EP. 36: Frequently Asked Questions

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Welcome back to Money Matters where I help guide you in becoming a better and more confident investor. Since starting this series back in January of 2020 – I have covered a lot of topics and receive a lot of engagement from those who are on their learning journey to become a better investor! I want to use this episode to highlight some of the more frequently asked questions that this series has prompted so we can all continue to move on more confidently. I will also direct you back to earlier episodes where I encourage you to go back and watch to find out more about that specific topic.

• Should I participate in my 401(k) plan? Unfortunately like most things in life – all 401(k) plans are not created equally. I unequivocally suggest that if your company has a match then you would be fooling not to take advantage of that as that’s money your employer will give you as an encouragement to start thinking about your retirement. Talk with your HR department if you’re not sure! Now past that, it is going to depend on your 401(k) plan. If your 401k plan has quality low-cost investment then I say yes play ball! Opposite of that some plans have insanely high-fees, and on top of that have a poor investment selection from you to even choose from. If that is the case it’s in my opinion that you would be better opening an IRA or Roth IRA because you’ll typically end up saving in fees and you’ll have the full architecture to use quality low-cost investments to get you to your financial goals. If you would like me to take a look at your 401k plan I’d be more than happy to let you know if you’re overpaying.

• What’s the Roth 401(k)? The Roth 401(k) plan acts identical to your companies 401(k), as it is your company’s 401(k), it’s just a matter of when your money is taxed. Do you want to invest along-side the gov’t money and not be taxed, then you’re looking at a Traditional 401(k). Or do you want to give the gov’t their cut for tax purposes right up front and then invest money so it becomes a tax-free investment? The second part of this state begs on whether you should go the Roth route of Traditional. The simple answer to that would be if you feel your earning potential is going to continue to grow to push you into higher tax brackets, then the Roth is your answer, otherwise, it’s not going to matter much whether you pay the tax now or later. However, keep in mind that taxes don’t typically go down over time. And the gov’t knows exactly how much money American’s have tied up in tax-deferred retirement accounts. If they need more tax dollars to service the forever growing Federal Deficit, I could see them starting there.

• Should I convert my Traditional IRA to a Roth IRA? There is a little more to this question so I’m going to refer you back to an earlier video where you can gain a better understanding of that.

• Low-Cost ETFs or Mutual funds? This goes back to things not being the same. When I look at my team’s pool of go-to investments that we recommend based on factors such as cost, performance, size, management team – I know I have some ETFs that I would recommend over mutual funds and some mutual funds that I would recommend over ETFs. A quick overarching principle I find helps when deciding is in tax-deferred accounts such as IRAs and 401k plans is that mutual fund won’t have as much of a tax-drag. You won’t have to pay annual taxes, wherein individual taxable accounts, you do. This is where ETFs generally can help eliminate much of that tax-drag when used in taxable accounts. Something to be cognizant of.

• Am I invested in a good Mutual Fund? I’d say the at the core mutual fund investing means well – it’s a diversified pool of investments that try their best to align with your objective, but I will say I’ve seen some that are way too expensive across the board! If your worries about your specific fund that your advisor has set up for you go check out PersonalFund.com and you can get right down to how much you’re paying! Mutual funds are becoming more and more affordable, which is fantastic, but if you’re paying too much I’d ask you, advisor, why?! Because I’d go out on a limb and say the fund companies that charge these high fees usually don’t perform that well either!

• How do I get started with investing? It’s my opinion like anything it’s nice to have a teacher. I’d urge you to do some research and find someone who what they are saying, or writing, that it makes sense to you. Then have them explain which investments they choose and why. And I urge you to challenge them every step of the way. If they can’t explain their fees, their investments, and why they’re taking this course of action then it’s probably not a good fit. And of course if what I say in these videos resonates with you, then I would be happier to have conversations explain how my team and I could help you start investing.

• What else can I do if I am maxing out my 401(k) plan, but would like to have additional savings? This can be a problem for a few people, and for that, there is a proper way to play this to make sure your money is working best for you and that’s the Ladder of Personal Finance.

Thanks to all of you who continue to ask great questions. This ultimately helps fuel my motivation with continuing with this series. At the end of the day the more you know, the better off you will be as you continue with your goal of building wealth and staying invested for the years to come! Thank you for watching and as always thank you for giving you finances the attention that they deserve.