Better options to Wasteful Valentine's day spending

 The cost of a dozen red roses escalates in February. The flowers are grown in Columbia (S. America) where the women field workers are exposed to toxic chemicals. The flowers are air-freighted to the U.S., leaving a considerable carbon footprint. Roses rarely last more than a few days before fading and wilting. 

What lasts longer and has a much more positive impact on a person's life?  A contribution to their Individual Retirement Account. Married couples with one income can contribute to the non-earning spouse's Roth IRA instead of throwing money at carbon-intensive tokens that quickly wilt. 

Mother's Day

Flowers, dining out, other soon-forgotten gifts for mother.... 

Flowers fade....  All the restaurants will be packed on Sunday; is this what you want when Covid still threatens? 

How about something that will last?  

What about an Individual Retirement Account for Mom? Whether currently employed for pay or a full-time homemaker, more than short term gifts, mom needs some long term financial security in the form of a retirement account. While IRAs generally need to be funded with earned income, a spouse of an earner is eligible for an IRA. 

Women are at much higher risk than men of financial insecurity in later life. Now is the time to start funding an IRA to ensure long-term financial health for mom.

You can start an IRA with as little as a dollar (but mom deserves more than that) at Charles Schwab. 

IRAs come in two varieties: traditional and Roth (named after a senator who sponsored the legislation). With both IRAs federal and state income taxes on the gains are deferred. The traditional IRA offers an income tax deduction for contributions, but you must pay taxes on the funds when you withdraw them in the future. With a Roth IRA there is no income tax deduction for your contributions; a Roth is funded with after-tax dollars. The money grows tax-free and withdrawals are tax-free. With the lower income tax brackets (2018 tax law) fewer taxpayers benefit from a tax deduction for contributions, thus Roth IRAs are usually the best choice.

For an explanation of IRAs and the differences between the two options see: https://investor.vanguard.com/retirement/savings/iras

https://investor.vanguard.com/ira/roth-vs-traditional-ira

Great info on investing for retirement: https://investor.vanguard.com/retirement/savings/

Also: https://investor.vanguard.com/retirement/savings/retirement-funds

Where to invest?

Vanguard is one of the best places to invest because the company is investor-owned and charges very low expense ratios. Vanguard mutual fund company, like a credit union, is owned by the people who invest their money in the funds offered by the company. Other large well-known mutual fund companies like Fidelity and T. Rowe Price are owned by outside investors who own stock in the company. These companies need to make profits for their investors so they (usually) charge higher expense ratios on their funds than Vanguard.

See: Getting started investing: https://investor.vanguard.com/investing/how-to-invest/

What is a mutual fund?

The best way to start is to open a Roth Individual Retirement Account (IRA). If you start investing now you will take maximum advantage of compound interest. See: https://investor.vanguard.com/investing/how-to-invest/risk-reward-compounding

Load vs. No-Load funds. Always choose a no-load fund. Buy directly from the mutual fund company. Avoid going through an advisor who charges a load (commission), typically 5% of every dollar invested, every time you invest.

Target Retirement Funds are a great choice. https://investor.vanguard.com/mutual-funds/target-retirement/#/

Check out the 2055 Target Retirement Fund (VFFVX) or other suitable estimated retirement year. (Every mutual fund has a unique 5 letter symbol to identify it). Or choose a fund corresponding to the year you may want to retire. Vanguard TRFs consist of four underlying index funds (U.S. stocks, bonds & international stocks & bonds). The company automatically rebalances your assets over the decades, so the fund becomes more conservative as retirement nears.

What’s an index fund? https://investor.vanguard.com/mutual-funds/index-funds

Mutual Fund Expenses. Every mutual fund charges an annual expense ratio which is a % of all assets that the company uses to pay employees and run the fund. This % isn’t deducted from your account but from the entire fund each year. You want to pay the least % possible in annual expenses so more money stays in your account to grow. Index funds charge the lowest expenses because they involve the least amount of work and trading of securities.

The expense ratio for Vanguard’s 2055 Target Retirement Fund (TRF) VFFVX is 0.16%. The average expense ratio for mutual funds is about 0.75% to 1.5%.

The minimum investment for Vanguard TRFs is $1,000.  If $1,000 is too much to start, another option is Schwab (another mutual fund company) target retirement funds. http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds\

 

Schwab charges a similar ultra-low expense ratio: but only requires $1.00 to open an account. Check out the Schwab Target Index funds. The Schwab Target 2060 Index Fund (SWYNX) charges only 0.08% annual expenses.

https://www.schwab.com/public/schwab/investing/investment_help/investment_research/mutual_fund_research/mutual_funds.html?path=%2fProspect%2fResearch%2fmutualfunds%2fsummary.asp%3fsymbol%3dSWYNX

Once you open your account with the minimum required, it’s important to set up an automatic monthly contribution to the IRA. This process of investing the same dollar amount each month is called “dollar cost averaging” which results in buying more shares when the price is low and fewer shares when the price is high. http://www.investopedia.com/terms/d/dollarcostaveraging.asp

Update: Fidelity just started (summer 2018) offering a couple of no expense ratio no minimum investment index mutual funds. https://www.fidelity.com/mutual-funds/investing-ideas/index-funds (Note: these are NOT target retirement funds).

NEW Fidelity^® ZERO Total Market Index Fund (FZROX)

• Seeks to provide investment results that correspond to the total return of a broad range of publicly traded companies in the US.

·         There is a 0% expense ratio and no minimums to invest in FZROX

NEW Fidelity^® ZERO International Index Fund (FZILX)

• Seeks to provide investment results that correspond to the total return of foreign developed and emerging stocks.

·         There is a 0% expense ratio and no minimums to invest in FZILX

Read Jonathan Clements’ take on the no-fee Fidelity funds: https://humbledollar.com/2018/08/low-fidelity/

What to Consider Before Rolling Over a 401(k)

"When leaving a job, you could withdraw your retirement-plan assets—paying withdrawal fees if applicable—and spend the money (not usually a smart retirement strategy). Or you could simply leave the assets in the old plan. Or, you could transfer them into the plan at the new job, assuming transfers are allowed. Or you could roll the assets into an individual retirement account" according to David Blanchett of Morningstar. The most important factors to consider with a rollover: 
Fees
Investment Options
Quality and scope of services provided

For more details you can access Blanchett's white paper: "A Framework for Implementing the DOL's New Fiduciary Rule for IRA Rollovers"

In this new research, David Blanchett, Morningstar's head of retirement research, discusses the factors that can help demonstrate a rollover proposal is in your clients' best interest. 

http://mscomm.morningstar.com/scorecardmethod/?adid=ADV_ADV_WSJ_BLOGhttp://mscomm.morningstar.com/scorecardmethod/?adid=ADV_ADV_WSJ_BLOG

Target Date Retirement Funds: The competition heats up

Each year students in my investing class had to investigate individual retirement accounts (IRAs) and mutual funds to select the best fund for their IRA. With tight budgets, student loan payments looming after graduation, and credit card balances, saving for retirement was NOT their top priority. But after seeing examples of compound interest and how their money could grow over the 4+ decades before they anticipated retirement, they became experts at finding the lowest cost (in expense ratios and minimum initial investments) target retirement date funds (and index mutual funds). Schwab had the lowest initial minimum of $100 but only for stock index funds. Vanguard was the place for target date funds with the lowest minimum investment of $1,000 (0.14-0.16% expense ratio) but requires $1,000 to open the account.
But now Schwab has cornered the market on lowest initial investment, lowest expense ratio, target index funds. You can't beat their ultra-low 0.13% expense ratio for diversified mutual funds that automatically become more conservative over the decades as retirement approaches. see for yourself:
http://www.schwab.com/public/schwab/investing/accounts_products/investment/mutual_funds/mutual_fund_portfolio/target_funds

Half of Americans are NOT in a Retirement Plan

According to the US Bureau of Labor Statistics, "just 53 percent of American workers participate in any type of retirement plan at work." Part-time, low-income workers and employees of small businesses are most at risk for not having a plan. Get the details from Steve Vernon: http://www.cbsnews.com/news/half-of-all-american-workers-not-covered-by-a-retirement-plan/
The myRA and Roth IRA plans are options for these workers but many don't earn enough to be able to contribute to a retirement plan. Many of these workers are completely dependent on Social Security when they retire so it is important to strengthen SS NOW and not keep delaying.