Stay the Course With Your Investments

Take it from me; you need to simply stay the course with your investments. I constantly feel as if I am my own worst enemy when it comes to getting in the way of my investments. I read so often that it’s hard for me not to react to what I feel as credible advice.

Do I add a Growth index fund?

Most recently, I was on Vanguard reviewing my account asset allocation, where Vanguard provides recommendations based off your investments. They suggested I was too heavily allocated toward Value, which left me susceptible to low market returns when Growth performs well. I am predominantly in Blended with a slight skew towards Value. So it got me thinking if I should add more Growth…

Do I add a Developed Markets index fund?

Then I was reviewing the International side of my portfolio, which said I was too heavy in Emerging Markets. I was lacking exposure to Developed Markets, particularly Europe. I’m invested in the Total International Stock Index Fund, as well as the Emerging Markets Index Fund. It got me thinking that I should consider adding a Developed Markets Index Fund…

Do I need to add more International?

Next I decided to log in to my free version of Personal Capital which also does a “checkup” on my allocation strategy and provides rebalance recommendations to ensure I am evenly distributed to maximize my returns, while minimizing risks. Personal Capital actually thought my portfolio was properly allocated. It did however suggest I was overly invested in US stocks versus International…by 11% actually. So it did suggest I consider making this change…

I’ve been beating the market!

And then I see that over the last 90 days I have beaten the market by a score of 7.71% (my portfolio) to 7.01% (S&P 500, aka “the market”). I also beat the market over the last one year, as well as 10 years. So I am wondering why I would even considering changing my portfolio, regardless of what any of these tools or articles say?

So my message to all you Millennials is to stay the course and just keep investing. Don’t get in your own way!

Retirement Contribution Percentage for 32

In January I was able to finally max out my personal Roth IRA ($5,500). This is the first year I’ve had my own Roth IRA and I am extremely happy to report that I was able to max it out. The reason I have not done this before is because I receive a company match and profit sharing plan via my workplace 401(k). So I have managed to save a decent amount already for my retirement, thanks to my company retirement plan, especially their match.

My wife is self-employed and we’ve been contributing to a Roth IRA for her for years. We haven’t always been able to max it out ($5,500) but we’ve have a few times and we’ve been great lately.

For the first time ever this year I decided to crunch all our retirement savings for 2016 to determine exactly what percentage of our income we are contributing to retirement. As a general rule of thumb, most certified financial experts suggest at least 10-15%.

Well I am happy to report that my wife and I managed to save 18% of our income towards retirement. I am extremely happy with that result. My goal is to get closer to 20% though, then begin throwing any extra money towards my mortgage.

Average Retirement Portfolio Return

I was reviewing my retirement portfolio returns in Vanguard the other day and decided I wanted to share those results with my readers. I feel very proud of my returns over the years. For those of you who are new to my blog, I’m a liberal arts major, a Millennial, marketer by day, and my own financial advisor. Over the last several years I have dedicated virtually all of my spare time to becoming financially literate so that I can one day become financially independent.

Below are my average retirement portfolio returns over the last 10 years. Again, I am been my own financial advisor, managing everything myself. I feel my returns are above average, and on top of that, my overall expense ratio is 0.08%. The only actively managed fund in my retirement account is the 2040 Target Date Retirement Fund from Vanguard. But I am actually beginning to phase that fund out as well so I can focusing solely on low-cost index funds.

My Retirement Portfolio Average Annual Rate of Return

  • 10 years = 9.6%
  • 5 years = 10.0%
  • 3 years = 6.0%
  • 1 year = 12.7%

Average Annual Returns of the Vanguard S&P 500 Index Fund

  • 10 years = 6.94%
  • 5 years = 14.62%
  • 3 years = 8.84%
  • 1 year = 11.93%

I am happy to point out that my retirement portfolio beat the market last year and has over the last 10 years. I am actually not really trying to beat the market either. I am just diversifying via low-cost index funds, and index funds really just match the market. But I have diversified further over the last few years by adding Small Cap Value, REITs (Real Estate Investment Trusts), and Emerging Markets to my portfolio.

Next I would like to add more “Value” index funds to my portfolio. Value stocks of those out of favor with investors and therefor seen as a better value at the time due to their cost. This would probably be large cap since I already own so much small cap value. Two of the financial minds I listen to most are obviously Warren Buffet, who is a huge “value” investor, as well as Paul Merriman, who is especially partial to small cap value.

2017 New Year’s Resolutions for Millennials

This year I am making my financial New Year’s resolution fairly simple and easy to accomplish. I don’t want it to sound like I am not challenging myself because I absolutely am. My goal for me and my family is to budget even better and save even more. My wife and I have been on a tear financially for the last few years. We’ve been sticking to a budget and cutting expenses like crazy. It’s such a life changing experience when you pay off debt and build a large savings account. The peace of mind you get is almost unexplainable.

My Resolution is “Simple and Easy”

Now earlier I said I was making my resolution “simple and easy”. It’s only simple and easy for us because we’ve been on a roll with both. We’re constantly looking for more ways to cut costs in our budget, and at the same time we’re using that money towards building wealth via savings and investments. Budgeting and saving money is not easy…but once you begin doing it the emotional charge of it becomes so infectious that you don’t ever want to stop. You begin to see little gains slowly but surely and it feels tremendous.

The Best Move I’ve Made with a Lump Sum on Money

I lucked out this year and received a nice promotion during my year-end review, as well as a bonus. You know what I am going to do with my bonus? Max out my Roth IRA for 2016. This is probably the first financially prudent decision I have made with a lump sum of money ever. My work offers a great match on our company 401(k) that I take full advantage of and have for 10 years now. But this year I decided to also open a Roth IRA to complement my work 401(k). I can invest in more fund options for less money. I love it. I didn’t open this account until April of 2016, so I wasn’t able to contribute enough during those 8 months to meet the Roth IRA max contribution of $5,500. But thanks to my year-end bonus I can now max it out.

Millennial Couple Squares Away Finances

In regards to my blog, I also was fortunate enough to be featured in the ‘Squared Away Blog’. This is the blog run by the Center of Retirement Research at Boston College. Kimberly Blanton contacted me shortly after I made a comment on her blog months ago, as I regularly follow this blog for retirement advice. I am so thankful that Kim reached out to me and allowed me to share my personal finance story and my goal of eventually becoming a Millennial Millionaire. I want to have a net worth of one million dollars before I am 40 years old. Please take a moment to check out the article on my wife and I titled, Millennial Couple Squares Away Finances.

Last Week Stock Market (Jan 9-13, 2017)

Last week, Jan 9-13, 2017, was a down week for the stock market. However, the market was only marginally down, with the S&P 500 index down -0.1%. The combination of solid job growth and President Trump’s expected pro-growth policies should spur stronger economic growth later this year and into 2018. But the pace depends on the timing and specifics of policy changes, as well as the possible negative effects of trade or immigration restrictions.

Last Week’s Stock and Bond Index Performance (Jan 9-13, 2017)

  • NASDAQ 1.0% (YTD 3.5%)
  • Dow Jones Industrial Average -0.4% (YTD 0.6%)
  • S&P 500 Index -0.1% (YTD 1.6%)
  • U.S. Aggregate Bond Index 0.1% (YTD 0.3%)

How did my retirement portfolio perform last week (Jan 9-13, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard FTSE Emerging Markets Index Fund ETF (VWO) 1.4%
  2. Vanguard Total International Index Fund (VTIAX) 1.1%
  3. Vanguard Extended Market Index Fund (VEXAX) 0.5%

Average Wealth Management Fees

A number of Millennial’s may be thinking that they don’t have nearly enough money to consider a financial advisor. I’m here to tell you that most financial advisors are actively seeking new Millennial clients. We Millennial’s are the up-and-coming generation and the future of their industry.

While Baby Boomers and Generation X’ers obviously have more wealth accumulated than us currently, obviously because of time and compound interest, we are the future of wealth management advisory services. I have read countless articles recently about how financial advisory firms and certified financial planners are looking for younger clients. They want successful Millennial’s who may not have the assets as of right now but appear to be well on their way in the next decade or two plus. If a financial advisor can get you in under their management in your late 20’s or early 30’s, they know long-term you are a great client for them as your portfolio and investable assets continue to grow (as well as your personal income).

I personally think a Millennial is better off managing their money. I have no formal financial education but I read, listen and research investing, personal finance and money topics virtually every day. I want to successfully manage my money on my own and there are a number of mediums out there to do just that. I would encourage all Millennial’s to do their own wealth management and forego any financial advisory fees. It’s all very possible. I manage my own portfolio and I am beating the market.

With that said, there are some people who just like to be hands-off when it comes to their money. They would prefer to have someone else managing their money for them so they don’t have to. Behaviorally speaking from a financial standpoint, a financial advisor makes sense in that respect because they prevent you from during something drastic during a downturn. They help you stay the course (at least they should!).

Below are average fees a Millennial can expect to pay for the services of a financial advisor and/or wealth management firm. Using a “fee only” firm would be your best option.

Less than $500,000 in investable assets

Most of us Millennial’s will fall into this group as a starting point, in terms of overall investable assets. If you have less than $500k in investable assets, you should expect to pay approximately 1.25% in annual fees. For example, if you have a portfolio worth $400,000 and pay 1.25% in management fees, that would equate to $5,000 annually. Decent chuck, huh?

Less than $1,000,000 in investable assets

If you are closer to one million dollars in your portfolio then you can expect your fees to drop slightly – to the tune of 1.0% flat. So about 25 basis points less than if you have under $500k. For example, if you have a portfolio worth $800,000 and pay 1.0% in management fees, that would equate to $8,000 annually.

Between $1-5 million in investable assets

Once you hit the one million dollar plus mark is when you start to see a sizable savings in your wealth management fees. At this stage is when I personally would begin entertaining such a service from a financial advisor, because the fees are low enough that it may make sense for a Millennial. The average management fees for a portfolio ranging in value from $1-5 million is 0.75%. For example, if you have a portfolio worth $2 million and pay 0.75% in management fees, that would equate to $15,000 annually. $4 million would obviously equate to $30,000.

Over $5 million in investable assets

Now is when you really start to see the savings with a lesser management fee average of approximately 0.50% when your investable assets is above $5 million dollar. At this stage you should strongly consider having your assets under management if your porfolio is this large. For most of us Millennial’s this won’t be until we’re really closer to retirement, like in our 50’s or 60’s, if ever. It would without a doubt be a good problem to have…possessing a portfolio of more than $5 million dollars. Your management fees of 0.50% would equate to $25,000 annually.

Vanguard charges a flat 0.30% on all portfolio sizes

I have all of my investable assets saved with Vanguard and I love them. Great website, amazingly low-cost funds, and terrific customer support. On top of all of that, Vanguard only charges 0.30% for your assets under management. For example, with a $250,000 investment, the low cost of Vanguard’s advice service is only $750 annually compared with the industry average of $2,550 (1.02%). That means you’d keep $1,800 more annually invested toward reaching your goals. And there’s no fee for leaving the service.

Robo-advisor fees

Robo-advisors are all the rage now. And they are especially going after the entry-level, tech-savvy, Millennial investor. Its actually a very smart plan on their part. But what does a robo-advisor cost? They come in very low actually, ranging from 0.15-0.35%. The obvious drawback to a robo-advisor is the lack of human intervention, from yourself or a financial advisor. The benefit to using a robo-adviosor? The fact there is no human intervention. You take emotional decisions off the table completely, which is very important when investing (and staying the course) for the long-term.

Last Week Stock Market (Jan 3-6, 2017)

Last week, Jan 3-6, 2017, was a good start to 2017 for the stock market. In the markets first full week into 2017, all major market indexes were up, with the NASDAQ leading the charge up 2.6%. The S&P 500 closed at an all-time high on Friday. Helping stocks march higher was the December jobs report, which showed that the economy added 156,000 jobs in December and average hourly earnings grew 2.9% over the past year, the fastest annual increase since 2009. Next week, retail sales and consumer sentiment data will be reported on Friday.

Last Week’s Stock and Bond Index Performance (Jan 3-6, 2017)

  • NASDAQ 2.6% (YTD 2.6%)
  • Dow Jones Industrial Average 1.0% (YTD 1.0%)
  • S&P 500 Index 1.7% (YTD 1.7%)
  • U.S. Aggregate Bond Index 0.2% (YTD 0.2%)

How did my retirement portfolio perform last week (Jan 3-6, 2017)?

Below is a snapshot of my three biggest retirement portfolio mutual fund movers in terms of percentage gained last week.

The below mutual funds are held within my work 401(k) plan as well as two separate Roth IRA plans. All accounts are held with Vanguard.

  1. Vanguard Total International Index Fund (VTIAX) 2.3%
  2. Vanguard REIT Index Fund (VGSLX) 2.2%
  3. Vanguard 500 Index Fund (VFORX) 1.8%

10 Personal Finance Tips for 2017

1. Get on a written budget

Getting on a budget is your single greatest wealth builder. If you’re not on a budget you have no idea what you’re bringing in, putting out, and able to save. A budget allows you to track your expenses so you know where you can potentially cutback in order to save more. Saving more can be effortlessly at time with a proper budget.

2. Save for retirement and get your match

Saving for retirement is of the utmost importance for any Millennial. We Millennials have so much time on our side for the market to work in our favor. And by “time” I actually mean the power of compounding interest. Keep investing into the market regularly and watch your wealth grow. If your company offers a 401(k) match you absolutely must take advantage of this. Its free money! Contribute enough to get your full company match. If you feel you can still save more, you should open a Roth IRA. If you’re self-employed or your employer doesn’t offer a 401(k), open a Roth IRA and put the maximum annual contribution of $5,500 in it, spread-out over the course of the year via dollar cost averaging.

3. Pay yourself first

Whether you’re new at personal finance or have been doing it well for a while now, everyone has heard of paying yourself first. This is paramount in your attempt at becoming financially independent. Paying yourself first means taking your cut before paying anyone else. I suggest saving for retirement and an emergency fund (3-9 months’ worth of living expenses).

4. Live below your means

Learning to live below your means is perhaps the single hardest personal and behavioral finance tactic you’ll have to master. It’s not easy to live on less than you actually make, especially as you get older and begin getting promotions and making more money. This goes back to paying yourself first. If you live on well less than you make, that means you can save at least 15% of your income. You should be putting at least 12-15% of your income towards retirement. Then another 5-8% in your savings account/emergency fund. If your emergency fund is fully funded, keep putting that money towards retirement via a Roth IRA where your contributions are withdrawable (it’s like a pseudo-emergency fund).

5. Pay down your debt

Once you have begun saving for retirement, next you should put your remaining money towards paying off short-term, non-tax-deductible debt, e.g. credit cards and car loans. I would advise to at least save enough to get your company match for retirement. Then throw the rest of your income (after living expenses) towards your debt. Carrying credit card debt is your biggest barrier to becoming financially independent and accumulating wealth. And once your car is paid for – drive it for as long as possible. You’ll be amazed and how much money you can save when you don’t have a car payment.

6. Increase your savings rate yearly

Once you begin saving regularly for retirement, increasing your contribute rate is actually not that challenging at all. I would advise increasing your retirement contribution 1-2% each year. This is even easier if you get a raise. I personally have both a Roth and traditional 401(k) at work. For the last few years I have increased my contribution to each by 1%, netting me an increased savings rate of 2% each year. I also contribute to a Roth IRA. Once you start you can’t stop. You’ll be surprised and how you want to keep contributing more and more as time passes.

7. Do not try and keep up with the Joneses

In every stage of life we’re tempted with keeping up with those around us. We want to look successful. What better way than to project success of your friends, family and even those around you whom you’ve never met? Try a large suburban home, a luxury car, and expensive name-brand apparel and accessories. Regardless of your age, this is always an issue. When you’re in your 20’s you want to really look successful and buy a nice expensive car. Same thing happens when you’re in your 30’s and 40’s. It really never stops, but you have to try not comparing yourself to others. Stay the course. Save regularly for retirement and you’ll be much better off.

8. Continuing (financial) education

You are your single greatest investment. Always seek to further your education, personally and professionally. Not in finance? That’s fine. There are thousands of books, magazine articles, blogs, podcasts, and news shows out there to help your further your personal finance acumen. Same goes with your profession as well. Continue to read and learn about your trade so you can quickly advance in your field.

9. Set goals

Always set financial goals for yourself so you have something to strive for and achieve. I am a Millennial in my early 30’s. I really want to become financially independent in my 50’s and retire by age 60. That’s not going to be easy but it’s my goal. I check in on that often to make sure I am saving enough so my wife and I can do just that. I know how much we need in our retirement accounts in order to achieve this feat. We’re still nearly 30 years away from this date, so it gives me time to tinker and adjust where needed. I have a goal and I’m saving for it.

10. Pay down your mortgage

Once you are debt free except for the mortgage it’s time to tackle that house payment. This step isn’t until you are in a great place financially, meaning you have no debt and you’re maxing out your retirement accounts, e.g. 401(k) and Roth IRA.