My two week vacation to Hawaii was perfect except for one thing. My financial adviser from Citibank failed to call me the day a particular deal was closing as previously discussed. This investment offered between a 15% to 20% guaranteed return on the Dow Jones over four years if the Dow closes above the initial strike price plus any upside beyond the guarantee and a 10% downside buffer. I wanted to know whether the guaranteed return was 15%, 16%, 17%, 18%, 19%, or 20% to determine how much to invest. I already made up my mind that I would lob anywhere between $20,000 – $30,000 into this note.

Instead of getting a call on the day of closing, I get an e-mail two days after the close saying he got his calendars totally mixed up. Sigh. At least give a believable excuse!

Tim’s lack of follow up is costing me around $1,000 in paper gains in just a couple of weeks as the Dow has moved from 14,300 to over 15,000 at the moment. As an early retiree, I’m investing all the disposable income I’ve got because I’m looking for capital appreciation and income to help replace my lack of W2 income. Leaving cash in a money market account yielding 0.1% is a financial crime I refuse to commit.

Lesson learned. For those of you who are interested in an upcoming IPO and plan on going away for vacation, put in your IOI (indication of interest) before you leave and stagger your order size depending on the final price. My financial adviser might still forget to input the order, but at least there will be an e-mail trail indicating my IOI, and the firm can fill the order in arrears.

THE MAIN WAYS TO USE A FINANCIAL ADVISOR 

* Investment ideas. There are always interesting investment opportunities somewhere, it just takes effort to look. If you have another set of eyes specifically looking for investment ideas meeting criteria you’ve discussed beforehand, then you increase your chances of finding hidden gems. You can ask your financial adviser to send you a weekly e-mail with what went on in the markets, a screen of buy or sell ideas, or big news and analysis. Somebody is always making money on something, somewhere.

* A sounding board. Hopefully your financial adviser is financially astute, and not just a salesman looking to get you into the latest product with high embedded fees. If you have an experienced financial adviser, definitely use him or her to test out your ideas. For example, I made a three minute pitch to buy Chinese internet stocks to see if he had any feedback that I might be missing. He echoed most people’s concerns about corporate governance and voodoo accounting. But really, he had no idea about Chinese equities and was just trying to put on his best guess. Before you buy anything, it’s always good to understand a reason why someone would be selling.

* Learning seminars. My financial adviser at Fidelity where I have my rollover IRA always e-mails me the latest upcoming seminars that are hosted in her office. The latest two are: Lessons From The Downturn and Intermediate Options Strategies. If I want to learn something, get some free food and beverages, and meet new folks, what better way than to attend one of these sessions. Leverage your financial adviser to expand your knowledge.

* Tax and estate planning. Many of us are financially astute in making and saving money, but when it comes to taxes and estate planning we need as much help as possible to avoid getting robbed by the tax man given tax laws are always changing. I plan on discussing Rule 72(t) strategies with my adviser later in the month as well as talk about potentially opening up a Fidelity Personal Retirement Annuity, which is not an annuity, but a fund where I can contribute after tax dollars, regardless of my income level and allow the growth to compound tax free. The FPRA is much like an IRA. Financial advisers generally have colleagues in different branches who can help you out on a multitude of financial issues.

* To relax and enjoy life. Most of you with financial means have better things to do with your lives than just watch over our money. You’ve got countries to see, family to be with, inventions to create, and work to do. While in Hawaii I was hiking, playing golf, surfing, scuba diving, eating like a hungry hippo, horseback riding, and watching sunsets over a different cocktail every single day. The last thing I wanted to do was think about whether Apple would beat estimates or sink further below $400. Knowing that a financial adviser has my back lets me relax on the more important things in life. Money is only a means to an end. If something big is happening or a position is blowing up in your portfolio, trust that s/he will let you know and make prudent decisions for you or at least give you a heads up.

MANAGE YOUR FINANCIAL ADVISER FOR A BETTER RELATIONSHIP

It’s important to set expectations in the beginning for what you want out of a financial adviser. For my financial adviser at Citibank where I’ve developed a relatively meaningful portfolio, my #1 request is to have him e-mail me the prospectuses of all new index or single stock structured products that comes up every month and let me know which one he likes best. Given I plan on investing new money every single month, it’s important to be aware of a steady pipeline of new securities.

For my financial adviser at Fidelity, all I ask her to do is put me on the mailing list for all upcoming investment seminars that are held in her office downtown. I enjoy learning new things and meeting new people. I’m particularly interested in shielding as much of my investments as possible from the tax man, so I’ve asked her to let me know whenever there are any new tax efficient product offerings.

To make sure I know where all my money is going, I simply aggregate all my financial accounts online and check in once a week or so to make sure everything is on track. Sometimes I catch ridiculous bank fees I had no idea I was paying. Other times I just like to make sure I have a comfortable net worth mix. Finally, once a quarter I run my portfolios through the Investment Checkup tab to see where I am under or over allocated for someone with my risk tolerance. It’s nice being in the command center.

If you want further motivation to save, getting a financial adviser assigned to you for free because you have X amount of money with an institution is a very nice perk. There is something very comforting knowing that someone is watching over your investments, especially when you’re away on vacation. I know many older retirees who dial up their financial advisers just to shoot the breeze because they are bored and want someone to talk to.

If you are not there yet, don’t worry as it just takes time. Financial institutions really do start favoring their larger customers with better product offerings, lower borrowing rates, and better service for the most part. You may even get invited to social  boondoggles just because they want to keep you entertained. Once you amass a large enough financial nut, just make sure your financial adviser is at least on the ball with what you’re looking for. Now if I can only get that $1,000 in paper profits back.

Related post: Questions To Ask And Think About Before Hiring A Financial Adviser

Photo: Larry Ellison’s mega yacht. You know his financial adviser is keeping him up to date on his billions!

Regards,

Sam

Source: Financial Samurai

View from Koko Head, Oahu

After rolling over my 401(k) into an IRA, I’d like to focus on potentially the single most beneficial reason why everyone should convert their 401(k) into an IRA after they leave their jobs: Rule 72(t).

Rule 72(t) allows for penalty-free withdrawals of your IRA account before the age of 59.5 provided that the IRA holder take at least five “substantially equal periodic payments” (SEPPs). The amount depends on the IRA owner’s life expectancy calculated with various IRS-approved methods.

Three IRS approved methods to calculate SEPP:

1) Required minimum distribution method: This method takes your current balance and divides it by your single life expectancy or joint life expectancy. Your payment is then recalculated each year with your account balance as of December 31st of the preceding year and your current life expectancy. With this method, your payments will change depending on your account value.

2) Fixed amortization method: This method amortizes your account balance over your single life expectancy, the uniform life expectancy table, or joint joint life expectancy with your oldest named beneficiary. Such a method is more stable.

3) Fixed annuitization method: This method uses an annuity factor to calculate your SEPP. It’s hard enough calculating life expectancy and portfolio performance, let alone forecast interest rates for annuities so let’s skip this method.

The most common withdrawal calculation method is #1. I’d like to use my example for how using Rule 72(t) can help an early retiree extract more income and lead a more comfortable financial life.

TAXES BAD, MORE INCOME GOOD

Situation: Rolled over my 401(k) of 13 years to a IRA in the spring of 2013.

Estimated IRA value: $400,000

Investment style: Aggressive, but open to be more conservative if I use Rule 72(t).

View on taxes: Hate them

During my working years, I was unfortunate enough to pay the top federal income tax brackets of 35-39.6%. Given such a high tax bracket, I gladly maxed out my 401(k) every year to save on taxes. Because I earned more than $100,000, I wasn’t allowed to contribute to a traditional IRA sadly enough. For those of you who have such an opportunity to contribute, don’t waste it.

My last full year of 401(k) contribution was for $17,000 in 2012. At a 35% federal income tax rate, I was able to save $5,950 in federal income taxes in addition to $1,836 (10.8%) in California state income taxes. The total tax savings by maxing out my 401(k) comes out to roughly $7,786.

Now that I am retired, I’ve managed to get my Adjusted Gross Income (AGI = income after deductions) down to the 25% tax bracket. If I utilize Rule 72(t) based on a minimum distribution method, I can now withdraw from my converted IRA at a 10% lower tax rate (35% – 25%)!

Based on my 401(k) dashboard where I’ve run different retirement scenarios, it states that I contributed roughly $200,000 to my 401(k) over 13 years with the remaining $200,000+ coming from match, profit sharing, and investment returns. To take a conservative approach to tax savings, all I would therefore do is multiply $200,000 in contributions by my tax savings of 10% to equate to $20,000 in less taxes I’ll have paid in my 13 year career. I can also simply take my entire 401(k) balance of $400,000 and multiply it by 10% to get $40,000 in tax savings since I could have also withdrawn the funds while I was working.

The bottom line: I’m able to save $20,000 – $40,000 in taxes with Rule 72(t).

SETTING UP THE IRA FOR PERPETUAL LOW TAXED INCOME

Besides the tremendous tax savings I know I will instantly get if I use Rule 72(t), I can potentially also set myself up for a potential perpetual income stream for eternity, or until the world comes to an end! Please read on to find out how.

Consideration: Change investment goal from aggressive capital appreciation to long term dividend aristocrat stocks for income.

Withdrawal calculation: Based on a single life expectancy of 85, I simply take 85 – current age 35 = 50 and divide my IRA value of $400,000 by 50 to get $8,000 a year in withdrawal. $8,000 a year equates to a 2% withdrawal yield on my entire IRA portfolio. Coincidentally, the dividend yield on the S&P500 is around also around 2%.

Specific strategy #1: If I dump my entire IRA into the S&P 500 ETF SPY or SDY, the S&P500 Dividend ETF, I could theoretically withdraw $8,000 a year for the rest of my life without reducing much if any of the principal! One can conservatively assume that over the course of 50 years, stocks and therefore my IRA and dividend interest will grow at least the pace of inflation.

Specific strategy #2: Instead of investing my entire IRA into the S&P 500 index SPY, I can focus on a smaller portfolio of higher yielding dividend stocks with dividends all above 3%.  Here are some names: AT&T (4.8% dividend yield), HCP (4%), Consolidated Edison (3.9%), Legett & Platt (3.6%), Nucor (3.4%), Chevron (3.3%), Kimberly Clark (3.2%), Procter & Gamble (3.1%), Johnson & Johnson (3.1%), McDonald’s (3%), Clorox (3%). With a blended dividend yield of around 3.4%, I can now withdraw $13,600 a year at a 25% tax rate without ever drawing down principal.

$8,000 – $13,600 a year in dividend income isn’t much, but it’s much more than what I thought I would ever receive before the age of 59.5. It’s good to know that this is a potentially accessible stream of passive income to add to my passive income portfolio.

STARTING RULE 72(t) AT AN OLDER AGE 

Age 35 is admittedly a little early to start withdrawing from an IRA using Rule 72(t) as it will take away from maximum compounding. $400,000 is a nice amount, but as we’ve seen in the above calculations, the income stream isn’t very strong. Let’s use three examples which will help reduce the number of years for withdrawal in order to boost the income stream.

Example #1: If I start withdrawing at age 35 with on a 85 single life expectancy estimate, 50 years of withdrawal gives a 2% yield vs. a ~2.2% S&P500 dividend yield. I basically withdraw 100% of what the S&P500 spits out every single year in dividends plus a small 0.2% cushion.

Example #2: If I started withdrawing at age 45 with a 85 single life expectancy estimate, 40 years of withdrawal gives a 2.5% yield based on $10,000 a year divided by $400,000.  I’m now slightly over the S&P 500 dividend yield and will probably look to buy the highest S&P 500 dividend yielding stocks via the ETF SDY at the very least.

Example #3: If I start withdrawing at age 55 with a 85 single life expectancy estimate, 30 years of withdrawal gives a 3.3% yield based on $13,333 a year divided by $400,000. This is roughly the maximum I can currently withdraw without spending down the IRA principal.

Example #4: Let’s say I start withdrawing at age 45 with a 95 single life expectancy estimate. This leads back to a 50 year withdrawal level with a 2% yield. On the one hand, living longer increases the likelihood that a IRA portfolio will last forever. On the other hand, you’ll need more money to pay for your life. Hence, it’s better to assume you live longer than the median age and build alternative income streams.

MONEY IS A MEANS TO AN END

I’ve always mentally written off my 401(k), which is now an IRA because I never wanted to depend on government sponsored pre-tax programs to survive in retirement. The same thing goes for social security. This is the reason why I’ve aggressively saved more than 50% of my after tax income every year I worked. If all I had was my 401(k)/IRA in retirement and no other savings or income streams, I’d be screwed because I never planned on working for 37.5 consecutive years after college. I knew after two years on Wall Street that I wanted to retire by 40.

With Rule 72(t), I can now conservatively utilize all my years of pre-tax savings at a 10% lower tax rate to enjoy now. If I maintain a 2% withdrawal rate or less, I should be able to receive $8,000 a year for the rest of my life and potentially pass on the principal to a loved one. The issue I have is that $400,000 just isn’t a significant enough amount of money for me to enact Rule 72(t). I’ve got enough passive income to pay for all expenses and then some. Instead, I would like to try and grow the $400,000 into $1 or $2 million dollars over the next 10 years and then start withdrawing at age 45 or thereabouts. This is part of the reason why I wrote the post on investing in China.

To grow your portfolio, it’s clearly better to reinvest the dividends into the markets. However, if you are retired, need the income, or don’t plan to live for a long time, utilizing Rule 72(t) is a no brainer. The purpose for all those years of saving for retirement is to actually spend the money in retirement. From a financial standpoint, I can’t think of much worse things than saving for decades only to die without being able to spend your hard earned money.

Readers, why do people think they will make more in retirement than during their prime earnings years? I’m trying to understand why folks would contribute to a ROTH without maxing out a 401(k) or traditional IRA first. For those who have exercised Rule 72(t), what am I missing from my analysis and what more should early retirees think about? Thanks to Mrs. Pops and JayCeezy for their Rule 72(t) thoughts on the previous post!

Best,

Sam

Source: Financial Samurai

This past week I decided to convert my 401(k) into a rollover IRA and I wanted to share with you why. As I wrote in a previous article, I took profits in my 401(k) after the S&P 500 reached the 1,551-1,555 range. That’s a 9% gain for the year and inline with my 2013 forecast which now seems conservative with every pundit on the street calling for 1,600+. Where were their calls at the end of last year I don’t know. I guess it’s easy to get bullish after the market has made a strong move!

Given I no longer have earned income, I can no longer contribute to my 401(k). The market is fully valued in my opinion which means I see a greater risk of a pullback during the summer than continued gains. Even though my 401(k) has 40 or so mutual fund choices provided across various sectors, countries, and asset classes it isn’t enough for what I want to do.

THE BENEFITS OF A ROLLING OVER TO AN IRA

1) More selection. I always want to be fully invested in my 401(k) because I’ve got other portions of my net worth in risk-free investments such as CDs. I treat my 401(k) like my own little hedge fund or mutual fund and so should you. You wouldn’t invest in a mutual fund that decides to go 80% cash because the reason why you are investing in a mutual fund is for equity or bond exposure. Equity mutual funds also have restrictions to how much cash they can hold e.g. usually 5% maximum.

My 401(k) is restricted to mutual funds only. I cannot buy specific stocks or ETFs nor can I short any securities as a hedge. To get short the markets I either have to go to cash or buy a bond fund, which admittedly turned out quite well (Read: The Proper Asset Allocation Of Stocks And Bonds By Age and see VUSUX). In essence, I wanted to move from being a macro fund to a hege fund who picked specific stocks with the flexibility to hedge. Names such as Apple, Baidu, and Sina are on my list.

2) Lower costs. The only costs you have when buying a stock is the transaction cost. I get 100 free trades for the first year of my rollover, so my transaction costs will likely be nothing for one year. ETF costs are usually 0.1% or less, which is why the ETF industry has grown tremendously at the expense of the actively managed mutual fund industry.

I ran my 401(k) through Personal Capital’s 401(k) Fee Analyzer and discovered my existing portfolio at the time would have cost me $1,700+ a year. That’s a ridiculous sum of money to be losing. I can easily construct my own portfolio of specific stocks and ETFs for $0 fees or probably less than $100 a year on a ~$400,000 portfolio. That’s a no brainer in my mind. If you haven’t run your 401(k) through the fee analyzer, I strongly suggest you do, especially since it costs nothing.

3) Less trading restrictions. My 401(k) and practically all 401(k)s have trading restrictions for the number of times you can rebalance a year. My old 401(k) restricted me to 13 rebalances a year until I would be locked out from rebalancing for a full three months after the limit was hit. Even if I wanted to move a miniscule 1% from one fund to another fund, that would count as a rebalance.

One probably shouldn’t conduct more than four major rebalances a year, but if you really like to optimize your portfolio by sticking to some specific percentage balances, 401(k) rebalancing restrictions are quite onerous. With my rollover IRA I can trade as much as I want provided I have the cash balance. Read: How Often Should I Rebalance My 401(k) A Year for more thoughts on the topic.

4) Less tax headaches. If you like to trade, you will have to reconcile your trades (report your cost basis) every single year to the IRS. About 10 years ago I completely forgot to report the cost basis for around $2 million in trades for some reason. The IRS therefore thought I made $2 million in trading profits and sent me a tax bill for over $500,000! In reality, I probably made only around $30,000 in profits as the $2 million was simply the total value of transactions. I sent in my individual costs by security and they exonerated me from the bill a couple months later.

With the rollover IRA, you can literally make a million trades and you won’t have to input a million reconciliations because the IRS only taxes you during the time of withdrawal on the total amount. This is something many people do not realize so feel free to ask questions in the comments section if you are unclear. The IRS doesn’t see all the buys and sells in your 401(k) either, but you are restricted from the amount of trades you can make. For those with a tendency to trade, a rollover IRA is much better than a 401(k).

THE NEGATIVES OF ROLLING OVER INTO AN IRA

1) May blow yourself up. With a wider selection of securities to choose from, you will be tempted to invest in things you wouldn’t normally be able to buy in your 401(k). I think Apple ($420), Baidu ($83), and Sina ($47) are buys here for various reasons which I can elaborate on in a later post. Please don’t make stock trades based on what I think by the way. Do your own research as this is not a investing site. All three stocks have been dogs for over 12 months and will likely continue to be dogs until some catalyst arises. I’m happy to buy now and wait for such catalysts at current valuations. Only time will tell whether I’ll be right and we can all look back on this post in six months and laugh. Single stock risk is much higher than market risk.

My 401(k) would probably only fluctuate +/- 15% for a 12 month period based on how I’ve constructed my portfolio. With Apple, Baidu, and Sina I could easily see +/- 30% swings. Please note that I’m just using these three stocks as examples for the present time and ideas are constantly changing. Watch out for that swine + bird flu in China!

2) Might be more stressful. When you’ve got all the power, all the glory and all the pain is on you. I used to check my 401(k) linked to my Personal Capital account along with other portfolios maybe once or twice a week to make sure everything is on track. Now I check my rollover IRA on a daily basis because I’ve got much higher risk with single stock investments. Speak to any hedge fund analyst or manager and they will tell you they are always on because of what’s going on in the Asian markets at night and the European market closing during our early mornings.

You can easily reduce your stress by having a more diversified rollover IRA portfolio that mimics exactly what you would have bought in a 401(k). But I’m a balls to the wall type of guy who bets big if I believe strongly in something. Having 25 positions at 4% each is very uninteresting. Give me five positions at 20% each or even three positions at 33% each and it’s game on! One of my biggest regrets at age 22 was not investing more in a stock that returned 50X in one year. At least I did invest several thousand dollars which I parlayed into my first rental property.

We can talk about portfolio theory and the efficient frontier in another post. I’m very risk loving with my rollover IRA because I don’t need the money and I can’t touch the money without penalty until age 59.5. My pre-tax retirement portfolios have always been seen as funny money where the government could easily taketh away.

3) Have to make an effort. Rolling over your 401(k) into an IRA takes action. Most people I know are either scared of investing or too lazy to stay on top of their investments. I didn’t roll over my 401(k) for one full year because I was happy with just making macro bets and didn’t want to bother trying to figure out how to rollover the portfolio.

Luckily it’s the year 2013 and the internet has made things as easy as cake. I logged onto my Fidelity account and clicked the “rollover” option, answered some questions and viola! My rollover IRA was available the very next day. I think all of the major financial firms that have 401(k) plans also have rollover IRA options. It’s much easier than you think. Just give them a call or click around on the homepage. You can also open an E*TRADE Rollover IRA with this link if you’re looking for other options. I’ve used E*TRADE for over 10 years and they have a massive selection of investment options.

ROLLOVER THAT 401(k) IF YOU CAN

I recommend everybody who has lost a job or who is transitioning to a new job to rollover their 401(k) into an IRA due to an increased selection of investments, lower expenses, and more flexibility. Just be honest with yourself in understanding your own risk tolerance and gambling tendencies. Make no mistake that the stock market is the world’s largest casino. There’s a reason why vernacular such as “making a bet on XYZ stock” exists. Nobody knows the future, but we can all make educated investment decisions.

Please continue to do your best and max out your 401(k)s and IRAs in the meantime. You will surprise yourself by how quickly your contributions add up over time!

Readers, any other positives or negatives about rolling over a 401(k) into an IRA that I may have missed? What did you do with your 401(k) when you switched, got laid off, or retired early?

Regards,

Sam

Source: Financial Samurai

I want to get everybody talking about their retirement portfolios because making the proper net worth allocation, deciding on how often to rebalance, and running different growth scenarios matters more over time. Contributing the maximum $17,500 a year to your 401K should be standard. If you’re not maxing out your 401K, then you should probably give yourself a timeout to contemplate why you’re shooting yourself in the foot.

As you can tell from my 401K by age chart, contributions add up quickly over time. Assuming you received no company match and suffer no losse, you’ll have at least $100,000 in your 401K in six years. In 10 years, you’ll probably sock away over $200,000 and 30 years you’ll finally reach that magical $1 million dollar mark.

The S&P 500 is up roughly 10% year to date. That’s a health $100,000 gain in your million dollar portfolio in three months without having to do much of anything. I’m cautious about putting new money to work here, but the point is once you’ve amassed a sizable nut there’s no longer a need to work in a bull market.

401k CONTRIBUTIONS AS A PERCENTAGE OF YOUR PORTFOLIO

Contribution
Portfolio Size
Contribution As % Of Portfolio
10% Change In Portfolio

$17,500
$17,500
100.00%
$1,750

$17,500
$30,000
58.33%
$3,000

$17,500
$50,000
35.00%
$5,000

$17,500
$75,000
23.33%
$7,500

$17,500
$100,000
17.50%
$10,000

$17,500
$150,000
11.67%
$15,000

$17,500
$200,000
8.75%
$20,000

$17,500
$300,000
5.83%
$30,000

$17,500
$400,000
4.38%
$40,000

$17,500
$500,000
3.50%
$50,000

$17,500
$1,000,000
1.75%
$100,000

$17,500
$1,500,000
1.17%
$150,000

$17,500
$2,000,000
0.88%
$200,000

$17,500
$3,000,000
0.58%
$300,000

When your portfolio gets to $175,000, your returns will outstrip your maximum 401k contribution amount with a 10% change obviously. It’s my belief that once you reach somewhere around $2500,000 in your 401k, you’ll start caring less about your contributions and start really caring about your investments. Your returns start becoming meaningful and you start to believe $1 million is within reach if you don’t blow up.

Now imagine if you had a $2 million dollar portfolio and returned $200,000. $200,000 is 11.5X greater than a $17,500 contribution. I hope you’ve either become a very savvy investor by now, or have a private wealth manager looking after your money!

BACK TO YOUR MONEY STRENGTH

Making money through work is easy compared to having your money work for you. In my article, “Your Money Strength: How Hard Is Your Money Working For You?” I gave stock stock investing a “B” grade because after you find your desired portfolio of stocks, you hope for the best, rebalance every so often, and collect some dividends.

The reality is once your portfolio grows large enough in size (say $250,000 or greater), your money strength increases to an “A” as demonstrated in the chart above. My 401K at the end of 2011 was around $310,000 and grew by 16% or roughly $48,000 in 2012. The effort required to make $48,000 through investments was easy compared to many other activities. $48,000 is also 2.8X greater than my $17,000 contribution. It’s just important not to confuse brains with a bull market now that the good times are back.

2013 will be the first full year I do not contribute to my 401k given I’ve retired. As a result, I’ve found myself to be much more cautious in my investing style given I no longer have a contribution buffer in case things turn for the worse. My old self would probably have stayed 95% in equities until the markets started rolling over. My new self decided to take profits when the markets were up 9% given that is what I predicted for the full year and wait for the storm that doesn’t seem to come. It’s a disconcerting feeling not maxing out my 401k for the first time in over a decade, so please cherish your 401k if you have the ability to contribute.

MAKE THE EFFORT TO STUDY, SAVE, AND INVEST

Your retirement stock portfolios are worth studying. Think about how much time you put into researching a car, a home, a school, or even an item of clothing. Now compare how much you spend learning about investing and economics. Whether it’s through laziness or fear, I encourage you to get your priorities straight.

Once you build a sizable financial nut, making money becomes much easier. Follow my 1/10th rule for car buying. Put away your credit card if you can’t pay in full. Save and invest for goodness sake. You don’t want to wake up unemployed at 45 years old and complain why you don’t have enough money to survive for the next six months. 20 years of saving and investing should provide you years of reprieve.

Your retirement contributions matter less over time. What matters more is having the right asset allocation and the right holdings. I’m not going to tell you what to invest in or what your risk tolerance is. Only you can decide. Have an open dialogue with your above average spouse or a friend you trust and get going. Your older self will thank you!

Readers, have you reached the point where your returns overshadow your maximum contribution amounts? What portfolio level do you think you need to reach before you’ll feel OK not contributing or maxing out anymore? How large of a financial nut are you shooting for by the time you retire?

Best,

Sam

Source: Financial Samurai