Roth IRA: As Old As a Millennial

Previously I wrote about the Roth IRA turning 20 this year (in 2018). The Roth IRA first became available in January 1998 when it was signed into legislation (thanks to Senator William Roth of Delaware). 20 years later it is still the single greatest retirement account for all individuals…especially us Millennial’s who are in low tax brackets. Stock market returns are really, really hard to predict. You know what may be even harder to predict? Your tax bracket at retirement!

In my past blog post on the Roth IRA turning 20, I also stated that if you had maxed out your Roth IRA since day one back in January 1998, you could expect to have a total balance of over $194,000 today in 2018! Maxing out your Roth IRA since 1998 would have costed you $81,500, but you would more than double your investment by having a balance of nearly $200,000 today.

We Millennial’s obviously couldn’t take advantage of the Roth IRA since 1998, considering our age and when we actually began working and truly were eligible to contribute to a Roth IRA of our own. I want to use this post to looking ahead and encouraging all Millennial’s to not only opening a Roth IRA, but maxing out a Roth IRA.

Did you know that if you open a Roth IRA today, in 2018, and max it out every year ($5,500/annually), you could end up with close to one million dollars? Based off a 10% annualized return over 30 years, an initial investment of $1,000 with an annualized contribution of $5,500 could net you a total of $922,000! That means you paid $458/month for 30 years ($165,000 net investment) and ended up with nearly $1,000,000.

What if you made the same investment but only for 35 years? Say from age 25-60. You would end up with over $1,500,000 by the time you were 60 and looking to retire (early).

If your timeline were even longer and you could invest that amount for 40 years (age 25-65), you could end up with nearly $2,500,000 by the time you were 65.

The Roth IRA Turned 20 in 2018

The Roth IRA (Individual Retirement Arrangement) first became available in January 1998. 20 years later it is still the single greatest retirement account for all individuals. The Roth IRA was established by the Taxpayer Relief Act of 1997 (Public Law 105-34) and named for its chief legislative sponsor, Senator William Roth of Delaware, hence the name “Roth” IRA.

For the first four years (1998-2001) the max Roth IRA contribution was only $2,000. Over the next three years (2002-2004) the max was $3,000. The Roth IRA saw another $1,000 increase in its max contribution over the next three years (2005-2007) to $4,000. It then again increased to $5,000 over the next five years (2008-2012). Today the maximum Roth IRA contribution still stands at only $5,500, where it has stood since 2013.

If you invested in a Roth IRA since day one through this past year (January 2008 to December 2017) you would have invested $81,500 of your own money. But how much would you investment be worth today? Based off a 10% annualized return your Roth IRA would have approximately $194,003. More than double your initial investment based off returns.

Cost of Raising a Child: 1-Year Old

How Much Does it Cost to Have a Baby?

My wife and I are first-time parents and we are now officially one-year into the “parenting” process. I made it a goal to track all of our childcare expenses so I could truly report on the cost of raising a child. I invite all of my personal finance readers to follow along our journey as I diligently track all expenses involved in truly raising a child these days in middle class America.

Prior to us having a child I did some research and the consensus was that it costs roughly $14,000 per year to raise a child, which equates to roughly $240,000 (without college). Don’t get me started on how much college will cost for my child

The consensus from my research was it costs $14,000/annually to raise a child in 2017. Well, my wife and I are one year in and that first year costed us just a hair under $7,300. So we spent about half of the average (annually) to raise a child. The first few years you don’t incur costs for schooling and sports. However, you do pay for daycare at this point up until they begin kindergarten, so it does come to a bit of a wash.

We also spent $4,568 alone on the delivery of our baby, which includes OBGYN visits the months leading up to the delivery. So of the nearly $7,300 we spent on our baby in year one, really 62% of the cost was due to her delivery alone. The remaining $2,700 was really allocated to daycare, her 529 college fund, formula, diapers, and other items like toys and clothes.




Cost to Raise a Child in 2017: 1-Year-Old

  • 1st month = $414
  • 2nd month = $105
  • 3rd month = $545
  • 4th month = $643
  • 5th month = $520
  • 6th month = $866
  • 7th month = $650
  • 8th month = $707
  • 9th month = $770
  • 10th month = $562
  • 11th month = $702
  • 12th month = $810
  • Since inception (March, 2017) = $7,294




529 College Savings Plan with Match

If you’re an avid follower of my personal finance blog for Millennials, then you know that I wrote almost exactly one year ago about how I opened a 529 college savings plan for my daughter when she was only 6-days old. A bit extreme for some, but for me it was right on schedule.

I had actually read about some Millennials opening 529 plans for children they didn’t even have (or “expect” to have even in the next 9-months). That scenario was a bit too aggressive for me, as we had been trying for some time to have a baby with no such luck. I was convinced opening a 529 college savings plan for a pre-conceived child wasn’t right. With all that said, I am glad I opened a state-sponsored 529 plan for my daughter when she was only 6-days old.




529 Savings with a Match?

Now, let’s get back to the title of my article on a 529 college savings plan with a match. Does such a 529 plan exist you ask? Well, no, not exactly. The premise of this blog post is to encourage Millennial parents to not only contribute whatever they can on a regular (monthly via dollar cost average) basis to their child’s 529 savings plan, but to also match any gifted contributions you receive from family members and friends.

For example, this week my parents gave my baby girl a Valentine’s Day outfit and a $20 bill. My parents have done this, albeit in very small amounts thus far, but they have gifted us some money for our daughter’s college fund.

This was at our request…otherwise I think they would just give us more and more gifts and presents. But I would strongly prefer money for her college fund. I struggled with student debt because my parents didn’t save. I don’t want to struggle to put my daughter through college, nor did I want her to take on the burden of huge student loans like so many of us Millennials are these days.

The day after my parents gave my daughter $20 for Valentine’s Day I immediately wired that amount from my checking account to her 529 savings plan. I then matched 100% of the contribution, so I actually wired $40 to my daughter’s 529 plan. We received a couple contributions from family members at her birth but I didn’t match those. To be honest, I just thought of the idea in the last couple of months. Now I am ready to act on the idea of a 529 savings plan with a match (by me!).

So moving forward I am going to try and match 100% of any family members’ 529 contributions that my daughter receives. Granted these are small amounts, but if a family member gives my daughter $100 for her college savings plan, I am going to show my appreciation to both by matching 100% of that. My daughter should begin college in 2035, and from my calculations it is going to be very expensive.




Last Week Stock Market Recap (February 5-9, 2018)

Last week, February 5-9, 2018, the stock market was as volatile as its ever been. The stock market also had its worst one week in two years. The market indices were down 10% from all-time highs just a couple weeks ago…entering the market into an official “correction” (a correction is defined as 10% dip). The NASDAQ suffered its worst weekly percentage drop since February of 2016, while the Dow and S&P 500 each had the third biggest weekly point drop on record. The Dow alone had 3 of its top 10 biggest daily point drops on record this past week (closing on February 9, 2018).

Here is a recap of the markets and select industries, and just how down each was when the markets closed on Friday, February 9, 2018. You’ll see that all the major corporations were down significantly last week.

U.S. Market Indices

  • S&P 500: -5.2%
  • Dow: -5.2% (down 9.1% from all-time high)
  • NASDAQ: -5.1% (down 8.4% from all-time high)

How did financial stocks do last week?

  • Goldman Sachs: -4.1%
  • Morgan Stanley: -6%
  • UBS: -7.6%
  • Citi: -4.3%
  • JP Morgan Chase: -3.7%
  • Bank of America: -5.1%
  • Wells Fargo: -12.4%
  • US Bank: -5.5%

How did energy stocks do last week?

  • Exxon Mobil: -9.6%
  • Chevron: -3.9%
  • Shell: -6.3%
  • BP: -4.7%
  • HESS: -11.5%
  • Conoco Phillips: -9.3%

How did home builder stocks do last week?

  • Toll Brothers: -4.1%
  • Lennar: -2.2%
  • Pulte Homes: -6.5%

How did construction stocks do last week?

  • Caterpillar: -5.3%
  • John Deere: -6.1%

How did tech stocks do last week?

  • Apple: -2.2%
  • Microsoft: – 3.9%
  • Intel: -4.1%
  • Cisco: -3.4%
  • Adobe: -3.9%
  • Facebook: -7.4%
  • Google: -6.5%
  • Yahoo: -5.3%
  • Amazon: -6.3%
  • ebay: -6.0%

How did department store and retail stocks do last week?

  • Macys: -3%
  • JCPenny: -3.1%
  • Kohl’s: -3.2%
  • Walmart: -4.9%
  • Target: -0.7%
  • Costco: -5.4%

How did airline stocks do last week?

  • American Airlines: -7%
  • United: -4.1%
  • Southwest: -5.5%

How did health care stocks do last week?

  • United Health Group: -4.7%
  • Cigna: -5.2%
  • Anthem: -3.1%




How did my retirement accounts do last week?

Last week my retirement accounts (company 401k and two Roth IRA’s) were down 4.3%, whereas the S&P 500 was down 5.2%. Overall this year, which is only 41-days into 2018, my retirement portfolio is down 2.77%.

The Vanguard Target Retirement 2040 Fund (VFORX) is down 1.98% so far in 2018. This is my personal benchmark because I could invest all my retirement portfolio into one account or choose a number of index funds to diversify. I am doing the latter and this year I am slightly trailing the 2040 Target Date Fund.

Can I Beat the Stock Market?

I am actually not trying to “beat the market” with my retirement portfolio…I am trying to match it. I do have alternative indexes in my retirement portfolio to help possibly beat the market, e.g. Small Cap Value, REITs, International, and Emerging Markets. Through lots of reading and research on my part, I’ve found that a number of these assets classes “zig” when the market “zags”.

With that said, if I can beat the market I will absolutely take it (obviously)! In 2016 my retirement portfolio returned 13.01% versus 9.54% from the S&P 500. In addition to the S&P 500, I like to measure my portfolio performance against Target Date Retirement Funds. I specifically like to use the Vanguard Target Retirement 2040 Fund (VFORX) because that is what I used to invest in before I went to all index funds. But if I can’t beat the Vanguard 2040 fund, then why not simply invest in it (one fund) versus the 10+ mutual funds I am in now? Well in 2016 the Vanguard 2040 fund was up only 8.73%. So it under performed the market (S&P 500) by nearly 1%, and I personally beat it by nearly 5%. So that tells me I am on the right track with my well diversified portfolio.

And last year in 2017, my retirement portfolio returned 17.04% compared to 19.42% from the S&P 500. In 2017 the Vanguard 2040 (VFORX) fund was up 20.71%. So the Vanguard 2040 target date retirement fund not only beat me by more than 3%, but it also beat the market by more than 1%. That is definitely something worth watching for me. With that said, I am a long-term, buy-and-hold investor with the big picture in mind. So mini annual analyses like this won’t paralyze me and force me into a rash decision. In the last 10 years my retirement account has returned a 11.7% rate of return, whereas the 2040 target date fund has only returned 7.23% over the last 10 years.

Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




2018 Stock Market Forecast

2018 Stock Market Outlook

If you’re like me, or any investor for that matter, you are wondering just what the 2018 stock market outlook will be. As they say in the business, past performance is no guarantee of future gains. However, last year the total U.S. stock market was up over 21%. In 2016 the total U.S. stock market was up nearly 13%. So right now we are on a 9-year bull market ride, the longest in history.

But, just how long will that bullish ride continue? Will we make a solid decade-long bull market ride with positive returns in 2018? I am not a prognosticator, but I am certainly bullish on the idea of the 2018 stock market producing double-digit gains for a third year in a row. I do think it will be on the lower side, like 10-12% returns, but that is still tremendous.

With President Trump’s new corporate tax cuts and all the repatriating of corporate money, I think the U.S. stock market is in for another good year, if not two or three. If you don’t believe me, below are some helpful links of others within the financial industry and their 2018 stock market forecast.




2018 Stock Market Forecasts

CNN Money: Can the stock market bull keep raging in 2018?

Yet many bulls point out that there is still much to like about the U.S. right now. There is the potential for a boost to profits from lower corporate taxes. The job market and overall economy continues to hum along. Consumer spending remains resilient too.
CNN Money: Can the stock market bull keep raging in 2018?

 

MarketWatch: 18 predictions for 2018 on the stock market, FAANGs and bitcoin

Bitcoin will “crash”: With the crazy volatility in the cryptocurrency markets over the past few weeks, it’s a pretty safe bet that a serious correction is in the works. A drop of 50% from recent highs around $19,500 would take the digital currency, +5.80% down to just under $10,000 — a figure not that far away after recent declines.
MarketWatch: 18 predictions for 2018 on the stock market, FAANGs and bitcoin

 

USA Today Money: Where the stock market is headed in 2018

Year-end predictions are more art than science. And predicting the future isn’t necessarily Wall Street’s strong suit. At the start of 2017, for example, not a single strategist at 18 top banks saw the Standard & Poor’s 500 stock index rising as much as it has. The average gain predicted was 5.5% and the biggest bull saw stocks rising 12%, according to Bloomberg. If the average prediction had been right, a 401(k) investor with $10,000 invested in the S&P 500 at the start of 2017 would have gained $550. That’s well shy of the market’s actual return of nearly $2,000.
USA Today Money: Where the stock market is headed in 2018

 

CNBC: Bank of America raises its 2018 market forecast after S&P 500 surpasses initial target in January

“While 2017 saw building optimism, 2018 may be the year of euphoria. While valuations have overshot fair value, sentiment is likely to be the most important driver of returns — typical of late stage bull markets,” they wrote. They put fair value for year end 2018 at 2,636, and they have a long-term S&P target of 3,500 by year end 2025.
CNBC: Bank of America raises its 2018 market forecast after S&P 500 surpasses initial target in January

 

NerdWallet: 2018 Stock Market Outlook: More Fear of Missing Out?

Strategists are forecasting the S&P 500 will end 2018 about 4% higher than its current level, according to the median forecast of strategists in a survey conducted by CNBC. Buying into the market when stock prices already are high can be intimidating. But that shouldn’t deter you from participating in what’s proven to be a fantastic long-term investment. The market will go up and down in the course of your investing timeline, but one way to minimize the risk of a big shock to your portfolio is to ensure you’ve spread your money across a variety of assets.
NerdWallet: 2018 Stock Market Outlook: More Fear of Missing Out?

 

Vanguard: Economic and market outlook for 2018: Rising risks to the status quo

For 2018 and beyond, our investment outlook is one of higher risks and lower returns. Elevated valuations, low volatility, and secularly low bond yields are unlikely to be allies for robust financial market returns over the next five years. Downside risks are more elevated in the equity market than in the bond market, even with higher-than-expected inflation.
Vanguard: Economic and market outlook for 2018: Rising risks to the status quo

 

Charles Schwab: 2018 Market Outlook: It’s Getting Late

Should investors look for more of the same in 2018? Or is the party nearly over? Not quite yet, according to the Schwab Center for Financial Research’s 2018 Schwab Market Outlook. Global economic growth will likely continue to lift earnings in 2018—but we do appear to be entering the later stages of the market cycle, SCFR says. And with valuations high in both the stock and bond markets, investors should exercise some caution. “We anticipate solid growth in 2018 and don’t see a recession on the horizon,” SCFR experts say. “However, with markets priced for ongoing moderate growth and low volatility, the risks we’re monitoring include the potential for higher inflation and more central bank tightening than expected.”
Charles Schwab: 2018 Market Outlook: It’s Getting Late

 




2017 Stock Market Performance

Looking Back At The 2017 Stock Market

The stock market had one of its best years in recent memory, as noted below is all of our numbers and indices. The thriving stock market is the result of increasing economic growth and enormous corporate profits. The biggest catalyst was likely the sweeping tax cuts President Donald Trump just signed into law, which over time will save corporate America billions on what they owe Uncle Sam. This sweeping tax cut was the topic of discussion all year, but didn’t get signed into action until December of 2017. Investor.com put together a great chart of all events throughout 2017.

Suggested reading: 2018 Stock Market Forecast – Can the stock market bull keep raging in 2018?

Noteworthy stock market news from 2017

  • At nearly nine years old, the bull market is now the second-oldest and second-strongest in history.
  • The Dow raced 25% higher in 2017, getting even closer to 25,000 and making this year its best since 2013.
  • It had taken the Dow 14 years to climb from 10,000 to 15,000, but just three and a half years to reach 20,000 in 2017.
  • The broader S&P 500 zoomed 19%. And the Nasdaq jumped an impressive 28%.
  • Indexes made superb gains in a year of unusually low volatility.
  • The Nasdaq’s worst drop was only 4.4%.
  • Just 18.7% of taxpayers own stocks directly. Roughly half of Americans participate in the market through an employee-sponsored retirement plan, according to a Pew analysis of Census Bureau data. That gap has contributed to record-high wealth inequality in America.

2017 Year-End Stock and Bond Index Performance

  • NASDAQ 28.2%
  • Dow Jones Industrial Average 25.1%
  • S&P 500 Index 19.4%
  • Foreign Stocks 27.4%
  • U.S. Bond Index 3.55%

How Did My 401k Do in 2017?

Last year in 2017 my retirement accounts (one 401k and two Roth IRA’s) were collectively up 17.5%. I am not thrilled about under-performing the major market indices, considering the S&P 500 was up 19.4% and foreign stocks were up over 27%. However, I am very pleased with my performance.

The Vanguard Target Retirement 2040 Fund (VFORX) was up 20.7% in 2017. This is my personal benchmark because I could invest all my retirement portfolio into one account or choose a number of index funds to diversify. I am doing the latter and in 2017 I lost to the 2040 Target Date Fund by 3.2%.

However, over the last 10 years, which is essentially my working career, my personal retirement performance return is 11.1%. I am thrilled with that return. If I can keep that double digit return up until retirement I will be extremely wealthy. But I have worked during the best bull market in history (2007 to 2017) so to keep those returns is unrealistic. But again, I am very happy with my 10-year return of 11.1%. As stated earlier my personal benchmark that I compare my retirement portfolio to is the Vanguard Target Retirement 2040 Fund (VFORX), which is only up 6.44% in the last 10 years.




Millennial Personal Finance Blog

My goal with this Millennial personal finance blog is to show all Millennial’s that you have the power to take control of your personal finances through self-education and self-development on money and finances, and by striving to become financially literate. That is what I have been doing for years now, focusing on becoming an expert in financial literacy, so I can one day become financially independent. I’m trying to prove to Millennial’s that we can all do this and thrive with money. We Millennial’s have the greatest resource on our side to become financially independent and build wealth…time! Save, invest, and let compound interest do the rest.

Follow my blog as I highlight relevant personal finance and retirement topics pertaining to us Millennial’s. You can also join my journey as I track the true cost to raise a child these days. Most of my research shows that on average it costs $14,000 per year to raise a child, which equates to roughly $250,000 to raise a child from birth through high school (the cost of college is not included in this $250,000). I am trying to defy that price tag and show that a Millennial family can raise a child on well less than $250,000…or I will come to the sad realization that this number is dead on. Time will tell.




2018’s 10 Best Mutual Funds for Millennials

Looking for the best mutual funds of 2018 for Millennials? Look no further my Millennial friends, here is my list of the 10 best mutual funds for Millennials. I can’t guarantee that you will become a millionaire via these 10 best mutual funds, but I do know that with consistent investments via dollar-cost-averaging, while holding forever, will certainly get you one-step closer to one day becoming a Millennial Millionaire. Simply stay the course and keep on investing, regardless of market conditions. This is your surest path to wealth and financial independence.

2018’s 10 Best Mutual Funds for Millennials

  1. Target Date Funds (2050, 2055, 2060)
  2. Small-Cap Value Index Fund (VSIAX)
  3. Total Stock Market Index Fund (VTSAX)
  4. 500 Index Fund (VFIAX)
  5. LifeStrategy Growth (VASGX)
  6. Total International Stock Index Fund (VTIAX)
  7. Emerging Markets Stock Index Fund (VEMAX)
  8. REIT Index Fund (VVIAX)
  9. Balanced Index Fund (VSMAX)
  10. Intermediate-Term Bond Index Fund (VBILX)




My aforementioned list of the top 10 mutual funds for a Millennial is made up of all Vanguard funds. I absolutely love Vanguard and their funds, which are the lowest cost funds out there. Keeping your fund expenses low is extremely importing, and that’s what Vanguard has set up to do.

Target Date Funds

Number one on my list of the 10 best mutual funds for 2018 are target date funds. The three biggest players in the “target date funds” space are Vanguard, Fidelity Investments, and T. Rowe Price. They are virtually all identical, except that Vanguard is about 50 basis points cheaper, e.g. about 0.50% less to manager and that is why Vanguard target retirement funds win-out in my book.

Millennial Millionaire

Millennials, you have to start investing now. The best time to plant a tree was 20 years ago…the next best time is today. Same goes for investing. Millennials should begin investing right now and make saving regularly a habit, and prioritize paying yourself first above all other financial obligations.