GMR 11: Investing - Stocks, Bonds, Mutual Funds, IRA's, Roth's, and 401(k)'s

 

EPISODE 11
In this episode of Getting Money Right we’re talking about investing for retirement and we’re going to take all the complex investment terms you hear and make them super simple. We’re going to give you the confidence to go out and make some retirement investing decisions and teach you what it takes to become a millionaire.  

Show Notes:

Foundational Principles

  • Never invest in something you don’t understand.

  • Diversify your investments - don’t buy one stock or invest into one specific investment (don't put all your eggs in one basket).

From the Book of Ecclesiastes - “Send your bread across the waters, for you will find it after many days. Invest in seven ventures, yes, in eight; for you do not know what disaster may come upon the land.”
 

Stocks

  • Shares of an existing company.

  • Ownership of stock in a company is part ownership of the company.

  • As company increases in value the stock goes up in value.

  • Shares can go up or down in value.

High risk of having all your investment in a single company stock.  Company and stock could be negatively impacted by:

  • Financial mismanagement.

  • Rise in operating costs.

  • Illegal activity could lead to company failure or bankruptcy.

  • New competition.

  • Natural disasters.

Dividends

  • Profit divided between owners who own company stock.

  • Two ways to profit

    • Dividends paid from profit.

    • Profit reinvested causing the stock to increase in value.

Bonds

  • A promise to pay a debt.

  • A certificate issued by a government, a city, or other entities, that promise to pay you your investment plus an additional amount in the form of interest.

Mutual Funds

  • An account mutually funded by many investors.

  • Fund is used to purchase large amounts of different company stocks.

  • Provides a level of diversification by spreading risk across many companies.

Types of Mutual Funds

  • Growth - Fast growing companies,

  • Income - provide a dividend.

  • International - non-US company stocks.

  • Large Cap - Companies worth $10+ Billion.

  • Mid Cap - companies worth $2-$10 Billion.

  • Small Cap - companies worth $300 Million - $2 Billion.

IRA

  • Individual Retirement Arrangement/Account.

  • Purchased with pre-tax dollars and growth is tax deferred.

  • 2018 maximum allowed contribution:

    • Single under 50 years old $5,500

    • Single over 50 years old $6,500

    • Married couple under 50 years old $11,000

    • Married couple over 50 years old $13,000

  • Can contribute up to 70 ½ when mandatory withdrawal begins.

Roth IRA

  • Contribute after-tax dollars.

  • Tax-free withdrawals.

  • Same contribution limits as a traditional IRA.

  • Can start withdrawals at 59 ½ without penalty or taxes.

401(K) OR 403(B)

  • A retirement account sponsored by an employer and owned by the employee.

  • 401(k) and 403(b) get their name from a section of the US tax code.

  • Title 26 – Internal Revenue Code.

    • Subtitle A – Income Taxes.

      • Chapter 1 – Normal Taxes.

        • Subchapter D – Deferred Comp.

          • Part 1 – Pensions, Profit Sharing, Etc.

            • Subpart A – General Rule.

              • Section – 401.

                • Subsection – (k).

  • Pre-tax or tax-deferred contributions.

  • Maximum Contribution

    • Individual under 50 years old $18,500.

    • Individual over 50 years old $24,500.

 
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