Author Archives: Claire Harrison

Claire Harrison
Claire Harrison is a Campaign Manager at blooom. A high-fiver, thinker, and coffee drinker, Claire loves the Oxford comma and clean design. She’s werkin’ hard to help people learn about their retirement savings and how easy blooom is to use.

3 Ways To Make The Most Of Your Employer’s Retirement Program

As much as you may love what you do for a living, eventually you’ll want the ability to retire. And when you do, having a large, well-funded retirement plan is crucial. The best way to set yourself up for retirement is to start saving money as early in your career as possible. 

While you can do this through a personal IRA, some employers offer tax-advantaged 401(k) programs as a benefit to their employees. These are great perks for an employee.  But not everyone takes full advantage of it. Sometimes that’s for financial reasons, but often it’s a matter of not being fully informed.

If you are on the fence about investing in your 401(k), or even if you’re already investing, here are three ways you could be making the most of your employers’ retirement program.  

1. Always contribute enough to earn the match

It’s become increasingly common for companies to match a percentage of what their employees contribute to their plans.  This is done to help incentivize you to invest in your own future. The company benefits by attracting great employees with this benefit, without the expense of offering a full pension program. Sometimes the match is a percentage of your salary or of what you personally contribute. Either way, it’s free money.  

At the bare minimum, you should be investing enough into your plan to fully cover the requirements for the match. Often times it’s a very low amount needed to trigger the match.  

For example, let’s say your company offers a 100% match on contributions of up to 5% of your salary.  If you have a salary of $50,000, that means annually your company will match you dollar-to-dollar up to $2500 (or $5000 combined).  

As years go on that additional $2500 will start to compound and grow. That will result in you leaving a lot of money on the table. Take the match.

2. Take full advantage of the tax benefits

Assuming you’re already investing in a retirement plan, you should also be considering how much your contribution is impacting your taxes. If you are investing using a “traditional 401(k)”, every dollar you invest is considered to be pre-tax. This means that instead of paying taxes on that dollar right now, you’ll pay taxes on your investment and it’s growth later in life when you withdraw from your account. The benefit is you have less money taken out of your paycheck now as well as lowering your total taxable income.  

If you chose to invest in a Roth 401(k), you’ll pay the taxes at the time you invest. That means you’ll have more money taken out of your paycheck for taxes, but then you don’t have to pay taxes on its growth once you’ve reached the age of 59 ½. If you believe you’ll be in a higher tax bracket when you retire, this could be a good option.

There isn’t a right answer for which type to use. The choice is driven by your own personal situation, and understanding the pros and cons of a traditional 401k vs. a Roth 401k. The important takeaway here is that you need to understand which is the most advantageous to you. Then you should take full advantage of it by investing up to your contribution limit, which per the IRS, increased to $19,000 a person for 2019.

 

3. Optimize your investments 

Finally, you need to fully understand what funds you are investing in and how much those investments are costing you. Most funds have operating expenses associated with them that help covers the fees or operating costs of the firm managing the funds.  

For example, let’s say a fund has an expense ratio of 2.5%. This means that every year, 2.5% of the funds’ assets will be used to cover costs. While that doesn’t sound like much money, if you take into consideration the lost growth you would have received due to compound interest, it adds up. While there isn’t anything wrong with those fees, you do want to be careful you aren’t paying to much.  

You can do this by researching the expense ratios of each fund. An expense ratio shows you how much of every dollar invested goes towards buying assets and how much goes towards covering expenses. The goal is to find funds that provide the most value at the lowest cost.  You can then look for funds with reasonable returns and low costs. Blooom has a great analysis tool that does this for you automatically with some great visuals that help teach you.

Wrapping up

Not all companies offer an employer-sponsored investment program, so If your company has one make sure you recognize the full benefits of it. You can do this in three different ways.  

First, always invest enough to earn the full match. Second, make sure you are investing in a plan that provides you the most tax benefit for your personal situation. And finally, look at the expense ratios of the funds you are invested in. The goal is to make sure aren’t paying to much for the value you receive. 

 

 

By Ryan Rollins, Teach Me! Personal Finance (www.teachmepersonalfinance.com)

Twitter: https://twitter.com/tmpf_ryan 

Facebook: @TeachMePersonalFinance

 

Blooom does not provide tax advice. Consult a tax expert for tax-specific questions.

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3 Ways to Invest in Your 401k Without Being an Expert

If you are fortunate enough to work for a company with a 401k, one of the smartest decisions you can make is to take advantage of their investment plan. 

If your company doesn’t offer one, you can always open an IRA and self-mange.

But, according to data from the U.S. Census Bureau, only 32% of Americans are saving for retirement in a 401k (Source). As I mentioned though, this stat is also based on that not every company offers one. 

However, you have probably seen other data points about how most people are ill-prepared for retirement or are unsure how their 401k works. 

In this post, I’m going to provide you with three simple ways you can get started investing in your 401k effectively without being an expert. 

1. Talk to HR or Benefits Specialists (Attend Info Sessions)

When you are first hired or maybe when you are eligible to sign-up for your company’s 401k, you’ll be provided with a gigantic info booklet. 

This packet will contain everything about the employee-sponsored plan, fees, funds, how to get started, and a whole bunch of jargon most people either don’t have time to read or it just doesn’t make a whole lot of sense. 

I find this completely frustrating too, but don’t ignore it or throw it away! 

This will become handy for when you get started. But to make this less painful, you can also talk to your HR representative or a benefits specialist who can help you. 

Also, many companies offer info sessions where someone from investment company your organization chose will have a presentation and answer any questions. 

As a fresh faced 22 year old joining the job world back in 2010, I knew almost nothing about investing money or 401ks at the time. 

But I attended an info session my company at the time held and made me feel less anxious or confused. Take full advantage of any sessions (or person) who can help you get your 401k started on the right track. 

 

2. Ensure you invest enough for the company match

Another important aspect, is to ensure you contribute enough to your 401k to get the company match. If you are a complete noob to 401ks (totally fine!), here’s what this means.

Most companies will offer a company matching program, which can vary. Some may offer 100% match of the first 6% contributed or 100% of the first 3% contribute is also common (Investopedia). Every company plan is slightly different though, so you’ll need to ensure you know how it works.

Based on the first example, if you contribute 6% of your salary, your company will match that contribution. So that 6% for the year was $4,000, your company would add in $4,000. 

If you contribute less than the 100% company match on 6%, you’d be leaving free money on the table! After years of compounding interest, you could be missing out on A LOT of money towards your retirement funds. 

While having 6% taken out of your pay each year may seem like a decent chunk of money, you’re actually missing out on way more by not ensuring you take full advantage of your company match. Make sure you know what your company 401k offers and at the minimum, contribute to get that company match. 

I made this mistake in my first job out of college, which I left four years of money on the table. Don’t be like young, ignorant me. Get your full company match! 

 

3. Minimize any fees with simple fund allocation

Depending what 401k plan your company has, the fees on funds might be somewhat higher which eats at your investment returns. Some fees range from 1% to almost 2% range on your investments, which might not seem like a lot, but adds up over time. 

And there can be other fees too associated with your account. But, if your company offers an employer match towards your investments, it makes sense to invest it the plan even if it’s not great overall. 

The best thing you can do, is keep your investment strategy diversified and simple to reduce fees as much as possible. Meaning you don’t need to pick ten different funds. 

One of the easiest ways to access your fund allocation is to use Blooom. You start by answering some simple questions based on your investing goals and habits. Then you connect your 401k securely, and then Blooom analyzes your investments based on your answers and current portfolio. 

After that, you are provided recommendations and analysis to ensure you have diversification, the right funds, and minimal fees. You don’t need to be an expert nor do you need to hire someone to manage your portfolio for you. 

 

Final Thoughts

There are, of course, some other items to look for to ensure you get the most impact from your 401k plan. But you don’t need to be a financial expert in order to get started and begin preparing for your future retirement. 

The above three steps are a great way to get started and building a future financial foundation. 

As you continue, spend more time (when you can) in understanding the basics of your 401k plan and the investment funds. You may find other advantages and fund changes you may want to make.  

 

About the Author

Todd is the founder of Invested Wallet, a personal finance and investing website for beginners and beyond. He writes about his pursuit to financial independence, investing tips, saving and making more money, as well as side hustles. If you’re interested in learning more about his story and website, you can start here.

 

The information is provided for discussion purposes only and should not be considered as advice for your investments. The information is provided for discussion purposes only and should not be considered as advice for your investments. Please consult an investment advisor before you invest.

 

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Money Mottos

We all have sayings that stick with us through the years and guide our decision-making. Here at blooom, we’ve collected some of the words we live by when it comes to saving and spending.

 

“You can have anything you want, you just can’t have everything you want.” 

This reminds me that budgeting isn’t about never spending any money, it’s about prioritizing. If you stop spending money on the things that aren’t important to you, you can focus on the things that are.

-Kent Johnson, blooom product manager

 

“Spend your money where you spend your time.”

This simple saying is why I have a nice bed (where I spend 30% of my time) and why I will never own a fancy car (where I spend less than 5% of my time). 

-Laura Wittmer, blooom financial advisor

 

“Do not save what is left after spending, but spend what is left after saving.” -Warren Buffett

If you automate your savings and investing, it forces you to live on the remainder. Before you know it, you’ll have great discipline with spending and a pile of savings/investments that will continue to compound over time.

-Andrew Thomas, blooom advisor and director of client services

 

“Budgeting creates freedom, not restrictions.” 

Sometimes setting a budget can feel restrictive and boring. I find it freeing to know what I can spend each month so that I don’t have to stress over every little purchase. Before I had a monthly budget, I would start to worry near the end of each month about whether I had enough in the bank to cover all my expenses. Now I can go out for dinner stress-free, knowing that I’ve budgeted for meals and that my non-negotiables have been accounted for.

– Miranda Wagner, blooom data analyst 

 

“Your life is not defined by the value of your possessions; cherish experiences over things.” 

The short term joy felt by purchasing things fades quickly whereas an experience becomes part of who you are and connects you to those you experience it with. Plus, the more stuff you buy, the higher the bar gets. What nobody tells you is that you can never reach the bar, it will always remain out of reach.

-Chad Beland, blooom director of client happiness

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Happy (Financial) Independence Day

Happy Independence Day, dear readers! I thought I’d take this opportunity to talk about a more specific type of independence. You know, the type of independence all retirement savers are shooting for—financial independence. These days, the term financial independence is thrown around a lot in discussions of early retirement. The FIRE movement (Financial Independence, Retire Early), has been steadily gaining traction in both numbers and media attention over the six or seven years I’ve been following it. 

For the uninitiated, FIRE is typically thought to be achieved when one has 25 times their annual expenses saved, which FIRE supporters argue allows for an indefinite annual withdrawal rate of 4%, allowing retirement to be reached years, and sometimes decades, before the standard American retirement age of 67. The typical American lifestyle is expensive and FIRE converts have do things differently than most to achieve different results. They generally choose to forego the typical status markers—expensive cars, houses, clothes, etc..— and opt for a much simpler lifestyle that allows them to supercharge their savings instead. I won’t kid you and act like this is an easily attainable goal or that the path to get there will be the same for anyone who tries—many Americans have high interest debt like student loans, low paying jobs, or might not learn about early retirement until they’re near standard retirement age. Even though most of us won’t realistically be able to retire by 40, we could all stand to benefit from adopting some of the FIRE mindset.

 

Try to DIY

One of the commonalities that a lot of FIRE followers seem to share is their willingness to DIY things or at least Google something before hiring it out. Maybe you won’t personally ever redo your own siding or try to repair your own car (though kudos if this is you!), but there are a lot of very doable things that people outsource daily. One of the biggest ones that comes to mind is cooking—seriously, invest in a nice knife and a knife skills class. If you can make it your default to pause and ask yourself “Can I realistically do this myself?” you could save yourself a boatload of money over the years.

 

Stop Caring What Other People Think

Consider if what you’re doing is something that you actually value or if you’re just falling into line. When I got engaged everyone expected me to have an engagement ring. That didn’t seem like a worthwhile use of money to me considering I don’t enjoy wearing jewelry. Do some people think it’s weird that I don’t have a ring? Maybe, but so what? I would rather spend my money on things that add value to my life than spend a few grand just because that’s the expectation.

 

Take Your Head Out of the Sand

Do you have non-mortgage debt? Treat it like a crisis and throw as much of your discretionary income at that sucker with laser focus until it’s gone. Do you know how much your monthly expenses are? Track every dollar until you know exactly where your money is going and having a reckoning with those numbers. Are you prioritizing your tax-advantaged accounts in a strategic way? Reach out to a blooom advisor and let us help you make a plan.

Making a few simple changes to the way you approach your money can boost your savings, giving you more options and control over your life—and heck—may even shave off a few years of clock-punching. 

 

Written by Laura Wittmer, blooom Financial Advisor

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Partly Sunny with a Strong Chance of More Uncertainty

Q2 2019 PastCast

Here’s all you need to know (If you’re in a rush.)

The bad stuff…

  • Stocks declined sharply in May, marking the worst May for US stocks since 2010, but also offering a great discount on stocks for long-term investors.
  • A lot of back and forth and continued uncertainty around a future trade deal with China.
  • Proposed tariffs on Mexican imports shocked markets and were then pulled back.
  • Worries about global economic growth slowing and potential conflict with Iran.

BUT…

  • Unemployment remains at record lows and the US economy continues to chug along.
  • June ended as the best for US stocks in more than half a century, as many trade concerns from May dissipated and indications of a slowing economy raised expectations for the Fed to cut interest rates soon (keep reading).
  • The Federal Reserve is expected to cut rates later this year in order to provide a small boost to a seemingly slowing US economy, which despite indications of a slowdown, has continued the longest period of economic growth in our history over the last 10 years.
  • Major US stock indexes like the Dow and S&P 500 returned to, and set new all-time highs in June, following a 9 month roller coaster ride of ups and downs for investors.
  • Stocks of small and mid-sized US companies were the biggest winners for the quarter, while International stocks and even bonds were able to largely keep pace with US stock indexes as well. 

And now for the long(er) version…

The cycle repeats

If you’ve been following our commentary over the last year or so with our recaps and PastCasts, you might be noticing a pattern emerging. Month after month, quarter after quarter, and year after year, markets are forced to absorb news (both good and bad) and react accordingly. This means we regularly see short periods of overreactions in one direction, followed by overreaction in the other direction. This is simply how markets work, and over time this is why those that stick to a consistent plan and don’t try to guess and time the market end up benefiting from the continued historically consistent long-term upward trend. Think about the roller coaster of emotions any investor paying close attention to this stuff has been through over the last 6-9 months or so…

Toward the end of 2018, headlines indicated that the stock market was headed for a 2008 style crash and the economy was certain to be in the beginning stages of recession. Stocks did indeed tank in December ending the month as the worst since the Great Depression for stocks. But then, January came…

January ended as one of the best for stocks in 30 years. Those two months alone provided a prime example to long-term investors of the importance of patience and ear muffs, when it comes to being successful as an investor. Many made the worst, but hardest mistake NOT to make as an investor, by pulling their money out of stocks as they fell in December, only to then miss out on the recovery in January, February, March, and April, which brings us to May, where many made the same mistake all over again, but hopefully not you. 

May and June were just another example we can add to the hundreds of others proving that, historically speaking, there is not a single example of a stock market decline, of any amount, being permanent. There are not always the quick month-to-month turnarounds we’ve seen recently, but the market has always recovered eventually and rewarded those that are patient and continue to invest through into the dips, instead of reacting to what largely amounts to nothing more than short-term, unpredictable noise. 100% of the time!

While it’s easy to get caught up in the hype of a 24 hour news cycle and a home country bias, the best investors don’t let current events distract from their long-term, globally diversified focus. With the help of diversification and a long-term investment strategy, there is no reason to believe markets won’t continue to reward patient, disciplined investors over time, as they always have. 

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