Is this all there is?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Locked
Topic Author
manatee2005
Posts: 1618
Joined: Wed Dec 18, 2019 9:17 pm

Is this all there is?

Post 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?
User avatar
JoeRetire
Posts: 7271
Joined: Tue Jan 16, 2018 2:44 pm

Re: Is this all there is?

Post by JoeRetire »

0. Live beneath your means.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
chipperd
Posts: 933
Joined: Sat Sep 24, 2011 5:58 am
Location: here and now

Re: Is this all there is?

Post by chipperd »

8 and 9 are dependent on individual circumstances.
If 9 were true, I'd have never retired.
"A portfolio is like a bar of soap, the more it's handled, the less there is." Dr. William Bernstein
User avatar
dziuniek
Posts: 1116
Joined: Mon Jul 23, 2012 2:54 pm
Location: C0rrupticut

Re: Is this all there is?

Post by dziuniek »

Wait, what's up with the alcohol thing?

I am gonna have to turn my boglehead club card in.
Topic Author
manatee2005
Posts: 1618
Joined: Wed Dec 18, 2019 9:17 pm

Re: Is this all there is?

Post 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.
User avatar
nisiprius
Advisory Board
Posts: 42880
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is this all there is?

Post 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.
Last edited by nisiprius on Mon Aug 17, 2020 6:50 am, edited 3 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
tennisplyr
Posts: 2815
Joined: Tue Jan 28, 2014 1:53 pm
Location: Sarasota, FL

Re: Is this all there is?

Post by tennisplyr »

Stay hopeful, stay positive :happy
Those who move forward with a happy spirit will find that things always work out.
McDougal
Posts: 244
Joined: Tue Feb 27, 2018 3:42 pm

Re: Is this all there is?

Post by McDougal »

Marry once....to the right person.
User avatar
nisiprius
Advisory Board
Posts: 42880
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is this all there is?

Post by nisiprius »

[Deleted my own comment, as likely to drive the discussion in a tangential direction--Nisiprius]
Last edited by nisiprius on Mon Aug 17, 2020 6:50 am, edited 5 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
User avatar
JonnyDVM
Posts: 2577
Joined: Wed Feb 12, 2014 6:51 pm
Location: Atlanta, GA

Re: Is this all there is?

Post 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.
Last edited by JonnyDVM on Mon Aug 17, 2020 6:32 am, edited 3 times in total.
I’d trade it all for a little more | -C Montgomery Burns
RocketShipTech
Posts: 679
Joined: Sat Jun 13, 2020 10:08 pm

Re: Is this all there is?

Post 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.
User avatar
JoeRetire
Posts: 7271
Joined: Tue Jan 16, 2018 2:44 pm

Re: Is this all there is?

Post 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.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
RocketShipTech
Posts: 679
Joined: Sat Jun 13, 2020 10:08 pm

Re: Is this all there is?

Post by RocketShipTech »

#8 with a large long mortgage is an underappreciated driver of wealth
User avatar
JoeRetire
Posts: 7271
Joined: Tue Jan 16, 2018 2:44 pm

Re: Is this all there is?

Post 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.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
User avatar
nisiprius
Advisory Board
Posts: 42880
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Is this all there is?

Post 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.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
dcabler
Posts: 1751
Joined: Wed Feb 19, 2014 11:30 am

Re: Is this all there is?

Post by dcabler »

- use sunscreen
- don't smoke
User avatar
dogagility
Posts: 1384
Joined: Fri Feb 24, 2017 6:41 am

Re: Is this all there is?

Post 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.
All children spill milk. Learn to smile and wipe it up. -- A Farmer's Wife
sd323232
Posts: 896
Joined: Thu Jun 21, 2018 4:45 pm

Re: Is this all there is?

Post 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.
SquirrelEater
Posts: 61
Joined: Mon May 18, 2020 9:02 pm

Re: Is this all there is?

Post by SquirrelEater »

JoeRetire wrote: Mon Aug 17, 2020 5:41 am 0. Live beneath your means.
A graph to back this up.
Image
MotoTrojan
Posts: 10787
Joined: Wed Feb 01, 2017 8:39 pm

Re: Is this all there is?

Post 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.
Flyer24
Moderator
Posts: 2580
Joined: Sun Apr 08, 2018 4:21 pm

Re: Is this all there is?

Post by Flyer24 »

Topic has run its course (several non-financial answers).
Locked