Jess wants to reach financial independence by the time she’s 50. But she’s worried that she doesn’t have enough money in cash or taxable brokerage accounts to bridge the gap in her first few years of retirement. What moves should she make, if any?
Yisell wants to invest money now. Should she cash out her $70,000 pension in hopes to generate more than the $1,000 per month she’s guaranteed from it?
Abbey is 22 and she would like to go back to graduate school for nurse anesthesia. Should she save up and pay for it in cash, or invest her money and take out federal loans?
Eliana enjoyed our interview with Paul Merriman on the two-fund portfolio. She’s curious about what growth stocks and value stocks are, and how they fit into a passive index fund investing strategy.
Finally, Sneezy wants to know: why aren’t stocks a good hedge against inflation?
My friend and former financial planner, Joe Saul-Sehy, joins me to answer these questions on today’s episode. Enjoy!
Sneezy asks (at 3:00 minutes):
When it comes to hedging against inflation, everyone talks about commodities like gold, land, houses, etc. Why aren’t stocks a good hedge against inflation if the purchasing power of the currency is depreciating? Wouldn’t you expect companies to request more units of that currency for their products so they can hedge against inflation?
Eliana asks (at 20:22 minutes):
I loved your interview with Paul Merriman about the two-fund portfolio. Since you say you shouldn’t invest in something you don’t understand, can you clarify the idea of growth stocks vs. value stocks?
From what I understand, a value stock is considered cheap relative to what the company is really worth, based on its fundamentals. I’m confused by this as judging what a company “is really worth” contradicts the premise of passive index fund investing. Isn’t the goal to invest in the whole market without trying to pick winners or losers?
I realize there’s a lot of analysis that goes into what’s growth and what’s value, but I’d love to hear you talk about how these categories fit into the philosophy of passive investing and how we should think about this. Are all stocks value or growth stocks, or are there other categories?
Abbey asks (at 32:40 minutes):
I’m 22 and I’m torn between saving up cash for graduate school, or investing extra money into a brokerage account.
Tuition for graduate school (nurse anesthesia) would cost around $100,000 – $150,000, anywhere from two to five years from now. I could loan the entire amount through the federal government, too.
However, if I save the money in a brokerage account and the market goes up, I can sell some of the stocks to help pay for graduate school. If the market goes down, I can take out federal loans.
I max out my 457, 403b, Roth IRA, and HSA. My total net worth is $130,000, and $10,000 of that is in cash. What do you think I should do?
Jess asks (at 42:43 minutes):
My question involves reassessing goals when you’re a few years into your financial independence (FI) journey.
I’m 43, I earn around $70,000 per year, and I’m single with no (human) kids. While I love my job, I want to step away away from the full-time grind at 50. I estimate that I’ll need around $1.2 million, not including home equity, to reach FI.
My only debt is my mortgage, which I’m comfortable with. I make minimum payments on the $100,000 balance; it’s a sub-three percent loan, and I have 14 years left. I’m not looking to househack or move.
I have around $600,000 split between my 401k and rollover traditional IRAs. I have $20,000 in a recently opened Roth IRA, $10,000 in my HSA, and $30,000 in taxable investments. My whole portfolio is mostly stock indexes with a small percentage of bonds and public rates for some spice. I also have around $20,000 cash in a high-yield savings account.
I think I’m over-indexed in pre-tax retirement money. Even considering a Roth IRA conversion ladder, I feel like I need a significant amount of cash or taxable investments for those first few retirement years. Since I max out my 401k, I only have around $600 per month for other savings goals. That doesn’t feel like enough.
Here’s where I want your opinions:
- Should I stop contributing to my 401k once I get my match, and put that money elsewhere? If so, where should I focus – the Roth, the taxable account, or cash?
- Should I start converting pre-tax money over to Roth now, and use some of that former contribution money to cover my taxes? Without that contribution money, I’m concerned about my ability to pay extra taxes while I’m still working full-time.
- Should I hold off on the conversion idea entirely until my income drops?
- Or should I stay the course?
Yisell asks (at 54:46 minutes):
I’m a 38 year old engineer manager in Florida. I have a large mortgage, and my monthly expenses don’t allow me to put much money aside. However, I’m able to put eight percent of my salary toward my 401k. I also have a pension from my previous employer: a guaranteed $1,000 per month after retirement, for life.
I’m thinking about how to invest money now, and cashing out my $70,000 pension came to mind. My goal is to have it generate more than the $1,000 per month I’d have in the future.
Is it a good idea to cash out the pension, and are there other places I can put it where it would yield more money? Perhaps a rental property, or some other investment?
Resources Mentioned:
- #94: Ask Paula – The Early Retirement Episode (Discussion on SEPP 72t)
- Retirement Planning in 2020, with Dr. Wade Pfau
- Trading Rules, by William Eng | Book
- Sleep With Me | Podcast
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