Fairly New to Investing, Looking for General Guidance

[BBQ Investor]

Hello everyone.

I hope this post is in the proper forum, I'm fumbling around a bit still and could use some guidance. I've gone through this site/forum and others a bit, trying to research to gain understanding. I have improved my general knowledge towards investing, but I still feel a bit behind with what I think are basics. I'm not (yet) asking for portfolio advice, per se, I have some things already set for the moment. My husband and I are also in the middle of some projects dealing with our current house, so extra funds are going to that for the time being. Apologies in advance if this is wordy, I'm trying to corral my thoughts/questions.

About me summary:

- I'm 45, DH is 46.
- He: pension (fully funded) and is planning to stay for another 10-15 years.
- I : 401K that I thankfully signed in to at my current job 10 years ago. Prior that that, sadly, I was very misinformed and didn't sign in to any retirement or savings.
- My 401K gets 12% of my pay, company match is 100% up to 6%. I'm fine with that for now.
- I also send 8% of my pay to company ESPP (eTrade), have since day 1 (thank goodness) and get random RSUs. It's all set fairly automatic and I try to leave that stock alone (my company stock is usually recommended as a Buy/Hold) and will eventually figure out how it works in my retirement plan.
- I just signed us up with a HYSA (Bread financial) which is 4.65% APY right now and I've socked away a little ($7k), but have small auto amounts going in every month. Again, we are using some of our savings for house projects to get us situated in our "forever home", I soon plan to have that better funded.
- I recently opened up a Cash Mgmt account with Fidelity and have 2 mutual funds I've started buying shares of. I plan to do more (have a watch list of funds I've seen others recommend here), but right our extra funds are going to house project.
- Monthly budget is under control and have recently realized we could live (within reason) off DH's paycheck alone. I want to get to the point of leaving the standard 9-5, but not yet.
- I plan to look at switching to an HSA during open enrollment this year (I've been missing out!). DH will stay with his company insurance and FSA due to certain health conditions.
- We also have life insurance
- Just 2 adults, no other dependents

Here's where I get stuck.

I understand general principals of investing (now) and have found tons of resources on it. But I'm still unsure of the technical steps of how to do certain things. More than just "invest in a mutual fund!" or "just add money to xxx". I understand that. But the actual 1 to 5 steps of setting up things I'm still trying to figure out. Unfortunately it seems like a majority of the resources, guides, and online courses are more geared to the "here's what investing means", not actual steps of using my accounts. I hope that make sense.

For example: I'm screwing up when I send money to Fidelity to then invest in one of my current mutual funds. I seem to deposit it in my Core position (which I sorta understand) and buy shares, but then it stays in that account vs. going to my actual "investment" account and showing added to my mutual fund. So I've had to then sell the shares, transfer the funds between my Core position and my "investment" account to then buy the mutual fund shares.

If someone is knowledgable with Fidelity and their website, any guidance on where to learn how to navigate it would be SO helpful.

I also would like a better understanding of the actual steps to "live off your investments". It's always so general. Are you selling investments every month/quarter to draw from?
The dividends or fund earnings that get deposited seem extremely small (unless you've invested $500,000 or more) to live off of. Am I missing something?

Later when I've officially retired and start drawing from my 401k, how do the withdrawals work? Is it set up automatically to go into my cash management fund that I can pay bills out of, etc?

I've grown up only knowing the standard life of working 40 hours, getting a paycheck from said company, it gets deposited into my checking, I spend it. I'd love some direction on where I can learn the ABCs to how that life works with investments because I'm tired of treading water.

Thanks for reading and any insight from this newbie.

~ J

[FiveK]

BBQ Investor, welcome to the forum.

For example: I'm screwing up when I send money to Fidelity to then invest in one of my current mutual funds. I seem to deposit it in my Core position (which I sorta understand) and buy shares, but then it stays in that account vs. going to my actual "investment" account and showing added to my mutual fund. So I've had to then sell the shares, transfer the funds between my Core position and my "investment" account to then buy the mutual fund shares.

If someone is knowledgable with Fidelity and their website, any guidance on where to learn how to navigate it would be SO helpful.

It's not clear exactly what you are doing, so let's start with this.

When you have logged on to Fidelity, then click on "Accounts & Trade" then "Trade", what are you selecting in the "TRADE" and "ACCOUNT" boxes (please omit any actual account numbers), and do you have non-zero "Cash available to trade"?

[martincmartin]

- I also send 8% of my pay to company ESPP (eTrade), have since day 1 (thank goodness) and get random RSUs.

The first thing you should do is sell all your stock that's in individual companies, especially the company you work for, and buy an index mutual fund or ETF that tracks the whole stock market, like VTI. The value of any one company goes up or down a lot more than the stock market as a whole. Whenever your RSUs vest, sell them as soon as practical and use the money to invest in VTI or similar.

I also would like a better understanding of the actual steps to "live off your investments". It's always so general. Are you selling investments every month/quarter to draw from?

Yes. Back in the 1970s, when selling stocks involved calling your broker and a person shouting on the floor of the stock exchange, the costs of selling stocks were high, and you wouldn't want to do it every month or even every quarter. So living off dividends was a way to save on those transaction fees. These days, transaction fees are tiny and often zero. Some people here still swear by living off of dividends, but many others think selling the investments is fine. I retied over a year ago, and have been selling my investments at the start of every month and transferring the money to my checking account.

[BBQ Investor]

First to FiveK:
Thanks for the reply. When I look at the Fidelity website under the menu you've advised, thankfully it shows my "investment" account by default, not my cash mgmt account. It seems this is where I need to do my trades, not directly within the account screens.

Investment acct - #123 (for demo purposes)
Cash mgmt acct - #124

I had transferred money into my Fidelity account (first time was from savings, next time was dividend earnings from Etrade) and it went to my Cash Mgmt account (124). I wasn't paying attn and purchased mutual fund shares directly from it. I thought it would show those shares with the others I hde purchased listed in my 'Investment' account (123).

After the shares were purchased, my Positions showed like this:

Investment 123 - Symbol: FLCEX = $1,000
Cash Mgmt 124 - Symbol: FLCEX - $45

That's when I realized what happened. I guess it seems that I will either need to make sure wherever I'm sending money from (Etrade, other), it's going to my 123 account. Or, if it deposits into my 124 account, I will need to then transfer it (again) to 123 before purchasing shares.

It feels like that's a lot of moving money around, cumbersome (taking 4 days or so), and I'd like to learn how to make my investment purchasing more efficient.

Also, I assume my Cash Mgmt account will remain near zero for now, until I need to use it in "retirement" for bill paying etc? I'm curious how folks generally have their money setup in various accounts to use it for living expenses.
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Next to martincmartin.
Great info, thank you. Especially about selling your investments at the start of the month and using it for living expenses. Now that I've got our budget dialed in, I could easily see doing this if/when needed and DH's paycheck needs a boost.

I do understand your advice about the company stock. I have sold some here/there over the last 10 years here and there to help pay down debt etc. I'm trying to hold it for now to let it grow more. Without divulging too much, the company I work for is a highly sought after stock and one that is usually near the top % of holding in many of the funds folks recommend putting in for. There were also stock splits twice since I started there and it's grown a nice chunk in the last 10 years.

If I wasn't able to set aside other extra funds to build up my investment portfolio, I would probably do just what you advise. Plus, when I leave the company (5 year goal?), I won't have access to the 15% discount and automated purchase, nor the RSUs. Looking back, I wish I hadn't felt the need to sell b/c I'd have more stock worth probably about an extra $20k. oh well.

I will def bookmark VTI for my watch list.

[backpacker61]

I believe that you have two accounts at Fidelity, the first is a "mutual fund account" and the second, your "cash management account", is a brokerage account. I'm guessing that you have had the "mutual fund account" for many years? It's fine either way to invest in either account, although if you want to purchase CD's, bonds, individual equities, those transactions will probably have to take place in your "cash management" (brokerage) account. I have the same situation (have had a Fidelity account since 1985).

If it's important to you, you could probably have Fidelity merge your "investment account" into the "cash management account" so that there isn't this artificial and unnecessary complexity. This would also result in you receiving one fewer 1099 at income tax time.

Later when I've officially retired and start drawing from my 401k, how do the withdrawals work? Is it set up automatically to go into my cash management fund that I can pay bills out of, etc?

The mechanics of how you withdraw money from your 401(K) is dependent on the specifics of your employer's plan. They will be provided in your 'Summary Plan Description' document, which you should be able to download from your 401(K) provider's web site.

Some employers would prefer that after you leave their employment, that you would roll your 401(K) balance out into a rollover IRA.

Others are fine with you leaving your assets in their plan and so have flexible plan withdrawal options. I think (not retired yet) that my employer does not have any mechanism for automated withdrawals, but that partial distributions can be requested from it in a manual (per distribution) process. In which case I will probably make one distribution request per year, and then dribble it out gradually from my CMA to my local bank account to meet spending needs. I'm still several years away from being subject to RMD's (it will be at age 75 for me since Secure Act 2.0 was enacted).

[BBQ Investor]

I've only had my Fidelity account for about 2-3 months. They ran a special for new account holders and it was the perfect time for me to "jump in" to DIY investing. I looked at the account details to confirm:

Investment 123 shows as brokerage
Cash mgmt 124 shows as "cash account" (SPAXX hangs out here as my core position)

As long as I understand the process to move money to Fidelity to add to my investments (purchase shares), I think these 2 as they are will work. Unless you have an opinion on benefits to merge them?

I did request a debit card for the 124 acct and I anticipate this will be the future "checking style" account I park most of our money to pay bills out of since it still earns a little interest, def more than our local bank checking.

As for the 401K withdrawal, this really helps thank you. At least I know what information to look for when that time comes. I'd like to keep that money in a 401K until I at least hit 59.5, hoping there's no reason to dig into it until then. I've bookmarked some of the Fidelity retirement funds to look at for rollover when that time comes. I'll have more specific 401K questions later and will create a new post then.

[FiveK]

Fidelity: one stop shop might give you some insight. It appears that your purchase of FLCEX in the Cash Management Account (CMA) was fine, even if not what you intended.

We don't have a CMA at Fidelity, but we do have
- Investment Account (IA)
- Retirement Accounts (IRAs and 401k)
- Health Savings Accounts (HSAs)

To invest in an HSA or traditional IRA, one has to first move money in to that account, e.g., from a linked bank account or the IA (because the IRS imposes limits on annual contributions), then make purchases within the HSA/IRA. For the IA there is no annual contribution limit so (I think) any cash you have in either the CMA or IA can be used. Yes, it probably makes more sense to purchase mutual funds/ETFs in the IA.

[FiveK]

With the mechanics out of the way, here is some reading (that you may or may not have already done):
- Getting started
- Prioritizing investments
- Asset allocation

After reading those, what questions remain / what new questions arose?

Good luck!

[backpacker61]

- My 401K gets 12% of my pay, company match is 100% up to 6%. I'm fine with that for now.

One thing you might consider doing, if you're not already, would be to nudge your 401(K) contribution level to get closer to the current contribution limit ($22,500). Assuming that your employer has good low cost choices in the plan. This would have the advantage of reducing your taxable income.

- I just signed us up with a HYSA (Bread financial) which is 4.65% APY right now and I've socked away a little ($7k), but have small auto amounts going in every month. Again, we are using some of our savings for house projects to get us situated in our "forever home", I soon plan to have that better funded.

This seems kind of redundant to me, you might just roll it into your CMA at Fidelity? SPAXX is yielding a little better than that. I would simplify my life and just consolidate it into your Fidelity cash account; and so get fewer forms at tax time.

[BBQ Investor]

Great links, FiveK. I had only perused the Getting Started section (and nosed through several threads) before posting. The other two links look incredibly informative and what I'm also looking for.

Looking it over, I guess we're near the end of step 3? Fortunately we inadvertently completed step 8 over the last few years, no more personal loans, student loans and we're still driving our 2016 vehicle (paid off). We plan to keep it for several more years at least (it's in great shape).

I guess I also jumped ahead to Step 9 with my mutual fund investing, but I wanted to learn and the hands on approach has been helpful to me. Sounds like once I get us past step 3, I need to focus on the 401K and an IRA. I will definitely have questions when I get to this point.
---------

- My 401K gets 12% of my pay, company match is 100% up to 6%. I'm fine with that for now.

One thing you might consider doing, if you're not already, would be to nudge your 401(K) contribution level to get closer to the current contribution limit ($22,500). Assuming that your employer has good low cost choices in the plan. This would have the advantage of reducing your taxable income.

- I just signed us up with a HYSA (Bread financial) which is 4.65% APY right now and I've socked away a little ($7k), but have small auto amounts going in every month. Again, we are using some of our savings for house projects to get us situated in our "forever home", I soon plan to have that better funded.

This seems kind of redundant to me, you might just roll it into your CMA at Fidelity? SPAXX is yielding a little better than that. I would simplify my life and just consolidate it into your Fidelity cash account; and so get fewer forms at tax time.

I very much understand your advice on the 401K. A few reasons I hesitate to increase that at this time is we currently do need $$ from my paycheck to fund these house projects (hoping to be done within about 3 months). That will set us up in a living situation to save a significant portion of both our paychecks. I intend on kicking into high gear during that time and saving, saving, saving.

The other reason is I've been nervous about how much that will drop my paycheck to. Breaking our decades-long habits improper personal budgeting has been my goal for the last 3 years and I've done really well for us. But I'm still developing the new habits, this being one on my list.

I didn't realize the SPAXX fund was that high for APY, whenever I've looked the percentage seemed around 2%. This is one of those instances where I'm not sure where to look to find out what the proper rate is.

I opened the HYSA to create a proper emergency fund for us, it's online only (helpful to prevent easily spending it) and the APY was the highest I could find with only a $100 min. It is also FDIC insured and for a rookie like me that was important.

I like the idea of consolidating, currently I have 4 places with funds, which is getting a little daunting (ESPP, 401K, HYSA, Fidelity), not to mention our local banking.

Would you say that the APY% on SPAXX would also go down similar to the HYSA APY% based on fed rates? (Hope I have that correct)

[FiveK]

I very much understand your advice on the 401K. A few reasons I hesitate to increase that at this time is 1.) we currently do need $$ from my paycheck to fund these house projects (hoping to be done within about 3 months). That will set us up in a living situation to save a significant portion of both our paychecks. I intend on supercharging everything during that time and saving, saving, saving.

Appears your house projects fall in the category of "day to day expenses" (or close enough), as noted in the Investment Order post (this is similar to the "Prioritizing Investments" one, with some wording differences).

The other reason is I've been nervous about how much that will drop my paycheck to. Breaking our decades-long habits improper personal budgeting has been my goal for the last 3 years and I've done really well for us. But I'm still developing the new habits, this being one on my list.

If the nerves are due to "not knowing how much", see the Tax estimation tools wiki for some options.

If the nerves are due to "knowing just how much", it may turn out well. At least, that's pretty much what we have done: directed a significant chunk of the paychecks to investments, and lived on what was left. Everyone gets to determine "significant chunk" as it affects "what's left" for themselves, but not having the money readily available to spend has worked for us.

I didn't realize the SPAXX fund was that high for APY, whenever I've looked the percentage seemed around 2%. This is one of those instances where I'm not sure where to look to find out what the proper rate is.

See SPAXX - Fidelity ® Government Money Market Fund | Fidelity Investments. Currently (7-Day Yield AS OF 05/24/2023) it is 4.74%, and over the past year (Average Annual Return for AS OF 04/30/2023) it was 2.72%.

Your 4.65% is good. E.g., the difference between 4.74% vs. 4.65% on $7K over 1 year would be $6.30. Where you might consolidate your cash savings is up to you.

[BBQ Investor]

After reading those, what questions remain / what new questions arose?

Good luck!

Actually yes. Since I've just learned about an HSA and its benefits, I plan to switch to funding that during our open enrollment in December this year. I already looked what I could for my company to see what the premiums were for the HDHP and how the HSA process works.

- Company puts in $750
- HDHP premiums are $1500 (individual, not bad)
- HSA is funded through Optum
- I think I can pick my investments with Optum, but unsure

Goal will be to fully fund HSA while working at this employer. Question is: How do I decide which funds for my HSA?

Even if it's a link to an already written out article or post, I'm grateful for the guidance.

[FiveK]

Question is: How do I decide which funds for my HSA?

Even if it's a link to an already written out article or post, I'm grateful for the guidance.

The Health savings account - Bogleheads wiki could be useful.

And yes, with all the various references it may be like taking a drink from a fire hose, but hang in there!

Optum looks OK if the info in the wiki is still correct, especially if you would likely be paying medical expenses from the HSA as they occur. For longer term investing within an HSA, Fidelity is currently the gold standard. It is possible to transfer HSA funds from one custodian to another, should you wish to do so in the future.

[backpacker61]

Would you say that the APY% on SPAXX would also go down similar to the HYSA APY% based on fed rates? (Hope I have that correct)

That I don't know; how quickly SPAXX yield would fall when interest rates drop, relative to how they would decline in a HYSA. And you are right that the HYSA is FDIC-insured, but SPAXX is not. OTOH, in your cash management account at Fidelity, you can purchase treasury bills, CD's of a wide range of maturities, and taxable or tax exempt bond funds or ETF's; really a universe of investable options.

[flyfishers83]

Looking at your original post, it looks like you’re considering an HSA for yourself while your husband will have an FSA. That is not permissible. In order for you to contribute to an HSA, your husband will need to use all of his FSA funds and not contribute to an FSA going forward. The exception is a limited purpose FSA. It’s probably worthwhile to post a specific insurance question around open enrollment time.

[BBQ Investor]

Appears your house projects fall in the category of "day to day expenses" (or close enough), as noted in the Investment Order post (this is similar to the "Prioritizing Investments" one, with some wording differences).

I'm already on the right track then! It's funny that I had just discovered that specific post a few days ago digging around the MMM forum, then ended up copying that text into my own personal note for reference. This is a great relief!

If the nerves are due to "not knowing how much", see the Tax estimation tools wiki for some options.

If the nerves are due to "knowing just how much", it may turn out well. At least, that's pretty much what we have done: directed a significant chunk of the paychecks to investments, and lived on what was left. Everyone gets to determine "significant chunk" as it affects "what's left" for themselves, but not having the money readily available to spend has worked for us.

This is helpful. The "knowing just how much" is more of 'my paycheck is suddenly really low when it hits the checking acct and I'm not used to that. It's more of a psychological thing of feeling in control of my dollars locally, which I realize is something I need to adjust. I'm getting there. Honestly I'm still shocked when we have enough $$ leftover at the end of the month and seeing that my paycheck is becoming purely discretionary $$ (under normal circumstances). I've worked solidly since I was 16 and needed my paycheck every month. Decades of bad money habits are a bit to undo.

See SPAXX - Fidelity ® Government Money Market Fund | Fidelity Investments. Currently (7-Day Yield AS OF 05/24/2023) it is 4.74%, and over the past year (Average Annual Return for AS OF 04/30/2023) it was 2.72%.

Your 4.65% is good. E.g., the difference between 4.74% vs. 4.65% on $7K over 1 year would be $6.30. Where you might consolidate your cash savings is up to you.

Oh perfect. Thank you.

[BBQ Investor]

Looking at your original post, it looks like you’re considering an HSA for yourself while your husband will have an FSA. That is not permissible. In order for you to contribute to an HSA, your husband will need to use all of his FSA funds and not contribute to an FSA going forward. The exception is a limited purpose FSA. It’s probably worthwhile to post a specific insurance question around open enrollment time.

Oh interesting. So it doesn't matter that we'd be on completely separate health insurance plans? We don't cover each other with our chosen plans (company) at all. I thought as long as I wasn't covered somewhere else it wouldn't matter.

We could drop his FSA for next year if that's the tie up. We had already limited it a lot this year and used mine for a bigger one (mine is a lot easier to reimburse). Since we'll have some good available savings by then, we wouldn't be worried about covering any costs for him (vision issues) that is out of pocket. My goal will be to leave HSA untouched until 65.

I will make sure to post a specific question during both our enrollment periods in December so I can set it up right. Thank you for pointing this out.

[FiveK]

Oh interesting. So it doesn't matter that we'd be on completely separate health insurance plans? We don't cover each other with our chosen plans (company) at all. I thought as long as I wasn't covered somewhere else it wouldn't matter.

flyfishers83's point is very good.

See p. 17 of https://www.irs.gov/pub/irs-pdf/p969.pdf: "Qualified medical expenses [for FSA reimbursement] are those incurred by the following persons.
1. You and your spouse.
..."

Thus even if his normal insurance doesn't cover you, his FSA would. But if it is a "Limited-purpose health FSA" (see p. 5 of Pub. 969) then you would be OK to fund your HSA.

[BBQ Investor]

So much great additional info! When I start having light-bulb moments I can't help but grin, and this is exactly what I was hoping for.

I have opened up, then bookmarked all those links. I'm really glad to know about the FSA/HSA beforehand. This gives me time to plan before our open enrollments and make sure we're set up properly. I will also make sure we have set aside the amount we think DH will need in place of his FSA to use for his medical stuff (mostly co-pays, glasses, and occasional vision specialist). That way I can ease his mind on making sure we have funds for that instead of the FSA (and especially since I don't plan to dip into HSA for some time).

I don't know if he has access to a 'limited purpose health FSA', but I'll check. Otherwise, savings it is.

I like the idea of eventually dipping into T-bills, CDs, but I wanted to get some basics out of the way first. I read a thread on here earlier about T-bills that was very informative and helped me understand them better.

I feel much more assured that I was on the right path. I can't thank you all enough. You've broken it down just like I'd wanted. It is a bit like drinking from a fire house, but it's exactly what I was looking for!

[GMCZ71]

Welcome BBQ
I don't see in your posts what your asset allocation is (AA)? Most new investors including us don't have a set AA and just put money in willy nilly or mirror in each account. All accounts (you + spouse) is one portfolio then AA is spread between those in a tax efficient manner. For example don't make extra income in taxable do that in tax deferred. When we joined Bheads we were at 10 plus funds now we are down to 5 funds.

[BBQ Investor]

Welcome BBQ
I don't see in your posts what your asset allocation is (AA)? Most new investors including us don't have a set AA and just put money in willy nilly or mirror in each account. All accounts (you + spouse) is one portfolio then AA is spread between those in a tax efficient manner. For example don't make extra income in taxable do that in tax deferred. When we joined Bheads we were at 10 plus funds now we are down to 5 funds.

You are correct and the honest reason is: I don't know. I have a general idea, but I'm still so new to DIY investing that I'm trying to learn how to find that information as I go along. At the time of my OP, I had been increasingly frustrated with not being able to properly navigate my accounts. I needed (and still sort of do) a way to figure out the mechanics of what I'm doing.

This thread has helped me feel more at ease, I do have tons more questions, but I'm ok with what I've gleaned for now. Our life is pretty chaotic at the moment with a lot of projects going on and the goal once we get done is to really dig in to all our investments, AA, financial goals to develop a better strategy (vs. just willy nilly).

Until my next post (which I think will be a focus on my 401K, it's AA, rebalance understanding, etc.), I will read through other posts to see what information is given there. I've learned a lot reading through other posters own situations/questions.

Hope that makes sense.