Best Finance Advice for Writers!(Retirement) #amwriting
This might be the greatest finance advice you may ever get on retiring! I wish I was exaggerating but it might just be true and please hear me out till the end.
All that I ask once you read it that if you like the advice share it/retweet/link/tag it to help as many people as possible because I realize what I’m telling ,though I wish it was common knowledge, really isn’t common knowledge when it should be. This should be taught in high school. I promise you I will explain it to you in the easiest way I can and if you have any questions you can find me on Twitter and Facebook.
I decided to take a break from writing my fantasy manuscript and to really help you with your finances. I won’t be talking about your personal budget but instead focus on long-term plans a.k.a retirement. Before I begin, let me give you my background. I graduated with a B.S. in Finance with an emphasis in stock analysis. I currently work at an international bank’s corporate office (not going to tell you which one). What I’m about to tell you is things that are simple that you can do today to secure retirement without a 401K.
People whose main source of income is writing:
First, I’m going to give advice to my writers who solely write and that is their main source of income. I’m going to tell you how to save retirement without going to a financial adviser. First, I believe any financial advisor that makes his money off you purely on commissions is a scam artist. Luckily regulations set in have now required all financial advisers to conduct themselves in a fiduciary manner. Meaning they cannot put their bottom-line ahead of yours. I know what you’re thinking, “we had to make a regulation for this that should be common sense?!” Yeas we did.
Now if you deal with a fiduciary advisor, note that he will not be actively trading stocks in your account (which is a good thing) because he will be investing for the future. Also let me give you something I learned in four years in college taking finance courses. No matter how hard you try you cannot beat the market in the long run and your hope is to be close to the market as possible. You can beat it in the short run, but the market always wins in the long term. More than likely you probably don’t have a financial advisor/Fiduciary and that’s completely OK because I believe they are an archaic job sector that is falling by the waist side. This coming from a guy who went to college to be a Financial Adviser. Now there are rare (and I mean rare) exceptions where there are amazing financial adviser out there how can help you better than you could help yourself. 9/10 those rare ones probably have a max number of clients and can’t properly manage anymore unfortunately.
“So, you are saying I should just invest in the market Clark?” you may be thinking to yourself. Yes, that’s exactly what I’m saying. I’m going to tell you exactly how to do that.
1.) Open a ROTH IRA
2.) Put money in the ROTH IRA
3.) Invest money into mutual funds within the ROTH IRA
4.) Max out ROTH IRA (investing in said mutual funds)
5.) Open a stock trading account (highly recommend Robinhood) put in the rest of the money you wish to put away for retirement
6.) Repeat till you retire
A ROTH IRA is classification of investment account to where you put in taxed money now, meaning the money you put in, you include it in your taxable income for the year. That way the money doesn’t get taxed when you pull it out. Once you put money in the ROTH IRA know that you cannot pull money out of the ROTH IRA until you reach 59 and ½ years old. Though there are exception to where you can pull money out of your IRA such as buying a first home, economic hardship, medical expenses, etc. Here is a link for a more in depth of what a ROTH IRA from NerdWallet.
First step is to open an IRA which I promise is very simple. Got to any brokerage account and it’s free although some do require a minimum balance of like $500 maybe. Here’s a link to Simpledollar that breaks a couple down but feel free to google search and compare, but you shouldn’t have to pay anything to open the account and some funds you don’t have to pay a commission on which is a bonus.
Now you open the ROTH IRA and you are wondering how much money to put in it. Well the consensus when saving for retirement is 15% though don’t feel bad if can’t put in that much. But know that the sooner you put money in your account the more interest(money) it will make in the long run. This deal is so good that the government has put a limit on how much money you can put in your ROTH IRA which is currently $5,500 which means if you would have to have a take home pay of around $40,000 to net the 15% but like I said don’t feel bad if you can’t put that much in because anything you put in helps.
OK you put your money into your ROTH IRA and now you have a selection of stocks that maybe different from your friend who opened a ROTH IRA with a different broker, what gives? Well brokerage usually make deals with certain mutual funds to offer that selected mutual fund instead of another but basically all the funds fit into the following categories: Large, Mid, and Small Cap. You have bond mutual funds (extremely low risk), Precious metals (low risk), and some brokerages may even offer target retirement fund that blends all the categories together. The target fund usually starts you in mostly stocks when your young but as time goes on the mutual fund shifts from risky stocks to safer bonds that way you don’t lose your money at the retirement year of the fund.
Here’s my advice on what to pick: If you are not planning on retiring in 5 years, let me repeat because this is important, 5 YEARS, then majority of your holdings should be in stocks. I’m talking 70-90% but once you hit that 5-year mark and are about to “retire” that is when you switch to less risky stocks preferably to target retirement date plan set on the year you want to retire or before or but 70-90% of your retirement in bond mutual funds depending on your risk appetite.
Ok you may say, “Clark, I’m a very good writer and 15% I’ve maxed out my ROTH IRA but what do I do with the rest of my money? First, look at you, successful person you, and second, I hate you and am extremely jealous (JK). But don’t worry because I got more advice for you. So, this is the point where you open a Robinhood account. “Why are you shoving this Robinhood account down my throat? Are they paying you?” Calm down you, rightful skeptical person. First, Robinhood is not paying me (though if they want to; hit me up) they are simply the best brokerage account to use because there is no minimum you must have in your account and two they charge 0 commissions. Let me repeat that because I guarantee you aren’t comprehending what I said. 0 COMMISIONS!!!!!!! They make money like a bank does by drawing interest on the amount of money that you don’t have invested in the stock market just like your bank does in your checking account. So, do yourself a favor and create an account with Robinhood you can also download it on your phone. Also, if you have clicked any of these Robinhood link we both get a free stock for you signing up so it’s a win win. And though they might not offer the complex charts like other brokers who charge you an insane amount of fees you don’t need it because I’m going to tell you what stocks or what kind of stocks to invest in for free.
The best things about mutual funds(ETFs) is that back in the day you would pay a Financial Adviser to invest your money in a bunch of stocks to diversify your income the mutual funds does this for you hence the elimination of a the financial adviser position. So, for those who want to just play the market and play it safe I recommend getting a spider S&P 500(SPY) or Russel 2000(IWM) index fund. Basically a broad market fund. For those who want to be moderately risky I recommend Vanguard growth fund(VUG). For those who don’t want any risk then I recommend not putting your money in the stock market at all and putting it in a savings account and I’m not even going to recommend a CD like some people because the interest earned is .02%. I don’t think it’s worth it so highly recommend you put your money you are putting away for retirement into one of the funds mentioned earlier or similar funds like those. I recommend the Vanguard Growth Fund personally.
For people who write but also have full time job that provides 401K (like myself):
1.) IF your company matches put in enough money to get the full match because if you aren’t you are LITERALLY throwing FREE money down the drain. If you don’t get an employee match, then take your money and put it in a ROTH IRA because it’s better to be taxed now than in the future when taxes are going to be high.
2.) IF and once you received the full match and still haven’t put away 15% toward retirement put the rest in a ROTH IRA and repeat the previous 2-5 steps above.
Lastly, one disclaimer: the reason I say change your stock to bonds five years before retirement is due to the case if we have a financial crisis this leaves plenty of time for the stocks to recover. So if the market crashes right when you are about to shift your money to bonds, wait the five years you have built in your time to retire and wait until it reaches pre-recession levels and change it or exit the position completely.
Now that you have properly invested amount of money you would like to put in for your retirement repeat till you turn 59 1/2 years. Here’s a link to play with a calculator on how much money you will have at 59 1/2 if you invest solely in a ROTH IRA at the max contribution amount each year. (use a market rate of 7% just to be conservative) You’ll see the incentive to invest early.
Hope this all helped you and if you liked it please share and follow me on Twitter and Facebook!
WORD OF THE DAY:
Retirement: the action or fact of leaving one’s job and ceasing to work.