Three Kids, FI has an all-equities broad stock market index portfolio that he’s held for years. He’s confident he can handle maximum volatility, so what investments can he lean into to that will provide him with great long-term returns?
Jordan is a new listener and he has three questions: should he use $100,000 to buy more rental properties or invest in a brokerage account? Should he and his wife upgrade their home and buy a property that’s worth double their current home? And finally, how can self-employed individuals who earn more lower the cost of health insurance?
Alex’s wife lost her job due to the pandemic. They live in Washington state and are married filing separately due to his wife’s student loans. Can he use half of his income to qualify her for Roth IRA contributions?
Sarah rounds out this episode with a concern: a financial advisor told her that investing in VTSAX over-indexes her in large cap funds and technology stocks. Is this true, and what should she do about it?
I answer these four excellent questions on today’s episode. Enjoy!
Three Kids, FI asks (at 2:11 minutes):
I’m 38 years old with three kids. My family is debt free aside from our mortgage and we have an emergency fund. We max out our traditional 401k, HSA, and Roth IRA. Last year, we also started an online side business. We also contribute to three 529 plans to give our kids a headstart. We’re proud of our 38 percent savings rate.
I heard someone tell Joe that it’s easier to handle a downturn when you have a $60,000 portfolio, and harder when you have a $600,000 portfolio.
I’ve had an all-equities broad stock market index portfolio since I was in my 20s, and I went through the great recession without touching it. However, I’ve always wondered if I could do the same with a larger portfolio.
For the last decade, whenever I’ve looked at my portfolio, I’d imagine that number drop by 47 percent and staying there for years, like the great recession. That mental exercise was validated when our portfolio lost and regained $180,000 over the course of three months. I didn’t blink an eye. With 15 years as an all-equities investor backed by cash, I think I’ve proven to myself that I can handle the rollercoaster.
If you’re an investor unconcerned with volatility, what can you lean into that provides the best long-term returns?
Sarah asks (at 17:15 minutes):
I spoke with a financial advisor (who’s a fiduciary) who told me that investing in funds like VTSAX over-indexes me in large cap funds and technology stocks. Doing so ignores other types of investments and assets such as small cap funds, utilities, materials, and other sectors that may produce good returns but aren’t at the current capitalization of the large technology stocks right now.
Is it true that using investment tools such as VTSAX over-index you in large cap funds or in technology firms? Is this something I should correct for?
Alex asks (at 30:56 minutes):
My wife and I have been married for two years, and we file separately for student loan purposes (she’ll have her loans forgiven soon). My wife lost her job earlier this year and hasn’t earned enough income to make a backdoor Roth IRA contribution.
Since we live in Washington, a state that has community property laws, married filing separately effectively splits our income between the two of us. Could we consider half of my income to be hers for the purpose of qualifying to make a traditional IRA contribution to then roll it into an IRA contribution, or is that not allowed?
Jordan asks (at 39:42 minutes):
I’m 28 years old. My wife and I have a two-year-old daughter. I’m a real estate broker and I own two rental properties: a single-family home and a duplex. Our plan is to own 20 rentals with cash flow that covers our living expenses.
I earn anywhere between $100,000 – $150,000 per year as a real estate agent, and we save the rental income we receive. Our mortgage is our only debt. We also have a six-month personal emergency fund and six-month emergency fund for my real estate business.
We have $100,000 to invest, and I’m not sure what to do with this money. Should I invest in a taxable brokerage account or purchase more rental properties? (I don’t have any subject properties that I want to buy.)
I have two other questions:
- My wife and I want to upgrade our house. Our current home is worth $250,000 and we have $90,000 in equity. The houses we’re eyeing are $400,000 – $500,000. Is this a good idea? I don’t want to make a decision based on my current income as it could fluctuate, and we’re a one-income household.
- What’s your recommendation for self-employed families that earn too much to get health insurance from the marketplace? Are there any options that don’t cost $15,000 – $20,000 per year? I also have a pre-existing condition.
- The Psychology of Money, with Morgan Housel | Podcast Interview
- The Simple Path to Wealth, with Jim Collins | Podcast Interview
- “The 8 Most Volatile Sectors” | Investopedia Article
- “Volatility from an Investor’s Point of View” | Investopedia Article
- The Psychology of Money, Morgan Housel | Book
- VTSAX | Vanguard
- Publication 590-A: | IRS, Contributions to IRAs
- Ask Paula – I Have Three Kids and I’m Hoping for Financial Independence | Podcast
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