Q & A - Ask a financial advisor

Hi Everyone

I've been following 13COBRA's 'ask a dealer' thread, and I've decided to start one of my own.

There have been a number of personal finance threads over the years, and I thought it may be interesting to do a little consolidation.

A few points of clarification:
Yes, I am a financial advisor. I am also a CERTIFIED FINANCIAL PLANNER TM professional, and I will be happy to prove both of those facts to a moderator.

I will not provide my name or the name of my firm publicly - that's not the point of this thread. I'm not here to advertise or to solicit business. I'm doing this to provide an insider's perspective on the industry and answer any questions you all may have.

Let's keep from bashing the industry or the folks that work in it - Let's keep it respectful!

Ok let’s start simple

Someone comes into a decent amount of money, what would your recommendations be to grow that amount? The individual will still be working, as well.

Say $150,000.


Lucky friends. Lololol

I'd ask a few questions of my own:

How old is this person?
Do they have any upcoming expenses that will require them to tap into the money?
How much risk can they tolerate?
Do they have any student loan or consumer debt?

Depending on those answers, they may want to consider the following:
Start an emergency fund - It's always a good idea to have 3-6 months of living expenses tucked away in cash for a 'rainy day.'
Pay off debt!!
Fund short(er) term expenses now. For example, if they know they want to buy a house in the next 5 years, put away your down payment now.
Invest for the future. I love index funds as they are a great way to be fully diversified at a lower cost. The actual allocation will depend on the person's ability to tolerate risk. A lot of companies have created 'all in one' funds that either target a level of risk or a retirement date. These are great because they allow an investor to have a lot of the heavy lifting done for them.

I have a small amount of money in an IRA that I transferred from an ex-employers 401k plan (<$10k). I currently do not look at the IRA, in fact I often forget it's even there. Should I roll it over into my current employers 401k program? My only thought is it may have more potential for growth in my current 401k, since someone is actively managing it (I say this with little confidence), versus me ignoring the IRA. I'm 35, 401k is through Vanguard and set to a realistic retirement date for 'risks.'

JPD5801 said:

I'd ask a few questions of my own:

How old is this person?
Do they have any upcoming expenses that will require them to tap into the money?
How much risk can they tolerate?
Do they have any student loan or consumer debt?

Depending on those answers, they may want to consider the following:
Start an emergency fund - It's always a good idea to have 3-6 months of living expenses tucked away in cash for a 'rainy day.'
Pay off debt!!
Fund short(er) term expenses now. For example, if they know they want to buy a house in the next 5 years, put away your down payment now.
Invest for the future. I love index funds as they are a great way to be fully diversified at a lower cost. The actual allocation will depend on the person's ability to tolerate risk. A lot of companies have created 'all in one' funds that either target a level of risk or a retirement date. These are great because they allow an investor to have a lot of the heavy lifting done for them.

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Person is mid 20s, only upcoming expense would be a home purchase, and the down payment is tucked away already, debts are paid off (minus auto payment)

Student loans would be paid off, with the 150 remaining.

JPD5801 said:

Hi Everyone

I've been following 13COBRA's 'ask a dealer' thread, and I've decided to start one of my own.

There have been a number of personal finance threads over the years, and I thought it may be interesting to do a little consolidation.

A few points of clarification:
Yes, I am a financial advisor. I am also a CERTIFIED FINANCIAL PLANNER TM professional, and I will be happy to prove both of those facts to a moderator.

I will not provide my name or the name of my firm publicly - that's not the point of this thread. I'm not here to advertise or to solicit business. I'm doing this to provide an insider's perspective on the industry and answer any questions you all may have.

Let's keep from bashing the industry or the folks that work in it - Let's keep it respectful!

Click to expand...

Good thread topic - and thanks for taking time out to answer some questions.

Question for you - I have an old mutual fund through Morgan Stanley that was gifted to me ~14 years ago. It's currently invested in AIVSX and has seen some decent gains over the past years. I haven't put a dime in, and don't plan on adding and additional.

The wife and I both invest in our retirement accounts (401k for me and IRA for her since she's self employed).

Should I leave the funds in AIVSX assuming I won't be touching it for many years? I plan to keep it until retirement.

How much money do you believe one might need to retire at around age 65 & be able to live a comfy life from then on? Also, what % of ones income should they be putting into a retirement account from each paycheck to get to a reasonable retirement number? I heard 20%. Let's face it, most Americans cannot do 20%.

My retirement is mostly in an IRA. I use Schwab & most of the money is in their "Intelligent Portfolio" managing it & moving it around for me. The rest is in a 2040 target fund & a few ETFs with a little Ford stock sprinkled in. Any Mutual Funds or ETFs that you recommend or suggest folks stay away from?

Finally, are ETFs & Mutual Funds even the way to go? I'd like to set it & forget it for the most part, but also, obviously, want to maximize my earnings. Who wants to work forever?! TIA

08mojo said:

I have a small amount of money in an IRA that I transferred from an ex-employers 401k plan (<$10k). I currently do not look at the IRA, in fact I often forget it's even there. Should I roll it over into my current employers 401k program? My only thought is it may have more potential for growth in my current 401k, since someone is actively managing it (I say this with little confidence), versus me ignoring the IRA. I'm 35, 401k is through Vanguard and set to a realistic retirement date for 'risks.'

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That depends on the expenses associated with the 401(k) Plan. Contrary to popular belief, 401(k) plans are not free to the employees of a firm. If the IRA has lower fees and expenses than the 401(k) plan, it is likely you'll be better off leaving your money in the IRA. Also, IRAs generally have more investment options than do 401(k) plans. Obviously, every situation is unique, but those are just some general guidelines. To determine how much your 401k plan costs you, you should request the 'Participant fee disclosure' from your employer. This may also be posted on your 401(k) website (where you log in to see your account). By law, this must be provided to you at least annually.

Zemedici said:

Person is mid 20s, only upcoming expense would be a home purchase, and the down payment is tucked away already, debts are paid off (minus auto payment)

Student loans would be paid off, with the 150 remaining.

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Sounds like he/she is good to go! Most fund companies have a risk questionnaire to help a person determine an appropriate investment allocation. As I said above, I'm partial to index funds, so I would suggest a provider like Vanguard or iShares, but I think most fund companies offer all in one type of funds these days.

jrandy said:

Good thread topic - and thanks for taking time out to answer some questions.

Question for you - I have an old mutual fund through Morgan Stanley that was gifted to me ~14 years ago. It's currently invested in AIVSX and has seen some decent gains over the past years. I haven't put a dime in, and don't plan on adding and additional.

The wife and I both invest in our retirement accounts (401k for me and IRA for her since she's self employed).

Should I leave the funds in AIVSX assuming I won't be touching it for many years? I plan to keep it until retirement.

Click to expand...

When investments are gifted, the cost basis 'carry's over' to the recipient. Given the run up we've seen in the stock markets over the last 10 years, it is possible that the cost basis on that fund is very low. It may not be worth paying the taxes to sell AIVSX and buy a new fund. If you want to unload it, discuss the implications of doing so with your tax preparer.

As an aside: Self employed people can open 401(k)s too - if your wife is maxing out her IRA and still has money left to contribute, she could open a self-employed 401(k) (also known as a Solo(k)).

Never_Enough said:

How much money do you believe one might need to retire at around age 65 & be able to live a comfy life from then on?

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How do you define "comfy?" The rule of thumb has been that someone can withdraw about 3.5% of their portfolio for a period of 30 years without outliving their money. So, if you want to live on $35k in retirement, you would need a portfolio of $1,000,000 to support that. This doesn't include social security benefits. The average SS benefit is about $16k.

Never_Enough said:

Also, what % of ones income should they be putting into a retirement account from each paycheck to get to a reasonable retirement number? I heard 20%. Let's face it, most Americans cannot do 20%.

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The rule of thumb on this one is 15 - 20%. This number includes contributions from all sources. If your employer contributes 3%, you would need to contribute 12% - 17%.

Never_Enough said:

My retirement is mostly in an IRA. I use Schwab & most of the money is in their "Intelligent Portfolio" managing it & moving it around for me. The rest is in a 2040 target fund & a few ETFs with a little Ford stock sprinkled in. Any Mutual Funds or ETFs that you recommend or suggest folks stay away from?

Click to expand...

I'm sure there are specific funds people should avoid, but there aren't any I can name off the top of my head. I always tell folks to avoid mutual funds with high expense ratios. The reason is simple: The less someone pays to the fund company, the more they get to keep for themselves. Warren Buffett is a huge advocate of index funds, and I agree with him.

Never_Enough said:

Finally, are ETFs & Mutual Funds even the way to go? I'd like to set it & forget it for the most part, but also, obviously, want to maximize my earnings. Who wants to work forever?! TIA

Click to expand...

I am a huge believer in funds and ETFs. They provide for broad diversification at a lower cost than picking individual stocks or bonds. The all in one funds are great for people that don't want to "deal with it" on an ongoing basis. That said, I always tell people to log in and check on things a couple times a year.

JPD5801 said:

How do you define "comfy?" The rule of thumb has been that someone can withdraw about 3.5% of their portfolio for a period of 30 years without outliving their money. So, if you want to live on $35k in retirement, you would need a portfolio of $1,000,000 to support that. This doesn't include social security benefits. The average SS benefit is about $16k.

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I was thinking living on what would equal at least a $75k yearly salary.

28 y/o male, about to be married, 50-100k in income. Have student loans, CC debt, House, etc. Working on paying the CC auxilary debt off to move over to hammer on student loans.

Currently contribution 2% pre-tax to my 401k. Make sense, or should I be doing post-tax to save in the long run. I assume my income will go up in the next few years..

This is going to be a good thread.

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Here is one. In my company I am classified as a highly compensated employee which limits me to 4% contribution in my 401k. The company has a match of 60% of the first 6%. Based on the 4% max I can contribute to the 401k the company also has a deferred comp program. There is no limit as to how much I can contribute and the company will match the remaining 2% I cannot contribute to the 401k. So I am getting the full 60% match of the first 6%. As of now I contribute 9% in the deferred comp and 4% in the 401k for a total of 13%. Each year I raise my contribution in the deferred comp by 1%. Should I continue this or branch out into more of a traditional IRA? I’m about 15 years away from retirement.


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Good thread to watch.

What's your opinion on Roth vs traditional 401k?

Never_Enough said:

I was thinking living on what would equal at least a $75k yearly salary.

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That works out to roughly $2.1MM at retirement. Don’t forget SS benefits though - most people think the program will go away, but I don’t agree with that line of thought.

IronSnake said:

28 y/o male, about to be married, 50-100k in income. Have student loans, CC debt, House, etc. Working on paying the CC auxilary debt off to move over to hammer on student loans.

Currently contribution 2% pre-tax to my 401k. Make sense, or should I be doing post-tax to save in the long run. I assume my income will go up in the next few years..

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It may be hard to believe, but tax rates are around all time lows. (There was a time when the highest marginal tax rate was 90%). ROTH grows tax free, so it’s hard to argue against it for most young people.

Definitely attack that debt - the less you pay in interest the better off you’ll be!

gasyone said:

Here is one. In my company I am classified as a highly compensated employee which limits me to 4% contribution in my 401k. The company has a match of 60% of the first 6%. Based on the 4% max I can contribute to the 401k the company also has a deferred comp program. There is no limit as to how much I can contribute and the company will match the remaining 2% I cannot contribute to the 401k. So I am getting the full 60% match of the first 6%. As of now I contribute 9% in the deferred comp and 4% in the 401k for a total of 13%. Each year I raise my contribution in the deferred comp by 1%. Should I continue this or branch out into more of a traditional IRA? I’m about 15 years away from retirement.


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I feel like I’m missing details - why are you limited to 4%? Does the plan fail the annual testing (do you and other highly compensated employees get refunds?)

Because you are highly compensated, and covered by a retirement plan at work, you won’t be able to make a deductible contribution to an IRA. Depending on your household income, you may be able to make a ROTH contribution. If you can, do it! If not, it may make sense to make a non-deductible IRA contribution.

This can be a little complicated, so it may be helpful to seek guidance from a professional on how to make the most of it.

phillycobra99 said:

What's your opinion on Roth vs traditional 401k?

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See my comments above about tax rates. For most young people, and people who aren’t high earners, ROTH is the way to go. If you’re a high earner, the reduction in taxable income now is nice.

My rule of thumb is this: will you need more (or a similar amount of) income in retirement than you currently make? If yes, go ROTH. If no, go traditional. The wildcard in all of this is tax rates. I don’t think they’ll go down again...

Never_Enough said:

I was thinking living on what would equal at least a $75k yearly salary.

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Keep in mind, pa doesn't charge income tax to retirees for income from social security or retirement accounts.

It's why I do 15% into my employer sponsored 401k to reduce my taxable income. Also the 8% on top of my contribution in matching from my employer doesn't hurt.


Great thread op.

Should I sell everything I own and live in an insulated shed? Serious question, and I'm seriously contemplating it

Also, is it illegal to set up my life insurance policies as hedge funds?