On the Money... (Financial Advice/Lessons)

[new_anth]

Good morning, wise fora.

I started reading the CHE Original Forum in 2007 or 2008 as a graduate student trying to strategize the job market process (it was a game-changer). These days, I'm in the middle of the career and trying to figure out our long-term financial stability/goal setting and remember the *very* useful On the Money section, which I can't seem to find here. I wonder if it'd be useful to have a "finances for academics" conversation, especially for those of us who come from home backgrounds where we didn't get this exposure.

I'll get started: like many people in the U.S., this last year we ended up taking a more active stance in investing (steep learning curve), which I felt sheepishly uninformed about. Looking back, I really wish someone had told me that the way people actually grow savings isn't just in savings/CDs (with super low interest rates), but by putting it in the market and investing in stocks (I'm no wizard, I'm just in "Index funds" that track the S&P 500 and that's good enough for me).

[Vkw10]

. Looking back, I really wish someone had told me that the way people actually grow savings isn't just in savings/CDs (with super low interest rates), but by putting it in the market and investing in stocks (I'm no wizard, I'm just in "Index funds" that track the S&P 500 and that's good enough for me).

Most of my investments are broad stock index funds in retirement accounts (403b and 457). I focus on expense ratio, since lower expense ratios tend to correlate with greater gains over time. I keep 20% in bonds and cash, even though the returns are barely matching inflation. The stability is what kept me from selling stock funds during the dot-com and later crashes.

In 2019, I opened a Roth IRA with 2.8% 60 month CD. I fully fund it every year. I'm planning to retire in 2025. My goal is to have a year of living expenses available and tax-free when I retire. That Roth CD is another security blanket for me.

[dismalist]

Yeah, likewise, me too:

-S&P 500 [High share of savings when younger]
-Bond index fund [Low share of savings when younger].

Low expense ratio is indeed a good indicator.

All on-line, no broker.

[Ruralguy]

Most of my money is tied up in a  403b.  Mixture of  Stocks (itself a mixture of S&P 500 funds, Growth, etc.),
Bonds, and Real Estate. I had a bit in cash, but that's now really low. Outside of 403b, with the remaining 10% of my money, most if it is cash in high interest CD's and savings accounts. I try searching for the highest rates. Now of course, its hard to find much above 1% even for the long term.  The remainder of my outside of 403b money is in individual stocks. The over all allocations might be a little off from what is officially recommended, but its reasonably well diversified.

[arcturus]

I also came from a low-income background and did not know how to invest outside of the 403b and a regular bank account. However, once I paid off my house, I took a look at my overall finances and realized that I could not achieve sufficient savings if I continued to only invest in the 403b and a savings account. The percentages just did not add up. I eventually figured out how to open an account with one of the major investment firms (I chose one that I had heard of in the context of retirement plans, although I was opening a taxable account). A few years later I learned about Roth IRAs (yes, I started investing in taxable before investing in an IRA...I didn't know any better at the time...). Now I contribute to the maximum possible in my 403b and Roth IRA and add anything leftover to my taxable account. All of my investments are in mutual funds, mostly index funds with low turnover.

I wish that there had been more opportunities for me to learn about more sophisticated financial opportunities (i.e., beyond a bank account) as my social-economic circumstances changed, but it isn't clear who should have told me about these things since most folks consider finances a very private topic. However, this seems to be a topic where "you don't know what you don't know."

[Vkw10]

I also came from a low-income background and did not know how to invest outside of the 403b and a regular bank account.

I wish that there had been more opportunities for me to learn about more sophisticated financial opportunities (i.e., beyond a bank account) as my social-economic circumstances changed, but it isn't clear who should have told me about these things since most folks consider finances a very private topic. However, this seems to be a topic where "you don't know what you don't know."

Same here. I grew up in a household where good financial management meant juggling the bills so the electricity didn't get turned off. I learned a bit about finances from The Wealthy Barber on PBS, enough to grab the personal finance textbook I spotted in a used book sale and subscribe to a couple of financial magazines.

Growing up without ever hearing about retirement planning or investments or opportunity cost makes figuring out financial matters hard. You don't have the basic vocabulary to know what to ask or to understand the HR presentations on retirement benefits. I signed up for a 403b at my first professional position because I didn't know what I was doing, so I filled out all the papers they gave me. My investment choices were awful (front & back load variable annuities) but at least I got in the habit of having that money disappear from my paycheck. By the time I switched universities, I'd learned enough to go for low cost index funds.

[dismalist]

I also came from a low-income background and did not know how to invest outside of the 403b and a regular bank account. However, once I paid off my house, I took a look at my overall finances and realized that I could not achieve sufficient savings if I continued to only invest in the 403b and a savings account. The percentages just did not add up. I eventually figured out how to open an account with one of the major investment firms (I chose one that I had heard of in the context of retirement plans, although I was opening a taxable account). A few years later I learned about Roth IRAs (yes, I started investing in taxable before investing in an IRA...I didn't know any better at the time...). Now I contribute to the maximum possible in my 403b and Roth IRA and add anything leftover to my taxable account. All of my investments are in mutual funds, mostly index funds with low turnover.

I wish that there had been more opportunities for me to learn about more sophisticated financial opportunities (i.e., beyond a bank account) as my social-economic circumstances changed, but it isn't clear who should have told me about these things since most folks consider finances a very private topic. However, this seems to be a topic where "you don't know what you don't know."

It is going unnoticed that if one has paid off one's mortgage and has worked all one's life, one can indeed live off Social Security, not the Life of Riley, but well above starvation levels. This, of course, only if one doesn't plan to move again.

Thus, a house is a good investment if one doesn't plan to move again.

[new_anth]

Like arcturus, I opened a taxable brokerage account before the ROTH IRA because I didn't know the logic behind an IRA. (For those reading who might not know the difference: in an ordinary brokerage account, you pay taxes on the profits ("capital gains") from sales of stocks, bonds, etc; but in an ROTH IRA, you don't pay taxes on profits and that allows for strategic growth from trading.)

We've now got a ROTH IRA, but since we've got shorter term goals besides retirement (i.e., we're trying to build a couple of downpayments... one for the US and one outside), we haven't maxed out the ROTH IRA yet because money is going towards those shorter-term goals.

I think for me, one of the big realizations was an even more basic formula: that to achieve long-term financial stability (since I come from a background where it's not just that I'm not going to inherit anything from my family, but that we are increasingly financially responsible for our parents), I need to save money. And there are two ways to save money: by lowering expenses, by increasing income. And the truth is that while we might be able to shave off some expenses, given how late I'm coming to this as someone who spent 20s/30s getting a PhD, I'm going to have to increase income to catch up to where I'd be if I'd started on this journey in my 20s.

I think of investing as a way to "increase income" because the growth rates are, averaged out over time, higher than the kind of interest we could get in a bank.

[clean]

Im glad to see that so many of the posters in this area are working toward paying off their house!  I m glad to see that people are fully funding their Roth Accounts!

For those interested in 'where to start'?  I think that it depends on what you want to start.  I think that Suze Orman has good advice.  I dont listen much now, but Dave Ramsey has views that are close to mine, well before I heard him on the radio!

For individual stocks, I want to suggest that Betterinvesting.org is a great way to start. They are the non profit group that supports individual investment clubs. Those were more popular a few decades ago, but in the days of Covid and internet, there are monthly internet meetings that are open to the public.  Their primary interest is in educating people how to find value stocks.

I have been reading their magazine and joining their monthly meeting for some time. They have a particularly good 5 in 5 segment where the meeting hosts (which vary some from month to month) go over 5 investment ideas in 5 minutes.  These are stocks that they  they have been looking at that generally meet the groups investment thesis.  I find that Ken has particularly good advice!  I have invested in some of his ideas (after reviewing the companies myself) and come out quite well.

Finally, for those looking to learn how to invest, I required Joel Greenblat's "The Little Book That Beats The Market" when I was teaching Security Analysis.  It is a very short book written with the author's early teenager trying to explain what the author does (values stocks for his Mutual Fund Employer).  The book also supports the website 'magicformulainvesting.com which provides daily lists of the stocks based on the book's 'formula'. 

Monthly now, I incorporate the lists of stocks from The Magic Formula site (focusing on the stocks that have reported their most recent quarterly report within ht elast month), and then running them through the Better Investing Site. 

In closing, I was a frequent On the Money contributor, and I hope that some of the things that I contributed helped!

Good luck

[sinenomine]

I also came from a low-income background and did not know how to invest outside of the 403b and a regular bank account. However, once I paid off my house, I took a look at my overall finances and realized that I could not achieve sufficient savings if I continued to only invest in the 403b and a savings account. The percentages just did not add up. I eventually figured out how to open an account with one of the major investment firms (I chose one that I had heard of in the context of retirement plans, although I was opening a taxable account). A few years later I learned about Roth IRAs (yes, I started investing in taxable before investing in an IRA...I didn't know any better at the time...). Now I contribute to the maximum possible in my 403b and Roth IRA and add anything leftover to my taxable account. All of my investments are in mutual funds, mostly index funds with low turnover.

I wish that there had been more opportunities for me to learn about more sophisticated financial opportunities (i.e., beyond a bank account) as my social-economic circumstances changed, but it isn't clear who should have told me about these things since most folks consider finances a very private topic. However, this seems to be a topic where "you don't know what you don't know."

It is going unnoticed that if one has paid off one's mortgage and has worked all one's life, one can indeed live off Social Security, not the Life of Riley, but well above starvation levels. This, of course, only if one doesn't plan to move again.

Thus, a house is a good investment if one doesn't plan to move again.

I'm glad to hear someone say this, dismalist. I'm super conservative about investing, but I paid off my mortgage (and all other debts) four years ago and am steadily salting away money every month.

[Cheerful]

I learned a great deal from Bogleheads Personal Investment discussion board.  Named after Jack Bogle, founder of Vanguard.  Has search function.  TIAA is discussed occasionally.  Two other Bogleheads boards on Personal Finance and Personal Consumer Issues can also be useful.

https://www.bogleheads.org/forum/index.php

My university provides almost zero financial info or guidance for employees.  Not sure how it is elsewhere.  During some TIAA appointments (spaced years apart), I saw that TIAA was largely concerned about their goals rather than my own.  I learned from trusted relatives, careful research, and Bogleheads.

[Harlow2]

Second Bogleheads, especially the careful and extensive wiki compiled by some of their best financial experts. (There is some posturing on the boards, but I learned much of what I know there.)

Clean, yes you were also very helpful when I was beginning to figure things out!

[dismalist]

Careful of terms like beating the market. If the peddlers of books can beat the market, why are they writing books telling us about it?

Maybe they are holding the stocks they want us to buy. :-)

[clean]

Careful of terms like beating the market. If the peddlers of books can beat the market, why are they writing books telling us about it?

Maybe they are holding the stocks they want us to buy. :-)

j

May I suggest that YOU read the book before disparaging it.  The book will discuss that the method does not always work.  There is an entire chapter on it, but over time, buying value stocks at low prices will pay off much of the time.

The book is available for less than $15, and spends much the first half of the text explaining HOW to value stocks.  It is well worth the time to read and can be read in a day!

[new_anth]

(Clean--yes! I remember you from OtM and thought your comments were really useful.)

As for "beating the market," like I said, I'm still quite new to this, but to my thinking there's a wide wide margin of difference between investing in Index funds (like those from Vanguard or Fidelity) that basically track the whole/or some subsection of the market and the GameStop Whatever-That-Was that happened.

I always thought you basically needed to be a financial guru with everything perfectly in place AND I thought you needed to be rich before you were allowed to think about investing. I think of myself as a pretty conservative investor in equities... pretty much funds.