Low-earning 30 year old behind on investing. Need some guidance.

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Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

Hi there,

I hope you are doing well. I’m single and thirty years old. I am starting to learn about investing pretty late, unfortunately.

Annual income: $50,000 (pre-tax)
Debt: None at all
Savings: Approximately $70,000
401K: $31,500.00 total ($29,100.17 vested)
• Consists of 401k elective and Roth 401K
• Contribution: 17% per paycheck including employer’s match (they match 50% of first 6%)
• About 90% stocks and 10% bonds

Fidelity Roth IRA from the previous employer: $4,450.00

With each paycheck, roughly half of it goes to savings accounts. Then I don’t have that much money left over after using the rest towards paying rent, bills, groceries and dog-related costs. Although I have no debt, I think I’m in poor financial shape. My 401k says I’m mostly on track to retire by 67, but I’m extremely dubious. I think I would come up short instead. I also want to retire by 65 instead and I might need to look after my parents quite a bit someday ( I think they’re doing okay retirement fund wise though). My savings are set aside for a future condo, car, emergency savings and travel.

Cost of living is already rising and will probably rise pretty high because of the influx of wealthy transplants. My parents have been asking me to move back for years. Since my lease is up this fall, I’m going to stay with them for a while and use the money I save for investing and saving. Not sure how long I will last there since I like living alone.

Should I reactivate the Roth IRA with Fidelity using the four grand or roll it over to the current 401k and max it out? Fidelity and Vanguard seem pretty highly touted and Fidelity has some no-fee index funds which I definitely want.
While I’m still learning about investing, I’m going to be hands off at the beginning. So maybe use a robo advisor or target date fund? Hopefully there are some low-fee ones.

Sorry for the silly questions. I’m gradually learning more about it, but I’m pretty overwhelmed and a little stressed out. Guidance and tips are appreciated.

Thanks in advance!
lakpr
Posts: 7715
Joined: Fri Mar 18, 2011 9:59 am

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by lakpr »

CuriousNimbus,

Welcome to the forum.

Firstly, I do not think you can rollover a Roth IRA into the 401k plan. There is no "reactivation" of the Roth IRA, unless you mean making additional contributions to it. If you have not already done so, I would suggest you add the $6000 max limit for 2020. You have barely 9 days left to do so.

If I were you, I would stop adding money to savings accounts. That $70k stash you have in your savings account is too huge, not being invested and therefore missing out on all the gains.

With no debt (that itself is an excellent place to be, you won half the battle!), try to max out the Roth 401k (in your case you are in the 12% bracket with $50k income, and I doubt we will ever see a lower tax bracket in our lifetimes; the 12% bracket is set to snap back to 15% come 2026, hence making Roth 401k contributions now is better when taxes are lower). Also try to max the Roth IRA.

With a $25k annual contributions per year, out of $50k income, you would be essentially saving 50% of your income. A 30-year periodic $25k investment, assuming a very modest 5% CAGR (compounded annual growth rate) would result in $1.67 million. A 4% withdrawal from this pot, 4% being deemed as a safe withdrawal rate, would net you $67k annually every year which should be more than enough to support a family of 4 (assuming no other debt such as mortgage etc.), never mind a single. A 30-year periodic $16k investment ($10k to Roth 401k and $6k to Roth IRA) would result in $1 million, which should support a $40k per year lifestyle. If you make them all Roth contributions now, no taxes to be paid on that $40k.

The key to future wealth is early, and frequent saving. You are not too late, but try to do the frequent saving. So here is what you should do.

1. Before May 17th, withdraw $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as contribution for 2020 tax year. Hurry up on this, you have barely 9 days left!
2. Before December 31st, withdraw another $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as a contribution for the 2021 tax year.
[ You could do both 1 & 2 at the same time ]
3. Increase the contribution to your 401k plan at work from the current 14% to 20% at least. Make them Roth 401k contributions. Draw down your living expenses from the $58k savings left after doing 1 & 2. You are indirectly deploying this savings account into tax-advantaged vehicles. That would be another $10k, so you are left with $48k.

Repeat next year. I do not think you would need an emergency fund more than 1 year expenses, which, given your particulars, I estimate to be around $25k. You have $45k in excess savings that need to be strategically deployed into the market.

===================

Now, as for investments. I am a fan of saying that you do not need bonds if the total amount you are deploying into the market is less than $100k. You can add bonds according to your asset allocation after you reach that milestone. So I would suggest the Roth IRA be deployed into FSKAX (Fidelity Total Stock Market Index) exclusively. Or perhaps add FTIHX (Fidelity Total International Index) if you want some exposure to international stocks. No bonds.

With respect to 401k, please list what are the available choices, and make sure you also indicate the expense ratios. That would helps us give you more targeted advice. You could also simply choose to invest in a 2055 Target Date fund, if one is available within your 401k, given that you are looking to retire around the age of 65, 35 years from now.
Beehave
Posts: 948
Joined: Mon Jun 19, 2017 12:46 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by Beehave »

I think that lakpr's response above gives excellent advice.

I would emphasize a few things.

You are young and have many years to save and (since you feel like you are "behind") many years to catch up. During that time:

(1) Maximize the durability and depth of your human capital. Keep learning, stay current with technology in your field of employment and keep increasing the span of your responsibility. Continued employment is the surest foundation for a secure future not only because of the steady income, but also because of the increased wages to compensate when there is inflation and the out-sized gains in your standard of living when times are recessionary (which are very difficult to attain when unemployed or retired).

(2) During your many years to retirement tax laws will change and the market will fluctuate. In my opinion, this means that diversifying your assets across several asset-classes and across taxation-classes (Roth, pretax IRA, brokerage account) makes lots of sense.

(3) There is probable financial benefit to heavily emphasizing stocks as assets early in your career. So cash, historically, in the long run, is a drag on long-term results. I am more accepting of the idea of holding relatively more cash or money-market-type funds than most others on this forum, and here is why. For me this is in large part a psychological help in the following sense. When markets fall sharply, I happily start "catching the falling knife," and I keep enough reserves to be able to keep investing steadily during downturns comfortably. This means that when the market falls I am focused on buying bargains with my cash, and not on worrying about paper losses on my stocks. I therefore stay the course and never, ever panic sell and also do not fret about the state of the market. I will cheerfully admit that I would probably do better simply by keeping more cash in the market. However, the peace of mind and buffer against panic selling are well worth it to me. I'd suggest any young investor to weigh these considerations when deciding on cash for emergency funds and as a reserve fund for downturn, and doing this by evaluating not only the projected outcome given a steady hand, but also whether the hand will be steady or not and at what psychological comfort level when the market churns.

I hope this is helpful, and I join in welcoming you to this forum and thanking you for your post which starts a conversation for others to contribute to and learn from.
runninginvestor
Posts: 515
Joined: Tue Sep 08, 2020 8:00 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by runninginvestor »

You are doing remarkably fine. I know many people your age and older that are not even close to where you are. These good habits will pay off.

Additionally, does your 401k retirement calculator include potential social security?
User avatar
retired@50
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Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by retired@50 »

CuriousNimbus wrote: Fri May 07, 2021 10:06 pm
While I’m still learning about investing, I’m going to be hands off at the beginning. So maybe use a robo advisor or target date fund? Hopefully there are some low-fee ones.

Sorry for the silly questions. I’m gradually learning more about it, but I’m pretty overwhelmed and a little stressed out. Guidance and tips are appreciated.

Thanks in advance!
Welcome to the forum. :happy

If I were you, I'd do everything lakpr describes in his post above.

Then, to get comfortable and conversant with financial topics and retirement accounts I'd suggest you do some reading. There are a variety of good books mentioned in the Boglehead wiki. Head down to your local public library and check out a few of them.

A few of my favorite authors.
William Bernstein
John Bogle
Burton Malkiel
Rick Ferri

See link: https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

Regards,
This is one person's opinion. Nothing more.
260chrisb
Posts: 809
Joined: Wed Apr 28, 2010 7:26 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by 260chrisb »

Welcome to the forum; there is plenty of advice forthcoming so I'll yield. Consider this; you're 30 and have a long way to go so the retirement trackers are irrelevant so let that go and let go of the feeling that you're behind. Fifty grand a year isn't low to a lot of people and at 30, how long until you make 55K or 60K or more? Your saving and 401K balances are a LOT higher than most and at that point in my life they are 100% more than I had saved. Take a deep breath, start learning more and get a better understanding of investing, and take a long look. You're going to be fine!
invest4
Posts: 398
Joined: Wed Apr 24, 2019 2:19 am

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by invest4 »

Welcome!

You have come to the right place (fully support all the advice provided to you thus far)

You have plenty of time.

No debt...awesome.

Start to get educated.

Continue to live beneath your means.

Enjoy the ride...it's fun!
Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

lakpr wrote: Sat May 08, 2021 6:53 am CuriousNimbus,

Welcome to the forum.

Firstly, I do not think you can rollover a Roth IRA into the 401k plan. There is no "reactivation" of the Roth IRA, unless you mean making additional contributions to it. If you have not already done so, I would suggest you add the $6000 max limit for 2020. You have barely 9 days left to do so.

If I were you, I would stop adding money to savings accounts. That $70k stash you have in your savings account is too huge, not being invested and therefore missing out on all the gains.

With no debt (that itself is an excellent place to be, you won half the battle!), try to max out the Roth 401k (in your case you are in the 12% bracket with $50k income, and I doubt we will ever see a lower tax bracket in our lifetimes; the 12% bracket is set to snap back to 15% come 2026, hence making Roth 401k contributions now is better when taxes are lower). Also try to max the Roth IRA.

With a $25k annual contributions per year, out of $50k income, you would be essentially saving 50% of your income. A 30-year periodic $25k investment, assuming a very modest 5% CAGR (compounded annual growth rate) would result in $1.67 million. A 4% withdrawal from this pot, 4% being deemed as a safe withdrawal rate, would net you $67k annually every year which should be more than enough to support a family of 4 (assuming no other debt such as mortgage etc.), never mind a single. A 30-year periodic $16k investment ($10k to Roth 401k and $6k to Roth IRA) would result in $1 million, which should support a $40k per year lifestyle. If you make them all Roth contributions now, no taxes to be paid on that $40k.

The key to future wealth is early, and frequent saving. You are not too late, but try to do the frequent saving. So here is what you should do.

1. Before May 17th, withdraw $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as contribution for 2020 tax year. Hurry up on this, you have barely 9 days left!
2. Before December 31st, withdraw another $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as a contribution for the 2021 tax year.
[ You could do both 1 & 2 at the same time ]
3. Increase the contribution to your 401k plan at work from the current 14% to 20% at least. Make them Roth 401k contributions. Draw down your living expenses from the $58k savings left after doing 1 & 2. You are indirectly deploying this savings account into tax-advantaged vehicles. That would be another $10k, so you are left with $48k.

Repeat next year. I do not think you would need an emergency fund more than 1 year expenses, which, given your particulars, I estimate to be around $25k. You have $45k in excess savings that need to be strategically deployed into the market.

===================

Now, as for investments. I am a fan of saying that you do not need bonds if the total amount you are deploying into the market is less than $100k. You can add bonds according to your asset allocation after you reach that milestone. So I would suggest the Roth IRA be deployed into FSKAX (Fidelity Total Stock Market Index) exclusively. Or perhaps add FTIHX (Fidelity Total International Index) if you want some exposure to international stocks. No bonds.

With respect to 401k, please list what are the available choices, and make sure you also indicate the expense ratios. That would helps us give you more targeted advice. You could also simply choose to invest in a 2055 Target Date fund, if one is available within your 401k, given that you are looking to retire around the age of 65, 35 years from now.
Hi Iakpr,


Thank you so much for the advice and clarification! I just put in the request to link my bank account. It'll take up to a week so fingers crossed. If I miss the 2020 contribution, that's what I get for procrastinating. I will actively monitor the bank linking. I already filed my 2020 tax return. Do I need to file some sort of update if I do contribute to it?

I was a little confused about the reactivation. It turns out, 'reactivation" was just a security measure where I confirm my information.

Thank you and the others for the reassurance as well. I was genuinely stressed. I think I compared myself too much with people who are earning more and started investing much earlier.

Correction: My Roth IRA is actually about $2,000. The other $2,000 is actually in a traditional IRA which I will transfer to the Roth and pay taxes on soon. They both only have Fidelity government cash reserves which explain the glacial growth pace of the account balance. I will add the index you mentioned and research others. I agree with you about the bonds strategy.

I will start contributing more to my Roth 401K once I move out of my apartment.

So my 401K consists of the following:
95% stocks (large-cap, small/mid-cap, international stocks)
5% bonds (short bonds/stable/MMkt and interm,/long-term bonds).

Not sure if found the expense ratios, but most of them are under 5%. The 500 Index Admiral large-cap stock is 28.80%. Or maybe that's just the growth percentage.


The broker or account says I can change the investment strategy (conservative, moderate, aggressive), it seems like the 401K already has a somewhat aggressive strategy.
Last edited by CuriousNimbus on Sun May 09, 2021 6:46 pm, edited 4 times in total.
Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

Beehave wrote: Sat May 08, 2021 8:39 am I think that lakpr's response above gives excellent advice.

I would emphasize a few things.

You are young and have many years to save and (since you feel like you are "behind") many years to catch up. During that time:

(1) Maximize the durability and depth of your human capital. Keep learning, stay current with technology in your field of employment and keep increasing the span of your responsibility. Continued employment is the surest foundation for a secure future not only because of the steady income, but also because of the increased wages to compensate when there is inflation and the out-sized gains in your standard of living when times are recessionary (which are very difficult to attain when unemployed or retired).

(2) During your many years to retirement tax laws will change and the market will fluctuate. In my opinion, this means that diversifying your assets across several asset-classes and across taxation-classes (Roth, pretax IRA, brokerage account) makes lots of sense.

(3) There is probable financial benefit to heavily emphasizing stocks as assets early in your career. So cash, historically, in the long run, is a drag on long-term results. I am more accepting of the idea of holding relatively more cash or money-market-type funds than most others on this forum, and here is why. For me this is in large part a psychological help in the following sense. When markets fall sharply, I happily start "catching the falling knife," and I keep enough reserves to be able to keep investing steadily during downturns comfortably. This means that when the market falls I am focused on buying bargains with my cash, and not on worrying about paper losses on my stocks. I therefore stay the course and never, ever panic sell and also do not fret about the state of the market. I will cheerfully admit that I would probably do better simply by keeping more cash in the market. However, the peace of mind and buffer against panic selling are well worth it to me. I'd suggest any young investor to weigh these considerations when deciding on cash for emergency funds and as a reserve fund for downturn, and doing this by evaluating not only the projected outcome given a steady hand, but also whether the hand will be steady or not and at what psychological comfort level when the market churns.

I hope this is helpful, and I join in welcoming you to this forum and thanking you for your post which starts a conversation for others to contribute to and learn from.
Hi and thanks for the guidance! I think I understand what you're saying. I would say that I am moderately risk-averse, but I don't think I would panic and impulse buy/sell when the market is having an off period. I will definitely diversify.
Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

runninginvestor wrote: Sat May 08, 2021 8:43 am You are doing remarkably fine. I know many people your age and older that are not even close to where you are. These good habits will pay off.

Additionally, does your 401k retirement calculator include potential social security?
Thank you! I somewhat agree with you now. Ooh. Good question. I assumed the 401k calculator factored in social security. I need to check.
Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

retired@50 wrote: Sat May 08, 2021 8:49 am
CuriousNimbus wrote: Fri May 07, 2021 10:06 pm
While I’m still learning about investing, I’m going to be hands off at the beginning. So maybe use a robo advisor or target date fund? Hopefully there are some low-fee ones.

Sorry for the silly questions. I’m gradually learning more about it, but I’m pretty overwhelmed and a little stressed out. Guidance and tips are appreciated.

Thanks in advance!
Welcome to the forum. :happy

If I were you, I'd do everything lakpr describes in his post above.

Then, to get comfortable and conversant with financial topics and retirement accounts I'd suggest you do some reading. There are a variety of good books mentioned in the Boglehead wiki. Head down to your local public library and check out a few of them.

A few of my favorite authors.
William Bernstein
John Bogle
Burton Malkiel
Rick Ferri

See link: https://www.bogleheads.org/wiki/Books:_ ... nd_reviews

Regards,
Thanks! I will bookmark this thread and keep those in mind. I started reading Burton Malkiel and I kind of like it so far.
Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

260chrisb wrote: Sat May 08, 2021 8:55 am Welcome to the forum; there is plenty of advice forthcoming so I'll yield. Consider this; you're 30 and have a long way to go so the retirement trackers are irrelevant so let that go and let go of the feeling that you're behind. Fifty grand a year isn't low to a lot of people and at 30, how long until you make 55K or 60K or more? Your saving and 401K balances are a LOT higher than most and at that point in my life they are 100% more than I had saved. Take a deep breath, start learning more and get a better understanding of investing, and take a long look. You're going to be fine!
That makes me happy and sad at the same time!
JD2775
Posts: 925
Joined: Thu Jul 09, 2015 10:47 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by JD2775 »

CuriousNimbus wrote: Fri May 07, 2021 10:06 pm Hi there,

I hope you are doing well. I’m single and thirty years old. I am starting to learn about investing pretty late, unfortunately.

Annual income: $50,000 (pre-tax)
Debt: None at all
Savings: Approximately $70,000
401K: $31,500.00 total ($29,100.17 vested)
• Consists of 401k elective and Roth 401K
• Contribution: 17% per paycheck including employer’s match (they match 50% of first 6%)
• About 90% stocks and 10% bonds

Fidelity Roth IRA from the previous employer: $4,450.00

With each paycheck, roughly half of it goes to savings accounts. Then I don’t have that much money left over after using the rest towards paying rent, bills, groceries and dog-related costs. Although I have no debt, I think I’m in poor financial shape. My 401k says I’m mostly on track to retire by 67, but I’m extremely dubious. I think I would come up short instead. I also want to retire by 65 instead and I might need to look after my parents quite a bit someday ( I think they’re doing okay retirement fund wise though). My savings are set aside for a future condo, car, emergency savings and travel.

Cost of living is already rising and will probably rise pretty high because of the influx of wealthy transplants. My parents have been asking me to move back for years. Since my lease is up this fall, I’m going to stay with them for a while and use the money I save for investing and saving. Not sure how long I will last there since I like living alone.

Should I reactivate the Roth IRA with Fidelity using the four grand or roll it over to the current 401k and max it out? Fidelity and Vanguard seem pretty highly touted and Fidelity has some no-fee index funds which I definitely want.
While I’m still learning about investing, I’m going to be hands off at the beginning. So maybe use a robo advisor or target date fund? Hopefully there are some low-fee ones.

Sorry for the silly questions. I’m gradually learning more about it, but I’m pretty overwhelmed and a little stressed out. Guidance and tips are appreciated.

Thanks in advance!
I didn't start saving for retirement until 32 years old and didn't find this site (and start taking my savings seriously) until I was 39. Consider yourself lucky. You are in fine shape, just keep it going.
KlangFool
Posts: 20979
Joined: Sat Oct 11, 2008 12:35 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by KlangFool »

OP,

1) Why are you contributing to Roth 401K?

2) Why are you not maxing up your 401K to 19.5K?

3) Why are you not maxing up your Roth IRA?

4) Why are you not doing this while you have 70K of saving?

KlangFool
40% VWENX | 12.5% VFWAX/VTIAX | 11.5% VTSAX | 16% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 40% Wellington 40% 3-funds 20% Mini-Larry
HomeStretch
Posts: 6383
Joined: Thu Dec 27, 2018 3:06 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by HomeStretch »

CuriousNimbus wrote: Sun May 09, 2021 5:57 pm … I just put in the request to link my bank account. It'll take up to a week so fingers crossed. If I miss the 2020 contribution, that's what I get for procrastinating. I will actively monitor the bank linking. …
You don’t need to wait to make a contribution until the bank link becomes active. Use the Fidelity app to make a mobile check deposit to contribute for tax year 2020 to your Roth IRA before the 5/17/21 deadline.
Monsterflockster
Posts: 736
Joined: Thu Nov 21, 2019 12:03 am

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by Monsterflockster »

CuriousNimbus wrote: Fri May 07, 2021 10:06 pm Hi there,

I hope you are doing well. I’m single and thirty years old. I am starting to learn about investing pretty late, unfortunately.

Annual income: $50,000 (pre-tax)
Debt: None at all
Savings: Approximately $70,000
401K: $31,500.00 total ($29,100.17 vested)
• Consists of 401k elective and Roth 401K
• Contribution: 17% per paycheck including employer’s match (they match 50% of first 6%)
• About 90% stocks and 10% bonds

Fidelity Roth IRA from the previous employer: $4,450.00

With each paycheck, roughly half of it goes to savings accounts. Then I don’t have that much money left over after using the rest towards paying rent, bills, groceries and dog-related costs. Although I have no debt, I think I’m in poor financial shape. My 401k says I’m mostly on track to retire by 67, but I’m extremely dubious. I think I would come up short instead. I also want to retire by 65 instead and I might need to look after my parents quite a bit someday ( I think they’re doing okay retirement fund wise though). My savings are set aside for a future condo, car, emergency savings and travel.

Cost of living is already rising and will probably rise pretty high because of the influx of wealthy transplants. My parents have been asking me to move back for years. Since my lease is up this fall, I’m going to stay with them for a while and use the money I save for investing and saving. Not sure how long I will last there since I like living alone.

Should I reactivate the Roth IRA with Fidelity using the four grand or roll it over to the current 401k and max it out? Fidelity and Vanguard seem pretty highly touted and Fidelity has some no-fee index funds which I definitely want.
While I’m still learning about investing, I’m going to be hands off at the beginning. So maybe use a robo advisor or target date fund? Hopefully there are some low-fee ones.

Sorry for the silly questions. I’m gradually learning more about it, but I’m pretty overwhelmed and a little stressed out. Guidance and tips are appreciated.

Thanks in advance!
You have no debt, 70k in savings, contributing almost 20% to investing.

Reading stuff on here about investing million dollar windfalls & 500k salary is not the norm. You’re doing great.
Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

Monsterflockster wrote: Sun May 09, 2021 6:25 pm
CuriousNimbus wrote: Fri May 07, 2021 10:06 pm
You have no debt, 70k in savings, contributing almost 20% to investing.

Reading stuff on here about investing million dollar windfalls & 500k salary is not the norm. You’re doing great.
These responses have alleviated half of my stress. Thank you!
palaheel
Posts: 490
Joined: Wed Mar 22, 2017 7:35 am

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by palaheel »

lakpr wrote: Sat May 08, 2021 6:53 am

1. Before May 17th, withdraw $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as contribution for 2020 tax year. Hurry up on this, you have barely 9 days left!
2. Before December 31st, withdraw another $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as a contribution for the 2021 tax year.
[ You could do both 1 & 2 at the same time ]
3. Increase the contribution to your 401k plan at work from the current 14% to 20% at least. Make them Roth 401k contributions. Draw down your living expenses from the $58k savings left after doing 1 & 2. You are indirectly deploying this savings account into tax-advantaged vehicles. That would be another $10k, so you are left with $48k.

Could these contributions and the OP's salary deductions exceed the $6k limit?
Nothing to say, really.
Topic Author
CuriousNimbus
Posts: 12
Joined: Fri May 07, 2021 9:54 pm

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

HomeStretch wrote: Sun May 09, 2021 6:18 pm
CuriousNimbus wrote: Sun May 09, 2021 5:57 pm … I just put in the request to link my bank account. It'll take up to a week so fingers crossed. If I miss the 2020 contribution, that's what I get for procrastinating. I will actively monitor the bank linking. …
You don’t need to wait to make a contribution until the bank link becomes active. Use the Fidelity app to make a mobile check deposit to contribute for tax year 2020 to your Roth IRA before the 5/17/21 deadline.
Hmm. I saw that, but my bank doesn't have a physical branch. My understanding is that I need a physical check to deposit via the app. I'm going to contact a Fidelity representative soon.

Edit: Oh wait duh. I think I have a checkbook. Sorry!
Last edited by CuriousNimbus on Sun May 09, 2021 8:52 pm, edited 1 time in total.
lakpr
Posts: 7715
Joined: Fri Mar 18, 2011 9:59 am

Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by lakpr »

KlangFool wrote: Sun May 09, 2021 6:14 pm OP,

1) Why are you contributing to Roth 401K?

2) Why are you not maxing up your 401K to 19.5K?

3) Why are you not maxing up your Roth IRA?

4) Why are you not doing this while you have 70K of saving?

KlangFool
KF,

Go easy ... OP did say he would max out the Roth IRA and look into increasingn the 401k contributions. As far as why Roth 401k, that's because he is in 12% bracket which is soon set to become 15% bracket. Roth 401k is exactly the right option he should choose at this time.
Katietsu
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by Katietsu »

Saving 17% per paycheck plus a maxed out Roth IRA comes to 29% of salary according to my calculations. That is a sufficient savings rate for a secure retirement. Add in a boost here and there such as the extra savings while living at home, and you should be fine.

There is no downside to the Roth IRA as it can also serve as an emergency fund if things are desperate. The company match goes the traditional 401k. Right now, you are nearing the 22% tax bracket but still in the 12%. So it might make sense to use all Roth for the elective contributions. But, in general, I do not think it makes sense to be near 100% Roth unless you are expecting a pension or you know your tax bracket will be jumping up in the future. The latter may apply here. If you do get to the 22% bracket or if you realize you will never be, then make sure some savings go towards traditional.

Since all your investing will be in retirement accounts, I would just use a target date fund if you have a good one available. At 30, any one you pick is likely to be moderately aggressive. But do verify the asset allocation of the TDF is consistent with your choice.
lakpr
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by lakpr »

palaheel wrote: Sun May 09, 2021 6:32 pm
lakpr wrote: Sat May 08, 2021 6:53 am

1. Before May 17th, withdraw $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as contribution for 2020 tax year. Hurry up on this, you have barely 9 days left!
2. Before December 31st, withdraw another $6000 from the $70k savings you have, and add to the Roth IRA you have in Fidelity. Mark this as a contribution for the 2021 tax year.
[ You could do both 1 & 2 at the same time ]
3. Increase the contribution to your 401k plan at work from the current 14% to 20% at least. Make them Roth 401k contributions. Draw down your living expenses from the $58k savings left after doing 1 & 2. You are indirectly deploying this savings account into tax-advantaged vehicles. That would be another $10k, so you are left with $48k.

Could these contributions and the OP's salary deductions exceed the $6k limit?
I am not sure what $6k limit you are referring to? One is allowed to contribute $6k to Roth IRA for 2020 before May 17, 2021. One is also allowed to make $6k for Roth IRA for 2021, now through April 15, 2022. I was just suggesting to the OP to make both of them at once out of the $70k stash he built up and is just waiting for proper deployment into the market.

The 401k contributions, which I was suggesting to the OP to increase, are completely separate from IRA contributions. One does not affect the other -- at least at the salary levels that the OP indicated (high income > $124k AGI prevents direct Roth IRA contributions, and that situation does not apply here). That limit is $19.5k for 2021, which must be made through the tax year and through the paycheck. They cannot be done with outside funds. But the same net effect can be achieved, if it is feasible to do so, to defer 100% of the paycheck to the 401k and having living expenses from the taxable $70k fund.
ut2sua
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by ut2sua »

CuriousNimbus wrote: Fri May 07, 2021 10:06 pm Guidance and tips are appreciated.
OP, The way I see it, you are in great shape and are already 90% there (achieving FI). 50% of the way there for thinking about it and actually putting $ into RE accounts + 40% for having a very high rate of saving. It is actually not how much you make, but it is how much you can save that will make a difference. You are actually in better shape than some of my colleagues who are making low to mid six figures per year, but who also are waiting for each pay day (high income, high spending folks). DW and I were having negative NW around your age ourselves, but we are FI now in our 50ish, so you are not late to the game. So keep saving, invest smartly (others have shown how to do this earlier in this thread), and you will be there before you know it. Good luck.
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Watty
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by Watty »

CuriousNimbus wrote: Fri May 07, 2021 10:06 pm Low-earning 30 year old.....
.....
Annual income: $50,000 (pre-tax)
.....
401K: $31,500.00 total ($29,100.17 vested)
The median household income in 2019 was $68,703 but that includes many households that have two incomes.

https://www.census.gov/library/publicat ... le%20A%2D1).

Many of the incomes you see here are crazy but your income is more average than you might realize.

It will vary with your assumptions but even without more contributions your 401K could double every ten years and be worth around a quarter of a million dollars(adjusted for inflation) by the time you are 65. If you keep making more 401k contributions it will likely grow to be a lot larger than that.

I didn't play with the numbers but you look like you are going great for being able to support your current lifestyle in retirement.
CuriousNimbus wrote: Fri May 07, 2021 10:06 pm My parents have been asking me to move back for years. Since my lease is up this fall, I’m going to stay with them for a while and use the money I save for investing and saving. Not sure how long I will last there since I like living alone.
If you want to save some money moving in with some roommates would be another option to consider.
whereskyle
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by whereskyle »

CuriousNimbus wrote: Fri May 07, 2021 10:06 pm Hi there,

I hope you are doing well. I’m single and thirty years old. I am starting to learn about investing pretty late, unfortunately.

Annual income: $50,000 (pre-tax)
Debt: None at all
Savings: Approximately $70,000
401K: $31,500.00 total ($29,100.17 vested)
• Consists of 401k elective and Roth 401K
• Contribution: 17% per paycheck including employer’s match (they match 50% of first 6%)
• About 90% stocks and 10% bonds

Fidelity Roth IRA from the previous employer: $4,450.00

With each paycheck, roughly half of it goes to savings accounts. Then I don’t have that much money left over after using the rest towards paying rent, bills, groceries and dog-related costs. Although I have no debt, I think I’m in poor financial shape. My 401k says I’m mostly on track to retire by 67, but I’m extremely dubious. I think I would come up short instead. I also want to retire by 65 instead and I might need to look after my parents quite a bit someday ( I think they’re doing okay retirement fund wise though). My savings are set aside for a future condo, car, emergency savings and travel.

Cost of living is already rising and will probably rise pretty high because of the influx of wealthy transplants. My parents have been asking me to move back for years. Since my lease is up this fall, I’m going to stay with them for a while and use the money I save for investing and saving. Not sure how long I will last there since I like living alone.

Should I reactivate the Roth IRA with Fidelity using the four grand or roll it over to the current 401k and max it out? Fidelity and Vanguard seem pretty highly touted and Fidelity has some no-fee index funds which I definitely want.
While I’m still learning about investing, I’m going to be hands off at the beginning. So maybe use a robo advisor or target date fund? Hopefully there are some low-fee ones.

Sorry for the silly questions. I’m gradually learning more about it, but I’m pretty overwhelmed and a little stressed out. Guidance and tips are appreciated.

Thanks in advance!
Low net worth individual with a government job earning a slightly higher salary than yours with a very high contribution rate. I should easily hit 25x annual expenses by 55, and I'm still getting out of debt (mostly student loans and mortgage.) Point of departure from your situation: I keep virtually nothing in cash. Virtually every dollar that I don't spend each month goes into tax-advantaged investment accounts.

At your age, I think it's appropriate to have money safe in a savings account that is destined for specific goals. But it looks like you have more than 2 years of living expenses yielding nothing. Do you really need that much cash for those goals? $40k for a down payment? $20k for a car! $10k for travel? These are pretty substantial respective amounts for a person earning your salary. Seems like you have plenty of cash and can direct all the money you're saving each month to investing.

You don't need a robo-advisor. I'd say 70% VTI, 20% VXUS, 10% BND is a fine portfolio. (I personally use long-term bonds because of my long time horizon.)

Determine how much you actually need to spend each year and multiply it by 25. That number is your financial independence number. I bet you're closer to financial independence than you think! Setting the right goalposts for you is key to getting a grip and getting past that feeling of being overwhelmed. Some simple math helps a lot!
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Triple digit golfer
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by Triple digit golfer »

If I understand correctly, you're 30 with a $100k net worth and are saving more than half your income each year. You have more than 4x your annual expenses saved.

I'd say you're in fantastic shape. At this rate, you'll be financially independent in less than 20 years.

What am I missing?
ajcp
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by ajcp »

Watty wrote: Sun May 09, 2021 8:44 pm
CuriousNimbus wrote: Fri May 07, 2021 10:06 pm Low-earning 30 year old.....
.....
Annual income: $50,000 (pre-tax)
.....
401K: $31,500.00 total ($29,100.17 vested)
The median household income in 2019 was $68,703 but that includes many households that have two incomes.

https://www.census.gov/library/publicat ... le%20A%2D1).

Many of the incomes you see here are crazy but your income is more average than you might realize.
I don't blame OP too much when many of those crazy incomes self identify as the epitome of middle class.

OP, you "don't have money money left" AFTER you're getting 17% in your 401k and then saving half of the rest on top of it. You're just doing bad mental accounting where you're not counting money you saved as money you have. If you put maybe 60% of your money into savings you'd have maybe *no* money left. If you were putting 20% of your paycheck into savings you'd suddenly have plenty of money left. But then would that money not become savings, since you haven't spent it? As others said, you're doing more than fine. If you keep on this path retiring at 65 will be a walk in the park, it'll just be a question of if you actually want to work that long, because I'm confident you won't need to.
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CuriousNimbus
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

KlangFool wrote: Sun May 09, 2021 6:14 pm OP,

1) Why are you contributing to Roth 401K?

2) Why are you not maxing up your 401K to 19.5K?

3) Why are you not maxing up your Roth IRA?

4) Why are you not doing this while you have 70K of saving?

KlangFool
Hi Klang,

Just poor decision-making, unawareness and procrastination.
Topic Author
CuriousNimbus
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

whereskyle wrote: Sun May 09, 2021 9:02 pm
You don't need a robo-advisor. I'd say 70% VTI, 20% VXUS, 10% BND is a fine portfolio. (I personally use long-term bonds because of my long time horizon.)

Determine how much you actually need to spend each year and multiply it by 25. That number is your financial independence number. I bet you're closer to financial independence than you think! Setting the right goalposts for you is key to getting a grip and getting past that feeling of being overwhelmed. Some simple math helps a lot!
Haha I don't even know what VTI, VXUS and BND means yet. After speaking to you and the others, I'm definitely going to start putting less in a savings account. Sorry about your school debut, I envy your government job though! Those are hard to get.
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CuriousNimbus
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

Triple digit golfer wrote: Sun May 09, 2021 9:17 pm If I understand correctly, you're 30 with a $100k net worth and are saving more than half your income each year. You have more than 4x your annual expenses saved.

I'd say you're in fantastic shape. At this rate, you'll be financially independent in less than 20 years.

What am I missing?
I think I exaggerated the saving percentage a little. More like 35-50% because I change the pay check's direct deposit amount sometimes but yeah, feeling better and even more motivated to invest now. I'll be lurking here for years I expect. Whether it's posting or just reading. Financially independent? What's your definition of that?
Topic Author
CuriousNimbus
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by CuriousNimbus »

Katietsu wrote: Sun May 09, 2021 7:43 pm Saving 17% per paycheck plus a maxed out Roth IRA comes to 29% of salary according to my calculations. That is a sufficient savings rate for a secure retirement. Add in a boost here and there such as the extra savings while living at home, and you should be fine.

There is no downside to the Roth IRA as it can also serve as an emergency fund if things are desperate. The company match goes the traditional 401k. Right now, you are nearing the 22% tax bracket but still in the 12%. So it might make sense to use all Roth for the elective contributions. But, in general, I do not think it makes sense to be near 100% Roth unless you are expecting a pension or you know your tax bracket will be jumping up in the future. The latter may apply here. If you do get to the 22% bracket or if you realize you will never be, then make sure some savings go towards traditional.

Since all your investing will be in retirement accounts, I would just use a target date fund if you have a good one available. At 30, any one you pick is likely to be moderately aggressive. But do verify the asset allocation of the TDF is consistent with your choice.
Thanks. I'm considering a target date fund. Somewhat reluctant towards them because at least some of them seem to eat up a lot through fees.
mbasherp
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by mbasherp »

Hold on there…

You are doing GREAT. >$100k net worth on 50k salary at 30? You’re crushing it! I have a spreadsheet tracking net worth and my wife and I combined were worth -$7k at 30.

Less than ten years later, a million ain’t far away. And 50k isn’t low income either; we each make between 45-70k.

Don’t let this forum scare you; there’s a lot of one percenter talk - and good for them! But if you want to see how you’re actually doing, go put your numbers in over at dqydj.com and see the proof of where you’re really at. I have a feeling you’ll be able to retire by 55 (if you want), not 65!
sandan
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by sandan »

A frugal partner can be a boost to savings as well. A few raises and some cost saving happenstances can easily double the savings rate from 20 to 40%.

Outside of company match, I think an HSA should be priority #2.. maybe even priority #1.
Katietsu
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by Katietsu »

CuriousNimbus wrote: Mon May 10, 2021 8:19 pm
Thanks. I'm considering a target date fund. Somewhat reluctant towards them because at least some of them seem to eat up a lot through fees.
Fees are definitely something to watch for. But there are low ER target date funds. For instance, Fidelity Freedom 2060 has an ER of .75% but Fidelity Freedom Index 2060 has an ER of just .12%.
whereskyle
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by whereskyle »

CuriousNimbus wrote: Mon May 10, 2021 8:12 pm
whereskyle wrote: Sun May 09, 2021 9:02 pm
You don't need a robo-advisor. I'd say 70% VTI, 20% VXUS, 10% BND is a fine portfolio. (I personally use long-term bonds because of my long time horizon.)

Determine how much you actually need to spend each year and multiply it by 25. That number is your financial independence number. I bet you're closer to financial independence than you think! Setting the right goalposts for you is key to getting a grip and getting past that feeling of being overwhelmed. Some simple math helps a lot!
Haha I don't even know what VTI, VXUS and BND means yet. After speaking to you and the others, I'm definitely going to start putting less in a savings account. Sorry about your school debut, I envy your government job though! Those are hard to get.
Sorry about that. Classic three-fund:

1. Vanguard Total Stock Market Index Fund (VTSAX in mutual fund form, VTI in ETF form)
2. Vanguard Total International Index Fund (VTIAX in mutual fund form, VXUS in ETF form)
3. Vanguard Total Bond Market Index Fund (VBTLX in mutual fund form, BND in ETF form)

As others have observed, you're in good shape. Get invested in the right funds. Stay invested in the right funds until you hit your goals. Max out all tax-advantaged space.

Multiply your annual expenses by 25. That's your (first) goal. You'll get there before you know it.

Let us know if you have more specific questions, such as which brokerage to use. I prefer M1 for ETFs. Vanguard would be my choice for mutual funds. Cant go wrong either way.
"I am better off than he is – for he knows nothing and thinks that he knows. I neither know nor think that I know." - Socrates. "Nobody knows nothing." - Jack Bogle
Triple digit golfer
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by Triple digit golfer »

CuriousNimbus wrote: Mon May 10, 2021 8:14 pm
Triple digit golfer wrote: Sun May 09, 2021 9:17 pm If I understand correctly, you're 30 with a $100k net worth and are saving more than half your income each year. You have more than 4x your annual expenses saved.

I'd say you're in fantastic shape. At this rate, you'll be financially independent in less than 20 years.

What am I missing?
I think I exaggerated the saving percentage a little. More like 35-50% because I change the pay check's direct deposit amount sometimes but yeah, feeling better and even more motivated to invest now. I'll be lurking here for years I expect. Whether it's posting or just reading. Financially independent? What's your definition of that?
Being able to sustain one's lifestyle without ever having to work again.
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by abuss368 »

CuriousNimbus wrote: Mon May 10, 2021 8:14 pm
Triple digit golfer wrote: Sun May 09, 2021 9:17 pm If I understand correctly, you're 30 with a $100k net worth and are saving more than half your income each year. You have more than 4x your annual expenses saved.

I'd say you're in fantastic shape. At this rate, you'll be financially independent in less than 20 years.

What am I missing?
I think I exaggerated the saving percentage a little. More like 35-50% because I change the pay check's direct deposit amount sometimes but yeah, feeling better and even more motivated to invest now. I'll be lurking here for years I expect. Whether it's posting or just reading. Financially independent? What's your definition of that?
Different goals for different folks. Simple! Building a passive income stream and living from dividends. I have family and friends who have done exactly this. Debt free as well. Long long retired and best part? Retired early.

Tony
John C. Bogle: “Simplicity is the master key to financial success."
mervinj7
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by mervinj7 »

CuriousNimbus wrote: Fri May 07, 2021 10:06 pm Hi there,

I hope you are doing well. I’m single and thirty years old. I am starting to learn about investing pretty late, unfortunately.

Annual income: $50,000 (pre-tax)
Debt: None at all
Savings: Approximately $70,000
401K: $31,500.00 total ($29,100.17 vested)
• Consists of 401k elective and Roth 401K
• Contribution: 17% per paycheck including employer’s match (they match 50% of first 6%)
• About 90% stocks and 10% bonds

Fidelity Roth IRA from the previous employer: $4,450.00

With each paycheck, roughly half of it goes to savings accounts. Then I don’t have that much money left over after using the rest towards paying rent, bills, groceries and dog-related costs. Although I have no debt, I think I’m in poor financial shape.
If it makes you feel any better, you have a relatively high net worth for your age.

https://dqydj.com/net-worth-by-age-calc ... ed-states/
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David Jay
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by David Jay »

You are so far ahead of me at your age. I began my first ever 401K contributions at age 30, you already have a nice little nest egg.

Don’t let all the $500,000 a year types here on BH get you down. In my entire career I never earned 6 digits ($100,000) in any year. I retired comfortably at age 62 in 2019.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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retired@50
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Re: Low-earning 30 year old behind on investing. Need some guidance.

Post by retired@50 »

David Jay wrote: Wed May 12, 2021 9:22 am You are so far ahead of me at your age. I began my first ever 401K contributions at age 30, you already have a nice little nest egg.

Don’t let all the $500,000 a year types here on BH get you down. In my entire career I never earned 6 digits ($100,000) in any year. I retired comfortably at age 62 in 2019.
As the post above shows, it's not what you earn, it's what you save.

Wealth is what you don't spend.

OP, You're a good non-spender (saver) which is precisely what it takes to accumulate wealth.

I was like this too. Some years I saved over 50% of my income, some years I didn't.

Regards,
This is one person's opinion. Nothing more.
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