Comment by watmough | Hacker News Reader

Comment by watmough | Hacker News Reader

Basically, if you're not either a Wall St trader, or in a government retirement plan, or a company owner, then you're screwed.

Quote from the article:

"In other words, if you have saved just $25,000 -- and remember, that describes about half of all workers -- you are less than 2 percent of the way toward your goal. Your future definitely doesn't include cable."

My situation is that I have diligently saved 12-14% of everything I've ever earned, in the 12 years I've been in the US, into a 401K.

Sadly in those twelve years, I've endured 2% mutual fund fees and two market crashes, all of which hit my savings pretty hard. In fact, I lost money after inflation is taken into account.

So at 42, I basically need to build something I can sell and assure myself of some income over a reasonable time period. In my case as an engineer, I need to build a software company.

I also need to stay healthy, live as cheaply as possible, and shed as many expenses as possible once I get nearer to retirement. Boat or RV living looks like a great way to do that. Certainly paying the fixed costs of a house or apartment is going to be a killer for those on a small income.

I am not a financial advisor, but don't put everything into a 401k. Only put the minimum required to get your employer's matching contribution (if anything). But the rest of your intended retirement savings into an IRA, where you can completely control what your money is invested in.

Hell you are probably better off putting a bunch of money into an index fund that tracks the S&P500 and paying less expenses than the 401k funds do, for the same or better performance.

Make sure you are still saving a sizeable amount of money in a traditional, FDIC backed savings account, for emergencies.

I am not a financial advisor, but I am a personal finance writer.

This is well intentioned, but too reductive.

All 401(K)/403(B) plans are not the same. Mine is managed by the vanguard and has microscopic fees.

Similarly, all investors are not the same. I don't think it's necessarily sane to sock money into an S&P 500 index fund, especially one that's capitalization weighted.

As much as it sucks to say this...the best way to deal with your finances is to get an advisor. A lot of them are leeches, but good ones exist.

The emergency fund idea is a great one though. I'm partial to keeping 3 months of expenses in cash and another 9 months in highly liquid, low volatility securities.

I know that I should find a financial advisor to help my wife and I plan what to do with our growing incomes. However, I have no idea how to pick a good financial advisor and keep hearing how bad many of them are. Any advice on this subject, even if it is just a reference to a decent guide?

I used to work in financial software and very much disagree with aspiringsensei's advice. There's a huge adverse selection problem with financial advisors: the ones who are any good at managing money can make far more at Goldman Sachs, which tends to leave the people who don't really understand what they're doing advising the retail investors. The advice my sister got when she talked to a "good" (recommended by her employer) financial advisor was atrocious: it was based mostly on the theory that large dividend-paying companies never go out of business, which seems rather ironic considering he worked for Merrill Lynch, a large dividend-paying company that nobody would imagine would go out of business, and yet...went out of business in 2008.

I'd start by educating yourself on the mechanics of the market. Read A Random Walk Down Wall Street, read Benjamin Graham, read Warren Buffett. Learn to read an income statement and a balance sheet, and look at some historical stocks with income and assets in mind. Figure out how you would manage your money if you had infinite time. Then if you want, hire a financial advisor that manages money the same way you would, except has the time that you don't to actually investigate companies and keep an eye on their financial performance.

Also, keep in mind that an index fund is effectively free financial advice (that you always follow) from every market participant. Essentially, you're saying "I don't have time to make my own investment decisions, so I'm going look at the average of what everyone else is doing, and do that." That average will include everything from Goldman Sachs money managers and Warren Buffett down to retail investors and financial advisors. It's capitalization-weighted though, so the people with the most money's "votes" count the most, which is usually what you want.

I don't think we'll come to agreement. There are bad FA's out there. Your wife got bad advice, and bad advice is out there. I certainly agree that a lot of FAs are meatsticks who should be locked away.

But I think our dissonance comes from a place you might not expect. I view the prime contribution of a financial advisor to be the construction and adherence to a financial plan with clearly stated assumptions and goals.

I don't think most investors can do this on their own, and I don't think reading "A random walk down wall street" will help them.

Personal investors are poorly served by a mentality which suggests aiming for the highest total return is their goal. They should instead seek to generate a return which will provide for their needs.

Also, equal weight indexes tend to broadly outperform cap-weighted indexes, fyi.

Here are some good questions to ask yourself, questions your advisor should ask you, and questions you should ask your advisor.

If you can get clear answers to all this stuff, you're doing pretty well.

full disclosure: I work for this organization. Interested to hear what you think about the site & etc.

http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_a...

"I'm partial to keeping 3 months of expenses in cash and another 9 months in highly liquid, low volatility securities."

I'm curious...what highly liquid, low volatility securities are you in right now? The best I've been able to do is a high-yield online savings account, but I'd love to know if there's something better.

I put this question to my advisor two weeks ago, and his point was that right now, if you're talking about something that you reasonably fear will be short-term (which is the entire point of emergency funds), there's nothing better enough than a saving account right now to make it worthwhile. Getting even 2% vs. .5% for two or three years just isn't that significant on a couple tens of thousands of dollars, the difference is swamped by future uncertainties either way. Either way you're pretty much going to be able to take out what you put in.

I'm partial to treasurydirect's t-bills program. No fees (except if you sell early) and short maturity.

If you're under the FDIC insurance limit, I've generally found savings accounts to pay more for the same safety. For example, ING Direct currently pays 1.10%, versus 0.15% for the 1-mo and 3-mo t-bills.

I use a CD ladder for this purpose. Twelve one year CDs, each maturing on different months, set to automatically reinvest unless we decide otherwise. Works well for the people who need to have their emergency money a bit harder to get too, too. We just like getting slightly higher interest.

My 401k is an index fund. Or a couple of them, rather.

I dunno what other people's 401k plans look like, but I've got about as much flexibility to invest as I do with my Roth IRA, and pay less in fees. A lot of that's because I knew more about finance when I set up the 401k, so I was already on the index-fund bandwagon and didn't pick it because, say, my dad had an account at the same firm.

Fund selection and account type are mostly orthogonal. The reason to decide between a 401k, IRA, Roth IRA, or individual account are tax and withdrawal considerations, not investment decisions. Then you make investment decisions within the account based on where you want your money to go.

Withdrawal options are interesting. I always get conflicting information (from financial advisors no less!) about the options for early withdrawal from a Roth IRA. I think I'm finally comfortable (after confirming specifically with my Roth IRA provider) saying that you can withdrawal from your Roth IRA as long as it's only capital invested, and not money earned on that investment.

As spammy of a title as it is, Ramit Sethi's "I will Teach you to be Rich" book is a great no-bullshit look at understanding your personal finances.

That's my understanding too, for the Roth IRA.

So you are correct about the original contribution thing. There is also an option to start early withdraws on investment appreciations as well. It gets complicated, but basically you can start making regular withdraws (once a month I think, always of the same amount) penalty free.

Index funds that charge 2%? There are insane ones out there, but that seems way high based on a bit of time with Google, which included one page that claimed the average management fee for actively traded funds was somewhat less.

I'm wondering where you're getting the 2% figure from, since I didn't mention it and the parent post didn't mention it. Maybe the grandparent-post?

The lowest of my actively-managed funds has an expense ratio of about 0.5%; the highest is around 1.5% (it's an international fund for some diversification). My index funds are typically around 0.05%, which is a factor of 40 less than 2%.

Oops, great-grandparent. Should have looked at the names, the flow of the conversation fooled me.

AFAIK you might be in the minority of 401k investors, as far as investment choice/freedom and fees goes.

In my experiences the choices have mostly come down to "you can pick one of these 12 funds".

I think my choices may also come down to "you can pick one of these 12-ish [actually, I think it's more like 20] funds", but most of the funds are index funds. In general I've found the selection pretty adequate for my needs, since I'd probably be putting it into index funds anyway, and there're only so many indexes out there. My only quibble is that there's not all that much international diversification possible - but my 401k limit isn't anywhere near my total savings, so I can just put outside money towards that.

similar experience, similar thoughts, same age, same background and I made the move beginning this year

where to?

After 15 years of engineering/engineering management at various corporations I started this January a LED lighting company. It is a big step, but I am hopeful that in the long run it will be the better choice. See my profile for the company link.

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