Category: Investing

If you’re in your 20’s, you should start saving to retire, like right now, please (plus 3 ways to do it)
Some advice is timeless.

Albert Einstein once said, “Imagination is more important than knowledge.”

Katherine Hepburn gave us, “If you obey all the rules you miss all the fun.”

Here’s another from your future self, “Start saving for retirement, it’s worth it, I promise.”

If you’re in your 20’s, and you haven’t already started, now’s the time to begin saving for retirement. And no, your employer sponsored 401k or 403b is not enough. Taking ownership of your financial future doesn’t have to be complex or intimidating. In less than 10 minutes I’ll share with you how I am saving for retirement and how you should be too.

Please note, I am not giving out investing advice (I’m not qualified to do that), instead, I’m suggesting you place your money in certain vehicles that have tax advantages, and then use investing strategies that are investment agnostic. What you do with your money when it is in that vehicle is up to you, but putting it in the right account is critically important (and understanding why it is important helps to).

Let’s dive in.

1) Open a Roth IRA

Do you think you are currently earning the highest salary you will in your career? Yes or no? If you answered no, you should open up a Roth IRA. If you answered yes, maybe consider a traditional individual retirement account.

An individual retirement account (IRA) is a type of account you can put money into, just like a checking or savings at your local bank. Why would you put money into this special type of account? Because the federal government wants you to. There are special tax benefits that you only have access to once your money is in this type of account. Think of an IRA as a vehicle. When you put your money in that special vehicle it has certain privileges that other vehicles (your checking account for example) don’t have access to. To keep with the vehicle theme, your IRA has access to the HOV lane, your checking account doesn’t. Make sense?

IRA’s come in two flavors; Traditional and Roth. If you think you haven’t reached peak career earnings (or you make less than $120,000 per year), you should open and place money into a Roth IRA. If you think you’re earning the most you ever will in your career, or your current annual income exceeds $135,000, you should open a Traditional IRA. Here’s why.

With a Roth IRA you place after-tax dollars into the account. Then, when you are 60, and you take that money out of your Roth IRA (to buy a car, a second home, whatever), it’s tax free.

With a Traditional IRA you place pre-tax dollars into the account. Then, when you are 60, and you take that money out, it’s taxed.

The game becomes minimizing your tax burden so that you have the most money when you are 60. Let’s use an example to drive this point home.

If you’re a single (not married) 23 year old, and make less than ~$80,000 per year, your marginal tax rate is (for 2018 at least) 24%. With this income and age, you’d have a Roth IRA, and you would place after-tax dollars into that account.

Then, when you are 60, let’s imagine you are making more than $80,000 per year, maybe something like $200,000 per year. Your marginal tax rate on $200,000 will be higher, if we use 2018’s rates, it would jump all the way up to 35%. Now that you’re 60, you want to get some extra cash — you take money out of your Roth IRA. This money isn’t taxed when you are 60, because you already paid taxes on that income all the way back when you were 23!

Do you see the benefit? Instead of paying 35% taxes on that money, you already paid 24% tax back when you were younger and earning less. A Roth IRA is perfect for young people that aren’t at their maximum career earnings.

For more specifics on how much you can contribute to a Roth IRA, when you can take money out, and more, please visit a website like RothIRA.com.

2) Invest in STUFF and reinvest your dividends

Most people invest money that is sitting in their IRA — individuals tend not to put money in that account and just let it sit. For savvy savers, investing that money in something (or many things) that will increase in value over time makes financial sense.

One of the most common, and easily accessible places to invest, is in the stock market. If you ever wanted to own a part of Disney, Nike, or Apple, now is your chance — ownership in publicly traded companies is incredibly simple, and potentially a wise decision for how to allocate funds in your Roth IRA.

A lot of fuss, stress, and fear stems from not knowing where to invest your money in the stock market. “Do I buy a mutual fund, a closed-end fund, an exchange-traded fund, or an individual company?” That question makes some people queazy, and I don’t blame them. Stock markets are not easy to comprehend, even on a basic level let alone when you get into derivatives, credit, debt, etc.

However, you’re in luck! There is something even more important that choosing which fund or firm you invest in, and it’s called a DRIP plan.

DRIP stands for dividend reinvestment plan. Dividends are profits that a company pays out to investors. When Nike makes money they give some of that to their investors. Simple, right? With a DRIP plan, you set up your Roth IRA (or whatever investment account you have) to automatically buy more of that stock or fund when you get paid a dividend.

Let’s stick with our Nike example. Let’s say you have a Roth IRA and you just loaded it up with $5,500 (the maximum annual contribution). Through your broker (think Charles Schwab, Merril Edge, etc.) you buy Nike stock. Look at the image below, that’s the most recent (as of November 30th) stock quote for Nike.

You buy 73 shares of Nike stock ($5,500 divided by $75.12). Great, you’ve made your first investment! Now, don’t look at your account for 3 months. Publicly traded companies report their earnings (and give out dividends) quarterly. Time to wait.

Three months go buy. Your Nike stock may be worth more or less than what you originally paid for it ($75.12), but you aren’t too concerned about that. Instead, you’re excited because your dividend reinvestment plan is about to go into action!

Look above in the red rectangle, that’s Nike’s dividend yield. The dividend yield is a measure of how much money you are going to get paid (just for being an owner) relative to the stock’s current share price. In this case with Nike, annually you’ll earn 1.17% of each share’s value ($75.12) for each share you own. $75.12 multiplied by 1.17% equals ~$.88. Dividend yields are expressed in annual terms (four quarters), so we’ll divide this number by 4 to get to our quarterly dividend of ~$.22.

Remember, you own 73 shares of Nike, and for each share you are getting paid 22 cents. 22 cents multiplied by 73 equals ~$16. Sure, you’re not breaking the bank with $16, but what happens next is the best part of a DRIP plan. Instead of taking that $16 and going to the movies, your automatic dividend reinvestment plan buys more Nike shares. You can own fractional shares of stock, and in this case, depending on how the stock price has fluctuated you’ll get a quarter (.25) of another share. Then, after another 3 months you’ll get paid a dividend on that new share in addition to the other 73 you own.

This is the benefit of dividend reinvestment. Each quarter you buy more shares in a company, then next quarter you get paid more (the dividend) because you have a larger stake. Imagine doing this for 30, 40, or 50 years in an IRA account that won’t be taxed when you take out the money! Plus, if you made a savvy investment your original principal (the 73 shares you bought for $5,500) should be worth more than their original asking price.

This is how you save for retirement.

3) Start today, like right now, please

The sooner you put your money in an IRA the better. If you are a young person you need to put money into a tax-advantaged vehicle (aka the Roth IRA we’ve been discussing) NOW. Why? There are three reasons:
1. You can only contribute $5,500 annually. Don’t miss out on an opportunity to contribute;
2. The sooner you invest the sooner you get paid dividends and can begin reinvesting them;
3. Tax laws may change and who knows how long the current structure of a Roth IRA will be available.
With that in mind, start saving today. It’s really pretty simple, and if you can afford to, set aside some cash and get started. Your future self will thank you.
December 1, 2018
3 Easy Ways to Start Saving for Retirement (for Teenagers and Millennials)
I have no clue what retirement is like. I don’t even like to think about what retirement means.

I’m 20, I’m young, and for me retirement is way off somewhere in the distant future.

A recent report from the Insured Retirement Institute (IRI) and the Center for Generational Kinetics shed some light on the savings habits of individuals aged 20-37. According to the study, 68% of millennials are actively saving for their retirement. When thinking about retiring you also need to start thinking about finding a assisted living community. Here is a senior care community check list to help you find the right place for you.

That is awesome. That means that even though thinking about retirement is weird, people are doing it.

In this post I will outline what tools are available for you to start saving for retirement. I will stay away from giving investment advice, rather I will focus on the different ways retirement accounts can save you money and protect your future.

1. Open a Roth IRA

DEFINITION OF ROTH IRA

An individual retirement plan that bears many similarities to the traditional IRA, but contributions are not tax deductible and qualified distributions are tax free. Similar to other retirement plan accounts, non-qualified distributions from a Roth IRA may be subject to a penalty upon withdrawal.

A Roth Independent Retirement Account (IRA) is a millennials most effective tool to save for retirement. A Roth IRA is a special type of investment account. You can take the money you put into a Roth IRA and invest in Nike, Apple, Google, a mutual fund, index fund, exchange traded fund, or even bonds. You can do whatever you want with this money once it is in this account.

What makes a Roth ideal for retirement savings is the fact that you contribute after tax dollars. This means that when you withdraw earnings at age 59 _1/2 or older you will not be taxed again. There is flexibility though if you want to withdraw money before your 60_th birthday, you can always remove the initial capital you invested without penalty, just not the earnings accrued from that money.

A Roth allows you to contribute a maximum of $5500 a year to it, with no aggregate cap. (There is no maximum cap for how much money can be in the account).

Let’s look at an example.

Imagine you make a single $5500 contribution at age 20. 40 years go by and you did not make any other contributions to that account, but you did re-invest your dividends. How much would that $5500 be worth in 40 years? Imagine you return a measly 4% on your capital each year. How much would that add up to in 40 years?

$26,405.61

What if you could afford to contribute $5500 each year from 20 to 60 years old. How much would that money be worth when you are 60, let’s again assume a small return of 4% annually?

$569,951.56

And, let’s say we manage to do well in the market and hit a 7% return on our investment each year. What would that put us at?

$1,257,212.15

Of course, these same returns could be made in a traditional investment account, but remember the benefits of the Roth IRA. In our last example we invested $220,000 dollars from age 20 to age 60. Of that, our investments made a little over 1 million dollars. In a traditional investment account that income would be taxed at between 15% and 20%. With the Roth IRA that income is not taxed.

That is great, a Roth IRA shields you from being taxed on capital gains when you are older. The benefit there seems pretty self-explanatory. But what if you can’t afford to invest $5500?

2. Open a myRA

DEFINITION OF myRA

Unlike other Roth IRAs, myRA has features designed to make it a starter retirement savings account. myRA is invested in a single United States Treasury retirement savings bond, which will not lose money and is backed by the United States Treasury. Money that you put in your myRA will earn interest until your account reaches $15,000 or 30 years from the day you first fund the account (whichever comes first). The account balance will then be transferred to a private-sector Roth IRA, where you can continue to invest your savings and make additional contributions. You can also transfer or roll over your myRA to a private-sector Roth IRA of your choice at any time.

If you are not capable of investing $5500 at a time in a Roth IRA then the myRA is for you.

The myRA is a federally backed retirement savings account. The myRA is intended for low-income individuals who cannot afford to save large chunks of money at once.

The myRA has the exact same tax benefits of the Roth IRA. You contribute after tax income and are able to remove that money after age 59 _1/2 or older without being taxed.

The key differences between the Roth IRA and the myRA are:
- Maximum total contribution of $15,000
- 30 year max lifespan of the account
- You do not choose where the money is invested
Contributions are invested in the United States Treasury Bond. The myRA website explains how that works:

The money you put in your myRA account is invested in a United States Treasury savings bond, that safely earns interest at the same variable rate as investments in the Government Securities Fund for federal employees. The return for these investments was 2.31% in 2014 and 3.19% over the ten-year period ending December 2014. Past performance is not a guarantee of or prediction of current or future performance.

After saving money in your myRA you can roll it over to a Roth IRA and continue saving.

3. Use your 401k

definition of a 401k

A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.

If you have just completed college and landed your first salaried position you should be investing in your company’s 401k plan.

With a 401k your investment options may be limited, and there are most likely restrictions on when and how you can withdraw assets without penalties. But, 401k plans generally are matched by employers.

Matching is when your employer contributes money to your retirement account. The most common practice is for employers to match 100% of the first 6% you contribute.

For example, if you make $50,000 a year and contribute $3,000 (6%) to your 401k your employer would contribute another $3,000 as a match. You just made $3,000 by saving for your retirement. Independent retirement accounts cannot provide you this benefit, only 401k’s and other employer related retirement accounts.

Conclusion

Saving money for the distant future is not all that sexy.

Just know that by starting young you are setting yourself up for success. No matter what investment vehicle you choose your future self will thank you.

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December 31, 2015
My Portfolio: How a 19 Year Old Plays The Stock Market
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I am putting forth a disclaimer: I have literally no qualifications or professional justification for the companies that I invest in. If you choose to invest in one or any of the companies that I outline below, good for you - if you don't, good for you. I currently have $4500 invested between two brokerages, Edward Jones, and Charles Schwab. This $4500 represents a large fraction (>90%) of my net worth.
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Long on MSLP

MusclePharm (OTCMKTS: MSLP) is a sports nutrition manufacturer. MusclePharm is one of the few leading manufacturers of sports related supplements, others include Optimum Nutrition/BSN, Cellucor, and Quest Nutrition.

MusclePharm’s product width and depth are both quite large all housed under the brands 3 units (MusclePharm, FitMiss, and the Arnold Series). The company produces 19 different core (MusclePharm) products, 9 FitMiss products, and 7 Arnold products for an aggregate of 35 different units. Every unit is then deep with flavor and size variations.

MusclePharm is attempting to re-brand itself as a lifestyle brand, something that makes an investor like myself nervous. The recent product launch of Coco Protein, and product variations of Combat Powder that have flopped make it hard to believe in MusclePharm’s ability to continue growing in a larger market. Yet the launch of Combat Crunch Bars, and the rumblings of news that MusclePharm may soon have the capacity and distribution to sell these protein bars individually in convenience stores is reassuring.

The saving grace for MusclePharm is social media. MusclePharm has a cult like following, something that I see every time I walk into the gym as a college student. 233 thousand followers on Instagram solidifies MusclePharm’s connection with young adults.

Over the next 1-2 years I see MusclePharm improving their manufacturing processes, distribution relationships, and growing their business through cost cutting and time saving measures. Reducing product width and focusing on the units that consumers actually buy will help save time and money. in 2015 I expect endorsement deals with Tiger Woods, Johnny Manziel, and Colin Kaepernick to boost sales as all three athletes are anticipated to have more successful years. Finally, as MusclePharm continues to grow more analysts will cover the firm. As national recognition occurs I anticipate stock prices to rise.

CALD

CallidusCloud is, ” a leading provider of cloud software. CallidusCloud enables organizations to accelerate and maximize their lead to money process with sales and marketing effectiveness cloud software”.

Callidus offers extremely pertinent and useful software for firms and organization around the globe. CALD has been rising for months with earnings reports beating analyst expectations.

I anticipate fourth quarter revenues to be down for Callidus as international growth will have slowed. I will be selling my share of CALD in the coming weeks before the February 5th announcement.

OME

Omega Protein is another micro cap company focusing on manufacturing and distributing animal and human grade food products and supplements.

Omega’s main business revolves around animal nutrition, and it was only with the recent purchase of Biorigional in 2014 that Omega has begun a push into the human nutrition sector.

Omega primarily conducts business in North America, with over 55% of their distribution occurring in the U.S and Canada. Lower fuel costs, the constantly increasing demand for animal feed, and the growth of Omega’s human nutrition sector has this company poised for a charge after earnings are released.

ONCS

OncoSec Medical is the most recent addition to my portfolio. OncoSec is researching DNA based solutions to make immunotherapy treatments for cancer more effective while decreasing side effects.

Immunotherapies, such as Bristol Myers Squibb’s Opdivo, and Merck’s Keytruda has shown dramatic results in clinical trials for treating Melanoma and lung cancer. OncoSec’s technology and therapies are being tested in coordination with drugs such as these to increase effectiveness. Once trial data is publicly available OncoSec could see stock prices go soaring.

Large players, such as the companies mentioned above may be faced with the prospect of buying out OncoSec for their patents and practices. Any investor in when the company is trading at below $.50 would be happy with that outcome a few years down the line.

OncoSec is my stretch company, yet the upside and potential is there.

ANFCX

I am heavily invested in American Funds The New Economy Fund® Class C, because why not offset some of the great risk that comes with investing in all micro/small cap companies. This fund is primarily involved in healthcare and information technology, two fields that will play nicely together as time goes on.

This is my safety net. I won’t touch the money in this fund for a decade.

I will try and update every once in a while with changes to my portfolio and updates on my hits and misses.
January 14, 2015