the stock allocation I will do a spit of 75% U.S. stocks and 25% International stocks.
So for example: If I am investing 67% of my money into stocks, then 75% of that 67% will go to U.S. stocks. So let's assume I have $1,000.
67% of $1,000 = 0.67 * 1,000 = $670
$670 is the total amount I'll invest in stocks with this amount
Then to find the amount for U.S. stock allocation I will do the following:
75% of $670 = 0.75 * 670 = $502.50
And, the difference will go to International stocks.
So for example: $670 - $502.50 = $167.50
So my stock allocation if I have $1,000 will be:
$502.50 in U.S. stocks
$167.50 in International stocks
and the remainder of the $1,000 will go into bonds, so $330 will go into bonds.
So to summarize:
$502.50 in U.S. Stocks
$167.50 in International Stocks
$330 in Bonds
And this is my allocation for a 33 year old person who has a $1,000 to invest.
6) I am only buying index funds, because it has proven to beat out a vast majority of active managers and has lower costs.
For U.S. stocks I will buy VTSAX (Vanguard Fund)
For International stocks I will buy VTIAX (Vanguard Fund)
For Bonds I will buy FTBFX (Fidelity Fund)
** Buy directly from Vanguard and Fidelity to avoid transaction fees. If you use a broker, you will pay the broker the transaction fee.
7) I will not time the market or speculate what future prices will be for the funds. Because of that, I will follow an investing schedule to make sure I invest X amount of dollars every month.
- Do not worry during a bear market, if the prices go down then you are buying stocks on sale.
- Enjoy the bull market, if the prices go up then the funds are doing well and you are making money!!
8) Do not implement tricks and gimmicks into your plan that complicate a simple and effective strategy.
For example: Do not sell off funds if they are on a down at the end of the calendar year to try to get a tax write off, and then buy again during the new year. If you don't know why you are doing it or how to maximize it then don't bother.
9) Reinvest all dividends. This is money making money for you.
So to summarize:
- Long Term Investing
- 6 Months Worth of Expenses in Savings
- Stocks Allocation = 100 - Age. Bond Allocation = Age
- 75% Stocks/25% Bonds = Most Aggressive Allocation, and 25%Stocks/75% Bonds = Most Conservative Allocation
- 75% U.S. Stocks and 25% International Stocks
- VTSAX, VTIAX, and FTBFX
- Do not time the market. Invest every month. Stick to your plan.
- No tricks or get rich quick, penny pinching, tax evading schemes
- Reinvest all dividends
My philosophy is safe, boring, and proven to be effective. And for some reason, not enough people do it. People who invest want to get rich quickly, well this is not about getting rich quickly. This is about self-discipline and using a measured approach to steadily build wealth. Through this you will be able to accrue additional wealth over a life time.
This approach will help you retire a bit earlier if you choose to, have enough money to live comfortable during your retirement, and ensure that you do not have to work for the rest of your life!!
I hope this helped you or made you think about your future and how you will prepare for it. If you have any questions or feedback please reach out or leave a comment, I'm more than happy to assist if I can. Thank you for reading and please share and subscribe for future posts!!
timing the moment is not my thing too ;) good piece!
ReplyDeleteAgreed, and thank you Walter!!
ReplyDelete