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.

Best Podcasts for Millennials

I love the quote, “If you’re not growing, you’re dying.” I live by this in my personal and professional life because I am a strong proponent of investing in yourself. You are your single greatest asset so you need to continue your education, whether that be formally via schooling or self-educating via reading and learning on your own. Obviously the latter is much more cost-effective but doesn’t look the same on a resume. That is your call.

If you are looking to educate yourself on topics like money, personal finance, wealth, and investing, I have some great Podcasts for you Millennials that pertain specifically to money and managing your finances.

I started getting into Podcast years ago and absolutely love them. I still enjoy reading the occasional non-fiction business, money or investing book before bed, but Podcasts are unbelievably convenient. I listen to them while I workout, run, walk my dogs, driving to work and while at work. I always have my phone on me so its very convenient to listen whenever and wherever. I strongly urge all my fellow Millennials to check out some of the below Podcasts on money and investing. They have been very beneficial to me and I believe they will to you as well…hence why I call these my best podcasts for Millennials.

Best Podcasts on Money for Millennials

The Dave Ramsey Show Podcast

This is my go-to daily podcast on money and personal finance. Dave Ramsey is probably the most well known “financial coach” out there. He is the one who got me going financially and got me and my family on a budget. He is self-referred to as “Get out of debt Dave” and he is really good at conveying a great plan at doing just that. With that said, I’m not a huge fan of his vague investment advice of all “growth” mutual funds. He’s actually just trying to get you to contact one of his local financial advisors, which isn’t a bad thing, but he does this because he gets a referral fee. I also think you can manage your investments on your own by listening to some of the below podcast in addition to The Dave Ramsey Show.

The Motley Fool Podcasts

There are several Motley Fool podcasts, but I especially love three of them; Money, Answers, and Rule Breaker Investing.

Motley Fool Money

The “Motley Fool Money” podcast is a weekly show released Friday morning. Motley Fool Money Podcast features a team of Motley Fool analysts to discuss the week’s top business and investing stories. They recap what has transpired in the market that week, which is very helpful for anyone looking for a greater understanding of the stock market. They also interview at least one prominent person on money and/or investing. They also discuss stocks on their radar. This Podcast is more for a general understanding of what is going down in the market.

Motley Fool Answers

On “Motley Fool Answers“, host Alison Southwick and personal finance expert Robert Brokamp “answer” your money questions weekly. Alison is a very fun, light-hearted host who helps lighten up personal finance expert Robert Brokamp, whom she refers to as “Bro”. He gives off the reserved banker personality but she helps lighten it up a lot, and keeps the dialogue fairly informal. The two challenge the conventional wisdom on life’s biggest financial issues to reveal what you really need to know to make smart money moves. This is one of my favorite Podcasts for Millennials on money right now.

Rule Breaker Investing

Last but not least from The Motley Fool is “Rule Breaker Investing“, hosted by co-founder David Gardner, who is a very well respected investing expert. Gardner has fantastic insight on all things related to money, investing, and the stock market. I truly respect his opinion and he always comes across as open-minded with his and others ideas on investing. My only knock on this podcast is that its more of a stock-picking investment strategy and I’m 100% an index fund investor. I don’t own any individual stocks at the moment and don’t intend to any time soon. I like the buy as much of the market as possible via an index fund at a really, really low expense ration. With that said, Gardner provides great insight on what is currently going on in the stock market, specifically with individual companies. All of this is very helpful nonetheless.

Sound Investing by Paul Merriman

Sound Investing, hosted by Paul Merriman, a financial educator and advisor. Merriman is a retired financial advisor who now seeks to educate common investors with best practices, for free. His articles are published weekly on MarketWatch and he is well know for being a very strong advocate for Small-Cap Value index funds and their long term buy-and-hold benefits. In 2008 Money Magazine voted Sound Investing as “Best Money Podcast”. I strongly agree…its a great weekly listen. His audio quality could be better, but now I’m just nitpicking.

Million Dollar Plan By Pete the Planner

This is perhaps my favorite personal finance podcast at the moment. Peter Dunn, (aka Pete the Planner) welcomes one person per episode on a quest to make them a millionaire. He digs deep into their financial life, fixes problems, and lays-out a detailed plan on how to accomplish their goals. Each guest is given their Million Dollar Day. The former comedian makes a seemingly boring topic, interesting and funny. Despite the fact Pete was a former comedian, his financial advice is no joke and worth taking seriously.

Better Off with Jill Schlesinger

The ‘Better Off’ podcast with Jill Schlesinger just began in early 2017, so she is new to my playlist but I really like her advice and opinions on personal finance, money management, investing, and retirement planning. She always takes one call each episode to walk someone through their finances and to help them out with a money question. Considering Jill is a CFP, I think her advice is extremely credible. And as always with the people calling in, they are usually the same money and personal finance question we all have and struggle with. Jill also interviews informative guests each week to discuss topical money matters. The show is sponsored by Betterment, so there is a heavy lean towards using their robo-advisor feature (hence the Podcast title ‘Better Off’). However, the push for Betterment is actually fairly soft and doesn’t bother me at all.

The Dough Roller Money Podcast

The Dough Roller Money Podcast is another fairly recent addition to my Podcast playlist collection. This podcast has been around for awhile though, but I just recently found out about it and like the subject matter. I think its another great “money” Podcast for Millennials to give a listen to. The premise is to help all listeners make the most of their money through interviews, finance news, and resources so you can take your personal finances and money planning to the next level.

Chris Hogan’s Retire Inspired

Chris Hogan is a Dave Ramsey personality and specifically speaks to retirement planning. He has been a guest on Dave Ramsey’s popular daily talk show for a while, and now has his own Podcast on retirement planning and research, which helps out everyone from the Millennial generation to Baby Boomers. I do like Chris Hogan’s subject matter and I actually feel like he caters his agenda to helping Millennials plan better for retirement so they can actually retire at a decent age. Hogan likes to say, “retirement isn’t an age; it’s a financial number!”. And he is so right. He helps you understand your retirement goals and what to actually strive for when investing and saving for retirement. Its not about your age, its about setting a goal amount and shooting for that. That number says you are financially free and financially independent, allowing you to work and stop working whenever. He lays out a great road-map to retirement and does so through various ways of telling a story to get a point across. Oh, and his voice is as deep as the night is long. Unbelievable. When he talks you simply listen. Chris Hogan’s Retired Inspired is another great money and retirement Podcast for Millennials.

How to Effectively Listen to Podcasts?

My secret tip to new Podcast users…take advantage of the ‘playback speed‘ option. You can obviously listen at regular “1x” speed, or you can slow it down to “.5x”, or speed it up to either “1.5x” or the fastest at “2x”. I don’t listen to any podcast at 1x. I only listen at either 1.5x or 2x speed so I can get through as many episodes as possible. Depending on the podcast and the host, the fastest I can go is 1.5, but some are possible at 2x.

Which Podcasts Are You Listening To?

I would love to hear from all my readers which podcasts they love to listening to, particularly those on money, investing, retirement and building wealth. Please comment below if you have a great podcast other Millennials should be listening to as well.

Yale Investment Model for a Millennial

David Swensen is the Chief Investment Officer at Yale University. Swensen is responsible for managing Yale’s endowment fund and investments, and is one of the most respected investors.

He has averaged 13.9% annual returns, giving him the best track record of any institutional investor.

So, how exactly does David Swensen invest Yale’s endowment funds? Is it possible for the average individual investor to achieve similar results of this institutional investor? Absolutely. Follow along and I’ll show you which Vanguard funds David Swensen uses in the Yale Investment Model.

The Yale Investment Model

David Swensen’s legendary Yale investment portfolio consist of 6 asset classes for diversification.

1. US stocks
2. Foreign emerging-markets equities
3. Foreign developed equities
4. Real estate investment trusts (REITs)
5. US Treasury bonds
6. US Treasury inflation-protected securities (TIPS)

Swensen recommends 70% in equities (stocks) and 30% in fixed income (bonds). This can obviously be adjusted slightly one way or the other, depending on your age and risk tolerance.

What should a Millennial make of all this? Well, I strongly advise that Millennials be more aggressive since time is on our side. A Millennial really should be in a 90% stock / 10% bond portfolio until they are 20-25 years from retirement. So for most of us Millennials that means being invested at a 90/10 model until we’re 40-45 years old.

For example, I am in my early 30’s and still at 90/10. I don’t plan on on shifting to more bonds until I am 40-ish. At that time I’ll probably go to 85/15 or possibly 80/20. I am striving for an early retirement at age 60, so I have to be aggressive but also safeguard my assets as I get older.

Now back to the “Millennial” version of the David Swensen Yale investment model. As stated above, Swensen believes in 70/30. A bit conservative for a Millennial. So let’s up the equities by 20% and take that from our bonds. I love real estate and REIT’s a lot, but a 20% allocation to REITs is already plenty. No need to increase that at all. A lot of financial pundits will tell you that is too high as it is. I think its just right.

  • US equity:  30%  35%
  • Foreign developed equity: 15%  20%
  • Emerging market equity: 5%  15%
  • US REITs: 20%
  • US Treasury bonds: 15%  5%
  • US TIPS: 15%  5%

I think this is a great retirement portfolio option for a Millennial. Outside of Jack Bogle and Warren Buffett, David Swensen may be the next most respected investor.

Retirement Plan Fees and Expenses

Keeping your retirement plan fees low is paramount in a successful retirement plan. Once you know your target retirement asset allocation, the next step is selecting your funds and making sure those mutual funds and/or ETFs are very low cost with minimal expenses. A funds expense ratio is the cost of owning the fund.

Most financial advisors say the standard benchmark of a good retirement expense is 0.50%. Some financial advisors say you should actually strive to be even lower with a 0.25%. I agree with the latter, because, obviously, the lower the better. I am proud to say that my expenses currently sit at 0.08%.

I have an extremely low expense ratio and this is across my entire retirement portfolio, including my employer sponsored 401(k), my personal Roth IRA, and my wife’s Roth IRA. While a 0.08% expense ratio sounds hard to accomplish when the benchmark is 0.25%, its really quite easy to do with low-cost index funds.

I invest solely in Vanguard funds across all of my accounts. The bulk of my holdings are in the Vanguard 500 Index Fund Admiral Class (VFIAX), which has a microscopic 0.05% expense ratio. In fact, I believe that is the lowest possible fund fee on a mutual fund or ETF. You won’t find anything lower than that. My most expensive fund is the Vanguard Target Retirement 2040 Fund (VFORX) at 0.16%, which is still very low and well below the 0.25% benchmark.

According to The Motley Fool, the current average expense ratio of an actively managed mutual fund is 1.50%. This is really high. Its obviously a lot higher than the above benchmark of 0.50% and way more than my personal expense ratio of 0.08%. To help you understand what this actively managed fund fee of 1.50% means, say one year your fund is up 10% on the year, well after expenses its actually only up 8.5% after fees. If your fund is flat one year, you actually lost -1.50% in the market because of your management expenses.

To make the math even easier, I am going to compare the actively managed expense ratio of 1.50% to the 0.50% benchmark most financial advisors aim for. So a full 1% lower. What does that mean for your investments over the long term? Probably a much bigger hit to your potential future wealth than you think.

Future Value with a 1.50% Expense Ratio ($831,000)

Let’s assume you open an account with $1,000, invest $500 monthly for 30 years, and earn 9% annual returns after expenses. Compounded over 30 years, your final investment final would be worth $831,112.91. That’s actually a great return and a hefty final balance. But could you do better simply by investing in index funds versus actively managed funds that are much more expensive?

Future Value with a 0.50% Expense Ratio ($1,000,000)

Now let’s assume you did the exact same as the above, only you earned 10% annual returns versus 9% due to your lower expense ratio. Compounded over 30 years, your final investment final would be worth $1,004,413.54. That 1% expense ratio equates to nearly a $170K difference. The difference in being a millionaire and just shy.

You can’t control the stock market, but you can help aid your investment returns simply by choosing lower cost funds, particularly index funds.

How did the stock market do last week (August 22-26, 2016)?

Last week, August 22-26, 2016, was a rough week for the stock market and all indexes, including bonds. All stock market indexes ended the week down and the Fed’s speech from Jackson Hole, Wyoming hinted at raising rates sooner than market expectations. Next week the August jobs report will be released, which should impact the Federal Reserve’s looming rate decision.

Last Week’s Stock and Bond Index Performance (August 22-26, 2016)

  • NASDAQ -0.4% (YTD 4.2%)
  • Dow Jones Industrial Average -0.8% (YTD 5.6%)
  • S&P 500 Index -0.7% (YTD 6.1%)
  • U.S. Aggregate Bond Index -0.1% (YTD 5.4%)

How did my retirement portfolio perform last week (August 22-26, 2016)?

Below is a snapshot of my three biggest retirement portfolio movers in terms of percentage lost last week. Everything in my portfolio was down!

The below 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 REIT Index Fund (VGSLX) -0.9%
  2. Vanguard Target Retirement Fund 2040 (VFORX) -0.6%
  3. Vanguard Small-Cap Value Index Fund (VSIAX) -0.3%

Year-to-date my retirement portfolio is up 8.6%. I am my own portfolio manager. I don’t have help from a certified financial planner. I was a liberal arts major and I do all my own research on investing. My philosophy is to use low-cost index funds and its been working for me for a decade.

Millennials Say No to Credit Cards

Below is a list of some of my favorite money/personal finance articles from this past week. I’ve sifted through boat loads of articles on money, retirement, personal fiance, budgeting, paying off debt, and buying a home.

All of the below articles are highly relevant to the Millennial generation (Gen Y) and their money. Knowledge is power, and you are your single greatest investment, so continue to educate yourself on money and personal finances right here on this very blog so you can one day become financially independent.

This week’s best articles on money and personal finances, specifically for Millennials

How Millennials Became Spooked by Credit Cards

Data from the Federal Reserve indicates that the percentage of Americans under 35 (Millennials) who hold credit card debt has fallen to its lowest level since 1989, when the Fed began collecting data in a standardized way, according to an analysis by The New York Times. (The New York Times)

1 thing all Millennials have to do to retire: Get into stocks

Earlier this year, Stash, an investment app-based company that helps Millennials with their investment choices, commissioned a study to learn a bit more about what Millennials are doing for retirement. Harris, which conducted the study by interviewing 489 Millennials between the ages of 18 and 34 in March, found one striking similarity among Millennials: Nearly four in five (79%) Millennials weren’t currently invested in the stock market. (The Motley Fool)

Charles Schwab’s new target-date mutual funds beat out Fidelity and Vanguard funds in price by two basis points

Charles Schwab Corp. has upped the ante in the push to be the lowest-cost provider of target-date retirement funds, launching a new series of target-dated mutual funds on Thursday that edge out Vanguard Group and Fidelity Investments to claim the title as cheapest on the market to date. (Investment News)

The 401(k) Is Wreaking Havoc on Retirement

Workers with college degrees aren’t only far more likely to hold jobs that offer retirement plans. When offered the plans, they’re also far more likely to sign up and to contribute enough to retire comfortably. (Yahoo! Finance)

Millennials are freaking out about retirement — but not doing much about it

Young workers today probably can’t even think about retiring for 40 or 50 years. Longer lives and the prospect of weaker investment returns mean millennials will probably have to save more money, over a longer period of time, than their parents and grandparents. And the earlier they start saving, the easier it will be to accumulate a nice nest egg.Yet it’s not easy to sacrifice now for something that won’t happen until the 2060s. When millennials are asked, they say retirement is a top priority. In a recent Charles Schwab survey, retirement was by far the first concern of all age groups. (Investment News)

How Volatility Can Work in Your Favor

Going back to the late-1980s, emerging markets have exhibited over 60% higher volatility in monthly returns than the S&P 500. Small cap stocks, as measured by the Russell 2000, have also shown more volatility than the S&P (around 30% higher). (A Wealth of Common Sense)

How to Invest Your Way to $1 Million

Building wealth isn’t just about strategy; it’s about having the right mind-set. Sarah Fallaw, founder of DataPoints, a behavioral finance research firm that analyzes wealth potential, says the four key traits to making money are frugality, confidence, responsibility, and social indifference—that is, the strength to avoid fads. (Money)

Happy reading, my fellow Millennials.

What is dollar-cost averaging?

Dollar-cost averaging is paramount to perform properly, and understand, when it comes to investing for your retirement. The definition of dollar-cost averaging is rather simple. It’s merely investing a fixed amount of money on a regular basis into the market, regardless of the share price.

The last part of that is vital. Invest into the market despite the share price, e.g. do not try and time the market and predict its ups and downs. Anyone who thinks they can is fooling themselves (and you!). You need to just invest. Invest regularly. If the market goes up, keep investing, because the market should continue to rise over the long term. If the market drops, drastically or mildly, continue to invest because you just bought shares on sale! You have to keep at it and continue to invest for your retirement via dollar-cost averaging.

For example, I have a set percentage of my paycheck that comes out every two weeks and goes into my employer sponsored 401(k) plan. To take dollar-cost averaging one step further, I actually invest into a Vanguard Roth IRA on the weeks I don’t get paid. So I personally buy into the market every single week via dollar-cost averaging.

My wife is independent and has her own business. We max out a Vanguard Roth IRA for her personally by making a set investment each and every month so we meet the contribution limit for a Roth IRA of $5,500.

Find your appropriate asset allocation, and for Millennials I strongly suggest you be aggressive because you have time on your side, and invest at least every month. If you can, invest bi-weekly, if not weekly and continue to invest into the stock market via dollar-cost averaging.

If you have a lump sum to invest into the market, that’s fantastic. Invest it as soon as you can. But don’t consider yourself done once you do that. Your lump sum investment should be done in addition to your dollar-cost averaging investment strategy.

How did the stock market do last week (August 15-19, 2016)?

Last week, August 15-19, 2016, the market set record highs on Monday, but ended the week flat. The Fed also hinted that it is still considering a possible rate hike in September or December.

Last Week’s Stock and Bond Index Performance (August 15-19, 2016)

  • NASDAQ 0.1% (YTD 4.6%)
  • Dow Jones Industrial Average -0.1% (YTD 6.5%)
  • S&P 500 Index 0.0% (YTD 6.8%)
  • U.S. Aggregate Bond Index -0.1% (YTD 5.6%)

How did my retirement portfolio perform last week (August 15-19, 2016)?

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

The below 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 Small-Cap Value Index Fund (VSIAX) 0.6%
  2. Vanguard Extended Market Index Fund (VEXAX) 0.3%
  3. Vanguard Target Retirement Fund 2040 (VFORX) 0.1%

Year-to-date my retirement portfolio is up 9.1%. I am my own portfolio manager. I don’t have help from a certified financial planner. I was a liberal arts major and I do all my own research on investing. My philosophy is to use low-cost index funds and its been working for me for a decade.