Page 1 of 1

Is this all there is?

Posted: Mon Aug 17, 2020 5:35 am
by manatee2005
Is this all there is to master finance?

1. Put money in IRA
2. Put money in 401k
3. Put money in after-tax 401k and do backdoor roth
4. Put money in HSA
5. Put money in 529 plan
6. Create a 3 fund portfolio in each of those accounts
7. Don't panic sell, ever.
8. Buy a house if you can afford it
9. Don't drink alcohol.

Seems this is the path to riches for 99% of W2 people. Am I missing something?

Re: Is this all there is?

Posted: Mon Aug 17, 2020 5:41 am
by JoeRetire
0. Live beneath your means.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 5:45 am
by chipperd
8 and 9 are dependent on individual circumstances.
If 9 were true, I'd have never retired.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 5:57 am
by dziuniek
Wait, what's up with the alcohol thing?

I am gonna have to turn my boglehead club card in.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:01 am
by manatee2005
dziuniek wrote: Mon Aug 17, 2020 5:57 am Wait, what's up with the alcohol thing?

I am gonna have to turn my boglehead club card in.
I've been hearing more and more that alcohol is poison and its best to stay away.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:21 am
by nisiprius
manatee2005 wrote: Mon Aug 17, 2020 5:35 am Is this all there is to master finance?

1. Put money in IRA
2. Put money in 401k
3. Put money in after-tax 401k and do backdoor roth
4. Put money in HSA
5. Put money in 529 plan
6. Create a 3 fund portfolio in each of those accounts
7. Don't panic sell, ever.
8. Buy a house if you can afford it
9. Don't drink alcohol.

Seems this is the path to riches for 99% of W2 people. Am I missing something?
Maybe. I have some quibbles. By the way, what are "W2 people?"

[Deleted one of my own comments--Nisiprius]

I would compare and contrast it with Scott Adams' marvellous The Dilbert Guide to Personal Finance.
  1. Make a will
  2. Pay off your credit cards
  3. Get term life insurance if you have a family to support
  4. Fund your 401k to the maximum
  5. Fund your IRA to the maximum
  6. Buy a house if you want to live in a house and can afford it
  7. Put six months worth of expenses in a money-market account
  8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
  9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio
I think Scott Adams' advice on houses contains an important qualification: "Buy a house if you want to live in a house and can afford it." The idea that buying a house is always a superb financial move is realtor propaganda.

#7 has problems. It is easy to say "don't panic sell, ever," but how many people do you know who say "I plan to panic sell?" There are two parts to "don't panic sell" and they are both important. The first is why do people panic sell? The answer is that they didn't gauge their risk tolerance and they took on more risk than they can handle.

The second is much more difficult, because "don't panic sell, ever" assumes that you are invested in something that cannot go to zero, will always come back, and will do so soon enough to wait through.

To give an example where I think "don't panic sell, ever" is mistake, circa 1990 I worked at a Fortune 500 high tech company that had experienced such rapid growth that the CEO was said to keep a chart in his desk showing how soon the company would be bigger than IBM. The company's first 401(k) plan started the year I joined; the only retirement plan the company had consisted of gifts of about $2,000/year in company stock (plus the opportunity to buy stock at 15% discount in an employee stock purchase plan) and most employee's retirement savings were entirely in company stock. The stock had been $40 a share a year before I joined the company, was $14 shortly after I joined, and was $3 when I was laid off in a mass layoff a year before the company declared bankruptcy (and was reorganized and promptly went bankrupt again).

The point is that I saw people literally lose their whole retirement savings because they could not bear to sell, realize the loss, and possibly miss out on a recovery. It was an impossible decision, of course. In hindsight it would have been better to panic-sell and lose half their savings, but it was certainly possible that the company would recover.

The conventional wisdom in this forum is that "the stock market" (i.e. the S&P 500 index) or similarly wide and diversified portfolios containing hundreds of stocks within mutual funds and ETFs is so unlikely to go to zero, and so likely to recover within less than 20 years, that "don't panic sell, ever" is rational, and can treat it as a risk tolerance problem.

In isolation, "don't panic sell, ever" is like unactionable advice such as "buy low, sell high" or "Rule 1: never lose money; Rule 2: never forget rule #1." People do panic sell, and you can't avoid it merely by making a resolution not to.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:22 am
by tennisplyr
Stay hopeful, stay positive :happy

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:26 am
by McDougal
Marry once....to the right person.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:29 am
by nisiprius
[Deleted my own comment, as likely to drive the discussion in a tangential direction--Nisiprius]

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:30 am
by JonnyDVM
Not sure about your order of 1 2 3 and 4. And the need for a three fund in a 529. And #7 and definitely 8. For 3, I think you mean after tax IRA and do a backdoor roth.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:31 am
by RocketShipTech
manatee2005 wrote: Mon Aug 17, 2020 6:01 am
dziuniek wrote: Mon Aug 17, 2020 5:57 am Wait, what's up with the alcohol thing?

I am gonna have to turn my boglehead club card in.
I've been hearing more and more that alcohol is poison and its best to stay away.
Only for those who can’t handle it.

Kind of like the Excellent Adventure.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:31 am
by JoeRetire
manatee2005 wrote: Mon Aug 17, 2020 6:01 am
dziuniek wrote: Mon Aug 17, 2020 5:57 am Wait, what's up with the alcohol thing?

I am gonna have to turn my boglehead club card in.
I've been hearing more and more that alcohol is poison and its best to stay away.
If you had written "tobacco" I would agree.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:32 am
by RocketShipTech
#8 with a large long mortgage is an underappreciated driver of wealth

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:33 am
by JoeRetire
nisiprius wrote: Mon Aug 17, 2020 6:29 amit will kill you in large enough doses.
In large enough doses, everything will kill you.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:49 am
by nisiprius
I don't think #9, "don't drink alcohol" belongs on the list, and I think its presence is likely to derail the thread into discussion of lifestyle choices, value judgements, and quasimedical matters. According, I am going to go back and delete two remarks I made. I suggest to manatee2005 that they edit their original post, and remove this item from the list, in order to keep the discussion focussed on financial matters.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:56 am
by dcabler
- use sunscreen
- don't smoke

Re: Is this all there is?

Posted: Mon Aug 17, 2020 6:58 am
by dogagility
manatee2005 wrote: Mon Aug 17, 2020 5:35 am Is this all there is to master finance?
1. Put money in IRA
2. Put money in 401k
3. Put money in after-tax 401k and do backdoor roth
4. Put money in HSA
5. Put money in 529 plan
6. Create a 3 fund portfolio in each of those accounts
7. Don't panic sell, ever.
8. Buy a house if you can afford it
Seems this is the path to riches for 99% of W2 people. Am I missing something?
Yep (but taxes too). Especially #7.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 7:21 am
by sd323232
manatee2005 wrote: Mon Aug 17, 2020 5:35 am Is this all there is to master finance?

1. Put money in IRA
2. Put money in 401k
3. Put money in after-tax 401k and do backdoor roth
4. Put money in HSA
5. Put money in 529 plan
6. Create a 3 fund portfolio in each of those accounts
7. Don't panic sell, ever.
8. Buy a house if you can afford it
9. Don't drink alcohol.

Seems this is the path to riches for 99% of W2 people. Am I missing something?
#1 should be maximize ur income, u wont get far earning 10k a year.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 7:35 am
by SquirrelEater
JoeRetire wrote: Mon Aug 17, 2020 5:41 am 0. Live beneath your means.
A graph to back this up.
Image

Re: Is this all there is?

Posted: Mon Aug 17, 2020 7:40 am
by MotoTrojan
If you are able to max out all of those various accounts you have an above-average income (even if you live on top-ramen) so there is probably a Step 0 missing that increases your human capital and that is a huge driver, as is living below your means after achieving that.

Setting up a 3-fund in each is fine but if you want to get into the nitty-gritty there are better ways to look at your portfolio as one entity and hold things tax-efficiently among various account types.

Re: Is this all there is?

Posted: Mon Aug 17, 2020 7:40 am
by Flyer24
Topic has run its course (several non-financial answers).