This post was meant to pop up approximately one month, to give a quick update, since I decided I was all-in on the Moustacian train (http://www.mrmoneymustache.com). But what can I say? I’ve been busy. So how are things looking a month and a half later? Did I commit or fall flat on my face?
As I eluded to recently, the first order of business was figuring out expense ratios on my employer’s 401k plan and making those adjustments after figuring out just what the heck those were (see last post). Done and done.
Next, I opened an online brokerage account after doing some googling to determine who was offering the best deals at the time. Nerdwallet gives a good general breakdown, but YMMV. (http://www.nerdwallet.com/blog/investing/best-online-brokers/stock-trading-accounts/) Next I started watching darling Apple to see when might be a good time to buy. The latest phones hadn’t come out yet, nor had the iPad Pro and other goodies, but if history was any indication, the stock would rise, then plummet after announcement, then slowly climb again. Now, ask any advisor what stocks you should invest in, and if they’re not on your payroll, they should be telling you to avoid any single stock pick and instead invest in index funds. If you are paying an advisor, then they’ll tell you the opposite after consulting their crystal ball (they don’t care if you make money or lose money, their commission is on buys and sells). However, Apple is one of the few stocks solid enough that it’s tough to go bust on if you like to gamble. Incidentally, I ended up buying both ‘pre’ and ‘post’ product announcements and then again yesterday. Nobody that ever invested in the stock market has lost money if they buy for the long term. Not even through the last recession nor the crash of ’29. Additionally, if you sell without holding for at least 12 months, you’ll get taxed up the ying-yang, so why not let it ride?
Then the market dropped out. No joke, about a week after going all-in, the market fell apart. But guess what? No better time to buy then when stocks are “on sale”.
Now, after crunching the numbers, having adjusted my 401k diversification and seeing the S&P plummet, I went all-in on my 401k contributions and will continue to do so through the end of the year in an attempt to hit the IRS max contribution limit. This will be a bit of a game as if I cap out early, I won’t get the employer match…or maybe I will (and a question to HR on front-loading and percent-distribution was met with boilerplate that didn’t answer my question). Yes, my take home checks are pretty small, but the net gain is larger in the long run as the majority was deducted tax-free.
Unlike a 401k that limits contributions for the year at Dec 31st, an IRA can be contributed to through April 15th of the following year. Though both traditional and ROTH IRAs have a combined cap of $5500. Since my 401k plan doesn’t offer Vanguard index funds (seriously, look these guys up), it made sense to open a free account with Vanguard themselves. Anyone can do it, and since they manage the funds directly, you’re not paying a second party a hefty expense ratio to do so. This is where you want to invest. I opened a ROTH and invested in a stock heavy mix. Then when the markets dipped yesterday I made another buy. The goal is to max this out by the 2015 tax deadline, then do it again in 2016. Yes, this is considered taxed income, but withdrawals on the deposits can be made at anytime without penalty. If you don’t have a 401k plan through your employer, you should seriously consider a traditional IRA which is pre-tax and see if you meet the guidelines.
So, the goals so far have been pretty simple: Max out any tax-advantaged vehicles. Put any “savings” into index funds (whether taxed or not). Optimize any company matching. Cut frivolous spending (I cut my coffee/lunch bill for the last month down to $1.18 for the ENTIRE month). Invest in stocks when they’re on sale. Oh, and go read Mr. Money Moustache.