umfundi wrote: LadyGeek wrote:
Getting back to the OP's question, the intent is to give advice in a form that someone with no (or very little) investing experience can understand.
For perspective, a backdoor Roth is far too complicated for new investors (never invest in anything you don't understand). When / if they do
understand what this is, they won't need the suggestions we're trying to modify - they've grown beyond them.
For that reason, I like the level of detail in Prioritizing investments
. The most popular (and easy to understand) choices are listed. Other considerations, of which there are many, can be addressed separately. Perhaps to add a paragraph which explains this?
I agree with you. However, I would add a sentence (why?) to each of the points. As in:
Company plan (401k, 403b, etc.) up to the company matchThe company match is free money. Take it!
Roth IRA or deductible Traditional IRA up to maximum contribution limit, depending on personal circumstances and eligibility.In an IRA you can select the investments yourself; low-cost index funds that may not be available in your company plan.
Company plan up to maximum contribution limitMost plans have some low-cost options. You can balance your asset allocation with your IRA.
Taxable Investing This is a broad outline suitable for most (beginning) investors. If you are fortunate enough to yet have funds available for taxable investing, you may wish to learn about using tax-advantaged HSA, Coverdell, and 529 accounts.
In the next section:
Invest up to the match
Pay Off high Interest Debt
Tax-Deductible Retirement Accounts
Nondeductible IRAs and Annuities
I would say that eliminating revolving consumer debt (credit cards) is absolutely the highest priority. Student loans deserve a mention, as do mortgages. As mentioned upthread, non-deductible non-Roth contributions are probably not a good idea, if you have the discipline to leave the money in those taxable accounts alone.
(my apologies for the mega-quote)
Speaking for the mostly-unheard, not-rich/not-financially-sophisticated
portion of the BH demographic, and therefore someone who has tried to refer to the Wiki and been frequently frustrated, I'd like to see the Wiki entry matching the Prioritizing Investments entry at a minimum. It's quite maddening for us noobs to read one thing in one place and then something different elsewhere, both sites linked to by others, and then try to figure out why they conflict. I especially like the bolded red additions above amplifying the "why" of each. I don't care how informed all the members here are; OK, well yes, I do care and appreciate it, but I'm not doing a trust fall with my personal finances and following advice on a Wiki without some explanation of the advice.
Also agree with the second paragraph.
But even if no changes were made, I'd love to see this current thread (Savings and Investing Precedence) listed as a link on the Wiki. That would allow readers of varying levels of sophistication, income, and tax brackets to possibly inflect the advice given.
And also, regarding the so-called "rule", why can't it be called advice or guidance instead? Usage of the word "rule" seems to get folks stirred up.
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri