Katie wants to know how to purchase a business that’s already cash-flow positive. What indicators can she look for?
Rob will retire from the military with an inflation-adjusted pension. Does he need a bond allocation in his investment portfolio?
Brian conquered a large sum of credit card debt, but still has student loan debt and a mortgage. Should he pay off his student loans, refinance them, or refinance his mortgage?
Jeff is curious about the pros and cons of investment apps. When should you use them?
Another Kati (without an e!) wants to live a healthy and wealthy life before she’s 70. Where should she allocate her savings so she can retire early?
We answer these five questions in today’s episode.
Here are more details:
Katie asks (at 00:59 seconds):
In a past episode, you mentioned buying a business to earn passive income. This is a new idea to me. What kind of business generates passive income? What search terms will lead to more information about this process?
Rob asks (at 19:01 minutes):
Do I need a bond allocation in my investment portfolio with an inflation-adjusted military pension? Or can I stay 100 percent in equities since the pension provides regular income?
As background: I’m 42 and married. We have two kids under four. In February, I’ll retire from the military and move to Nevada. My pension will kick in immediately and I’ll receive monthly checks for a total of $42,000 net per year. This amount will adjust for inflation every year and includes lifelong healthcare for my family.
In November 2019, we had a net worth of $850,000. Roughly 90 percent of that is VTSAX, evenly split between taxable and retirement accounts. Ten percent is in cash to take advantage of market downturns. This doesn’t include our home, which is paid for in cash.
My charts show that we can live off of the pension alone, so I plan to withdraw one to two percent from our equity portfolio for special occasions. I want to be careful to avoid income amounts over the 22 percent tax bracket to maintain my tax efficiency (per lessons from the Mad FIentist).
What do you think of this plan?
Brian asks (at 32:06 minutes):
I’m 37 years old. I paid off a large sum of credit card debt last year and my emergency fund is solid, but I still have student loans and a mortgage to pay off. Which should I focus on?
I have 12 years and a balance of $112,000 left on my mortgage. The interest rate is 3.125 percent. My student loans have a balance of $65,000 with an interest rate of 6.375 percent.
I can max out my 401k, HSA, and Roth IRA, and also invest in a Vanguard mutual fund with after-tax money, or I can pay off my student loans.
I’m torn because my student loans are federal, so they have plenty of benefits and protection. I also think I can earn more than a 6.4 percent return in the market. I can also refinance with a private lender for a lower interest rate. (By the way, my income is above the threshold where I can deduct student loan interest.)
I could also refinance my mortgage, pull cash from my equity, and use this to repay my student loans. I’ll get a lower rate and I can deduct the mortgage interest to lower my taxes.
Which option should I choose?
Kati asks (at 47:53 minutes):
I’m in my early 30s, and the only debt I have is my mortgage and a car loan. I can pay these off within three years.
My company offers fifty cents on the dollar for my 401k pre-tax, which I’ll max out in 2020. They also offer an after-tax contribution, without a match, where I can contribute up to $27,750 towards an IRA that converts to a Roth at the end of the year.
Is that enough for retirement?
Beyond that, I want to know where to allocate my extra savings because I don’t want to wait until I’m 70 to access my money. Once your emergency fund is full, how much should you put toward a brokerage account versus a retirement account?
Jeff asks (at 01:01:25 minutes):
What are some of the best apps people can use to start investing? What are the benefits, and what are the downsides? I’d love to hear your review of various apps.
Resources Mentioned:
- Acorns app
- Qapital app
- Robinhood app
- M1 Finance
- Trim app
- Tip Yourself app
- ChooseFI.com/fi101
- ChooseFIFoundation.org/mission
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