If you want zero hassle and simple investing, go with a brokerage that has retirement plans with consistent returns. Make sure to look at the following: (see Vanguard Funds Performances; these are just examples and I do not endorse or receive any benefit)
Returns over the past year, five years, 10 years, lifetime. Companies may have done well in a recovery year and poorly in all other years.
Fees - Low fees do not always mean better. In some cases, it means the funds may not be actively managed or is managed only periodically. Sometimes paying a little more in fees can mean active management and greater returns. Compare different funds.
Type of Fund - Growth, Growth and Income, or Income.
As a younger investor you want to be mostly growth oriented in your portfolio as you have time for the ebb and flow of the market.
As you get older you will want to switch over to Growth and Income (potentially 5 years until retirement)
Income (at retirement to protect your monies from fluctuation). This will not provide the typical returns (9%), but will make sure that your monies are safe.
How you change your plans depends on your goals (to spend it all, give away)
Think about it 1: FIRE
Find three funds that have consistent returns over the past 10 years/lifetime.
What is the fund name?
What are their returns for the past year, five years, 10 years, lifetime?
What 'Cap' or category do they belong?
Think about it 2: FIRE
Which fund would you invest?
Would you invest in one fund or multiple funds?
Would you have an even distribution or weighted?
What holdings are they investing (while diversifying funds might be a good strategy, if all of your funds are invested in the same stocks or markets they will all go up and down together)
What are the expense ratios of the funds you selected?
Not all funds holdings are the same.
Some funds are based on the entire market, specific sectors, classification of assets, or based on the funds managers approach
Some will offer the ability to invest in companies based on their 'Cap size'
Capitalization or how much they are valued at based upon shares and stock price.
Capitalization = share price x number of outstanding shares
Large Cap
Mega-cap: Market cap of $200 billion and greater
Big-cap: $10 billion and greater
Mid-cap: $2 billion to $10 billion
Small-cap: $300 million to $2 billion
Most view Small-cap and Mid-caps to be where most growth businesses lie since they are still building and will often see their value rise significantly with more shares being issued and their stock price rising with performance.
Large caps can still be growth oriented (AAPL, AMZN, TSLA)
Think about it 3: FIRE
Find five (5) stocks that are Large Cap , Mid-cap, and Small-cap
What are their share prices?
What are their outstanding number of shares?
FIRE was created for two types of people
Those who were nearing retirement; ability to make sure you have enough for retirement
Those who wanted to retire younger
FIRE take a similar approach to HELOC (Home Equity Lines of Credit)
Many homeowners will use a HELOC to pay down their debt faster
Homeowners give their entire paycheck each month to pay the mortgage
They borrow money from their loan during the month to pay off other monthly expenses
The idea is that we often have monies sitting in our bank account gaining a terrible interest rate. This allows us to allocate our money to our loan and reduce the
On another note, HELOCs (Home Equity Lines of Credit) seem like a good idea to pay down your home faster, but these loans have a variable interest rate that changes month to month; imagine 2022 when interest rates were increasing every month by the FEDS to help curb inflation.
HELOCs are sometimes called ARMS (Adjustable Rate Mortgages), but slightly differ based on the terms
For the FIRE approach, we will allocate a large portion of our income every month
In our previous compounded interest calculation, we invested $500 a month for 38 years to make $1.6M
$1,000/month for 38 years is $3.39M (age 60), $1,000/month for 28 years is $1.35M (age 50)
$1,500/month for 38 years is $5.08M, $1,500/month for 28 years is $2.03M (age 50)
Thoughts to consider:
Remember, the goal is to have a happy retirement, early retirement, or both. This may require sacrificing things now in order to set you up for the future.
Your distributions can be used to pay monthly expenses
At age 50, having invested $1,000/month for 28 years gives us $2.03M
4% distribution every year would be $81,200/year or $6,766.67/month for 25 years (age 85)
You could pay down any monthly mortgage faster, create a college fund for your children, purchase real estate for additional income, take trips, cross off items from your bucket list
Later in this section you will also see why the FIRE method can be impactful by saving you on taxes. Based on the 4% distribution you would only be taxed on $400 at 15% or $60.
This assumes we would continue to grow our account
We do not have any other extenuating expenses that could derail our efforts to retire early
Having kids would also change the timeline and monthly expenses
With a dual income, saving $1,500 or more is a lot easier. But, remember that you need a retirement for two
If you ever come into money (winning in Vegas) consider finding a financial investor that can plan for your retirement outside of your ROTH
Consider investing more money in your initial years to jump start your retirement account
Think about it 4: FIRE
What do you want? Early retirement, healthy retirement, or both?
What would be your ideal retirement age?
What is something on your bucket list that money could help you to accomplish?
Please note, that this line of questioning is get you the understand the importance of devoting your time to something that bring the returns needed. Regardless of whether this is investing , building a business, or starting your career, each endeavor takes time and effort to succeed. Some careers allow you to retire after 20 years, while others 30 years. Would you rather get there faster or slower? If it is faster, then what are you willing to forgo or sacrifice in order to make sure that happens?
Before you jump all over the previous statement of those retiring early and needing to wait until 59.5, remember this following statement: "You do not need age to retire, you need money".
If you create enough wealth you can decide to retire from your typical 9-5 job/career at any time. You may decide to still work, but this would be based on wanting to work rather than needing to work. You could also spend this time volunteering or spending time with family/friends.
Retiring before 59.5
Yes, pulling out of your pension (unless you meet age requirements - naks needs only 55 and 30 years to retire from the state) can result in a 10% penalty and be subject to income taxes.
Yes, pulling out of your IRA's can have the same penalty and taxes prior to 59.5
So where do you get your money?
Investing in a personal retirement account (non-IRA)
You can do the exact same strategy as your pensions and IRAs
The difference is that we can withdraw from our account at any time