Category Archives: investing

E*TRADE Seminar #6: “Roth IRAs: Beyond the Basics”

This seminar is perhaps the one that I looked forward to the most today.

Defined contribution plans, like Roth IRAs, are how people will retire in the future. If you are younger than, say, 48, you shouldn’t rely on Social Security, and you should control your retirement goals using defined contribution plans.

Here is a summary of parts of the presentation. I summarize the basics of Roth IRAs and the appeal for it. The presenter also went over unique tax consideration and how conversions work; I will not summarize these topics.

The Basics

Roth IRAs have grown in popularity over the last several years. Based on Vanguard’s data from its accounts, about $2 out of every $3 contributed are to Roth IRAs. The other $1 is contributed to traditional IRAs, of course.

Contributions to a traditional IRA are tax deductible. You will be taxed at retirement when you withdraw funds from a traditional IRA. Contributions to a Roth IRA, on the other hand, are made with after-tax dollars. Withdrawals at retirement are not taxed, since you’ve already paid the taxes.

That is the key difference between the two and is the cause of the biggest dilemma for investors. Which do you pick? Do you want to pay your taxes now or do you want to wait until later?

Some other differences include:

  • You can contribute to a Roth IRA at any age. With a traditional IRA, you cannot contribute after age 70 1/2.
  • There is no lifetime required minimum distributions with a Roth IRA. That is, you’re not told when to start withdrawing your money. With a traditional IRA, you must begin withdrawing at age 70 1/2.
  • Your contributions to (but not your earnings from) a Roth IRA can be withdrawn at any time without penalty. With a traditional IRA, you will be penalized if you withdraw your contributions before age 59 1/2.

The Appeal

The presenter asked the question before, but finally answers it: “Which (the traditional or the Roth) do you pick?” The rule of thumb is this: Compared to the tax bracket you’re in now, consider a Roth IRA if you think you’ll be in the same or a higher tax bracket at retirement.

But here are two other reasons to consider a Roth IRA regardless of your tax brackets now and in the future.

One: If you contribute to a tax deductible retirement savings account, like a 401(k) plan, you get tax diversification by also using a Roth IRA.

Perhaps, you don’t want to guess what you tax bracket will be in the future, or you are unsure how the government will change tax laws, Tax diversification helps because you are putting some of your savings into tax deductible accounts and some into after-tax accounts.

Two: You can technically save more in a Roth IRA than a traditional. Since it’s after-tax contributions, $5,500 (the contribution limit for 2014) into a Roth IRA is more than a $5,500 tax deductible contribution into a traditional IRA.

To think about it another way: Suppose you contribute the max limit to a Roth IRA yearly for several years, and your friend contributes the max to a traditional IRAs for the same amount of years. You both invest in the same mutual funds. At retirement, you both have $1,000,000. Well, your Roth IRA doesn’t get taxed, and his traditional IRA does.

The counterargument: You are using more of your money to contribute to a Roth IRA. So, your friend (who has a traditional IRA) could invest the difference (his tax deduction) and be as well of as you.

My response: Really? Will you really contribute the tax deduction? And if so, where else will you contribute it to get the same tax advantages?

My Thoughts About This Seminar

My general thoughts are in line with the summaries above. I personally use a Roth IRA, and here are my reasons:

  • I believe that I will be in a higher tax bracket when I get older. I am relatively young now, so I fully expect my income to grow over the years.
  • I have a hard time convincing others, but I really am contributing more to a Roth IRA since it’s after-tax money.
  • Do you really think that the government will lower the tax brackets? Changes will be made to keep up with inflation, but I sincerely doubt we will get taxed less in the future.
  • I have a 401(k) at work, so I’m tax diversified,

As always, personal finance is personal and about being intentional. If you have strong gut feelings for a traditional IRA, then use it! If you are being intentional about how you invest and what you invest in, then who cares about a few tax dollars here and there. The key thing is that you are doing something!

I like Roth IRAs, and I recommend everyone use them. But if you decide to use a traditional IRA, I am okay with that as well!


E*TRADE Seminar #5: “Securing Your Retirement: Transforming Social Security Into a Winning Retirement Strategy”

Seminar #5. Phew. Social Security. Yay.

The presentation itself was actually really good. There’s a lot of good information. But as a 28-year-old, I’m not expecting much from Social Security for my retirement. Defined contribution plans, like Roth IRAs and 401(k)s, are the investment vehicles I rely on for my retirement income.

There was some discussion about spousal benefits and survivors benefits as well as whether you should take your Social Security early at 62, at your Full Retirement Age (FRA), or at age 70.

I understood what I saw on the presentation, but I am not equipped well enough to explain it here. If you are wondering when you should receive your benefits, you should talk with a financial planner to help you make a decision.

One key note: When you receive your Social Security statement annually, verify that “Your Taxed Social Security Earnings” are correct. Your Social Security benefits will be based on these numbers, so make sure that they are right!

E*TRADE Seminar #4: “Take Action with E*TRADE Tools”

The fourth seminar for Retirement Education Day 2014 is “Take Action with E*TRADE Tools.”

E*TRADE actually has some really good tools to help you out on your financial journey. They are described below.

Portfolio Analyzer

Available here: (You will need login credentials with E*TRADE.)

The Portfolio Analyzer answers the question “How diversified is my portfolio?”

I have mutual funds in a 401(k) and in Roth IRAs. I also have two 529s for both of my kids. I’ve identified, I feel, fairly diversified mutual funds for each of these accounts. But how can I be sure? Also, how can I be sure that I am diversified across all of the accounts?

That’s where the Portfolio Analyzer comes in. It’ll provide information about how well your portfolio stacks up against a handful of benchmarks. It also breaks down which asset classes you’re in, which stock sectors are in your mutual funds, how the mutual funds are geographically distributed, etc.

It is very powerful. If you have access to E*TRADE, it’s free to use, and I would definitely recommend it.

Risk Analyzer

Available here: (You will need login credentials with E*TRADE.)

Risk Analyzer is separate tool, but it’s almost an extension of Portfolio Analyzer. As its name suggests, it analyzes how much risk is in your portfolio.

I mentioned that I have mutual funds in various retirement accounts and college savings accounts. I have evaluated each of the mutual funds for its historical returns, its expense ratios, and have tried to evaluate their riskiness.

Risk Analyzer will give me a real look at the riskiness of the mutual funds in my accounts. Like Portfolio Analyzer, Risk Analyzer is very powerful. Again, if you have access to E*TRADE, it’s free, so give it a shot!

Retirement Planning Calculator

Available here:

This E*TRADE tool is free for everyone! Yay! This is another good tool, and it is very much like other online retirement planning tools. You input your age, income, when you want to retire, how long you expect to live, etc.

You then can change your investment style (risk tolerance), how much you can invest per month, and several other parameters to see the likelihood of you achieving your retirement goals.

There are many other online tools out there, and I would recommend using several of them when you run these calculations. They all have differing underlying assumptions, so you’ll want to verify each tools’ calculations again each other.

All in all, it’s free, so there’s no harm in trying it out. I’ve used many of these tools, and this one is near the top of the list for my favorites.

Online Portfolio Advisor

Available here:

The Online Portfolio Advisor tool is probably the best of the bunch.

Suppose you are looking to start a Roth IRA and don’t know what to invest in. Online Portfolio Advisor will help you out with this.

Rather than just provide an analysis of your existing portfolio or run retirement planning calculations, the Online Portfolio Advisor takes in inputs and recommends an investment solution that includes ETFs and mutual funds.

Or you can build your own portfolio and the Online Portfolio Advisor will tell if it’s up to snuff.

There is a guest version of the tool, so it’s free for everyone. I recommend this one.

My Thoughts About This Seminar (and the Tools)

The seminar was awesome (at least, in a nerdy kind of way). It scratched the surface of 4 different tools offered by E*TRADE, which all seem very user friendly, quite intuitive, and are free (2 of them require login credentials). I recommend them all as resources for you to evaluate your portfolio and to enable you to establish your retirement goals.

Truth be told, I only tested out the tools during the seminar’s 1-hour duration. Even still, it’s hard not to recommend free tools when a 15-minute sampling of each tool proved positive.

Great seminar, and great tools.

I’m Taking an Intermission

I haven’t eaten lunch yet, so I’m about to take a break.

The following seminars are coming up next and closing out the day:

  • Seminar #4: “Take Action with E*TRADE Tools”
  • Seminar #5: “Securing Your Retirement: Transforming Social Security Into a Winning Retirement Strategy”
  • Seminar #6: “Roth IRAs: Beyond the Basics”

Based on the topic titles, I’m not sure how relevant Seminars #4 and #5 will be to me, so I may not write posts on them. But I’m definitely looking forward to Seminar #6!

E*TRADE Seminar #3: “Yes, You Can Retire”

After the Seminar #2 debacle (okay, okay, I am being a little too harsh, but I definitely didn’t enjoy Seminar #2), Seminar #3 was much better. It is entitled “Yes, You Can Retire.”

Jean Chatzky is the presenter and is well-known as the financial editor for NBC’s TODAY show. For her presentation, she ran through some of her Money Rules. In her “Money Rules” book, she covers 90 wealth-building rules. She covers a dozen of them in her seminar.

I will highlight my favorite ones.

Money Rule #1: Personal Finance is More Personal Than Finance

I think the rule says it all. Sometimes, people hear “finance” and assume it’s all about math, and they start remembering their struggles with grade school math, and then they go to the corner and cry. (Too harsh, again?)

Well, personal finance is partially about your money and math. But it really is more personal. It’s about you. How you want to live your life, what your goals are, how you want to enjoy life.

Money Rule #2: Money Is Simple, People Make It Complicated

Money itself is just a tool that people use. It’s just paper and metal coins. But people associate power, security, and love with money.

When it comes to money, you earn it (income) and you spend, save, or give it away (expenses). But, oftentimes, people associate money with security. I suppose that may help, but if you spend less than you earn, regardless of income, then money is not complicated.

Money Rule #14: Financial Plans Don’t Fail People, People Fail to Plan

Financial plans are inanimate things. They don’t fail people. But people do fail to plan well enough or simply do not plan at all.

There are many online calculators that you can use to track your goals. There are even calculators that you estimate the likelihood that you reach your goals. Using these calculators, you can set appropriate goals for yourself. Plan, plan, plan!

Money Rule #73: Hope Is Not an Investment Strategy

This one is self-explanatory, I think. Don’t sit around, cross your fingers, and wish for the best. This one ties in well with Money Rule #14. You need to plan. Hoping and wishing alone will get you no where.

Money Rule #11: If You Can’t See It, And You Can’t Touch It, You Won’t Spend It

This is the “out of sight, out of mind” idea. If you have your savings automatically deducted from your paycheck, you won’t miss it in the first place. This is why investment vehicles, like 401(k)s, work so well.

The money leaves your paycheck, and you hardly notice a difference. It’s then invested, and your retirement savings grows over time. Because all of this is done automatically, you don’t have the opportunity to spend it.

Money Rule #53: It’s Not About Having It All, It’s About Having What You Value Most

People think that retirement is about having it all, but it’s not. It’s about having what you value the most in life. And for each person, this is something different. This Money Rule ties well into Money Rule #1, which states that personal finance is more personal than finance.

If you keep money simple, if you develop a plan to reach your goals (to obtain what you value the most), if you don’t simply rely on hope, and if you automate you savings, you will easily reach your retirement goals.

My Thoughts About This Seminar

I enjoyed this one much more than the previous one.

Jean Chatzky spoke about many more ideas. But what really hit home for me is Money Rule #1: personal finance is more personal than finance. She didn’t run through a TON of math or numbers. Her Money Rules (at least, the ones I selected as my favorite) don’t have to do with math at all…

It’s about invoking the personal side of personal finance. At the end of the day, money is simple, the math is simple. What’s truly exciting about personal finance is how different people interact with their finances, how they set goals, and how they succeed with money.

E*TRADE Seminar #2: “How to Invest for Retirement”

“How to Invest for Retirement” is the second E*TRADE seminar for the day.

Honestly, I don’t know how much I want to write about this one. I thought it was a pretty bad presentation, at least, given the audience that I assumed would be watching these presentations.

There were two presenters, and they are clearly market experts. What they discussed was over the head of the average person (I’m using myself as the benchmark for the average person). Actually, I understood most (well, okay, some) of the material, but the seminar never really discussed “how to invest for retirement.” It really just highlighted different asset classes as investment options.

In any case, here are some highlights:

  • Compounding is a wonderful thing. It is affected by time (length of time you are investing), rate of return, and how much and how often you are investing.
  • You can use the Rule of 72 to roughly estimate when your money will double. You simply take “72” and divide by your expected rate of return. For example, if you expect a 10% rate of return, it would take roughly 7.2 years (72/10) for your investment to double.
  • You should diversify because it helps reduce risk. All of your eggs aren’t in one basket.
  • At a high level, you can invest in the following asset classes: cash or cash equivalent; bonds; stocks; mutual funds that can be a mix of cash, bonds and stocks; Exchange Traded Funds (ETFs); and options.

Waiting for Seminar #3…

E*TRADE Seminar #1: Essential Steps for Planning a Secure Retirement

Yay! Today has finally arrived! It’s Retirement Education Day 2014!!! E*TRADE is hosting several web-based seminars throughout today and is discussing retirement related topics. I will be participating in all of them. And I am very excited.

Yes, I actually took a day off of work to do this.

And yes, I am that nerdy.

I’m sure all of the seminars will be very energetic and information filled. I will summarize the key points of each seminar and provide my thoughts on the material.

On to the first one! The first seminar is “Essential Steps for Planning a Secure Retirement.” It focused on 4 key steps.

  • Organize Your Financial Priorities
  • Take Ownership of Your Retirement
  • Calculate an Estimate of Your Retirement Outlook
  • Create & Execute Your Plan

Organize Your Financial Priorities

Jumping right into it, the presenter mentions paying off higher interest debt and building a liquid emergency fund (of 3-6 months of expenses) prior to starting a retirement savings.

Then, find out if your company has a retirement savings plan and if they match contributions. You definitely want to take advantage of this free money. Consider either a traditional IRA or Roth IRA for additional retirement savings options.

After you’ve started saving for retirement, you would then focus on funding education for your kids, paying off lower interest debt, and then paying off your mortgage.

Take Ownership of Your Retirement

After you’ve prioritized your financial plan, take ownership of your retirement. In this case, ownership means to get your hands around your retirement and take control of it.

The key action step here is to document your retirement goals. Some questions to consider are: When do you want to retire? What kind of lifestyle do you want in retirement? What is your risk tolerance level?

In addition to documenting your goals, of course, you want to document what you currently have in retirement savings as well as the rest of your financial assets.

Calculate an Estimate of Your Retirement Outlook

This is a straightforward step. Once you’ve prioritized your finances and established your goals, run calculations to see if your current plan is on track (or off target) for you to hit your retirement goals.

E*TRADE recommends its own Retirement Planning Calculator tool (of course!) to analyze how well you are doing.

Create & Execute Your Plan

Once you’ve run your calculations, you’ll find that you expect to have a shortfall or a surplus.

If you have a shortfall, you should consider changing some of your spending habits now, so that you can reach your retirement goals. The alternative, of course, is to reduce your standard of living during retirement.

Some other things to do include: increase your tax-deferred savings to retirement or consider delaying your retirement for a few years. You could also reevaluate your portfolio allocation, take on a little more risk, and (hopefully) get a better rate of return.

If you expect to have a surplus, then congratulations! But don’t get complacent. Continue to save and even increase your savings as necessary. You may even consider reducing your risk. You’ll get lower returns, but you may also sleep better at night.

Generally, you need to consider your health care expenses during retirement. And you need to be sure to have a solid estate plan in place. This may involve a will or trust (among other things), depending on your needs. If you have retirement savings accounts, always designate a beneficiary on these!

My Thoughts About This Seminar

This seminar was the first one and effectively was a 30-minute presentation to highlight and to setup the rest of the day.

Overall, the material was pretty good. Of course, there are some obvious things that I agree with: yes, you need to set financial goals and you need to prioritize them; yes, it’s good to understand where you stand with your finances; and yes, you should take action to make sure that you hit your goals.

There was really only one thing that I don’t personally agree with.

I am debt free (except for my mortgage), and I suggest you pay off all of your debt (again, except for a mortgage) prior to saving for retirement. I advocate paying off all your debt because you gain financial freedom. Saving lower interest debt for later (after investments) makes mathematical sense, but you are not financial free!

That said, is either strategy right or wrong? Well, no, no, no. If you have a plan in place, stick with it, and are intentional about implementing it, then either strategy will work out fine.