Misconceptions of Retirement Accounts

Recently I sat down with a couple friends who were well educated on money matters. One of them was a Finance major in college and the other one had worked in the financial field years back. So I was a bit worried when I heard them both repeat something that was blatantly wrong. In fact, it wasn’t just wrong, but in the eyes of the tax man, it was illegal. And thinking back to my own time in wealth management, I remember hearing professionals tell clients that they weren’t sure about the tax laws.

Now my friends aren’t out committing crimes. And these wealth management professionals aren’t ignorant. They are just trying to save for the future within the scope of their knowledge. But in the eyes of the IRS, it doesn’t much matter. If you’ve broken the rules, you will pay for it, literally, with a fine.

Retirement accounts are tricky. The government gives you an annual limit as to how much you may contribute to one, and the rules vary by account. A good run-down on how much that is can be found on the IRS’s website here (for IRA accounts:) and here (for 401k accounts). The quick and dirty is that the 2018 limits are $5,500 for IRAs and $18,500 for the 401k. But read the pages carefully if you are thinking about going anywhere near those limits because the actual rules are much more complex!

For instance, let’s say you have a Traditional IRA and a Roth IRA. You can only contribute a combined total of $5,500 across these accounts. For example, if you contribute $2,000 to your Traditional IRA, you are only allowed to contribute a remaining $3,500 to your Roth IRA. And Roth IRAs have phase out limits set by the IRS. In other words, if you make too much money, you may only contribute a smaller amount, or perhaps none at all.

Or, let’s say you are covered by a 401k or pension plan at work. The IRS has limits on how much you can contribute to a Traditional IRA and still receive your tax deduction. And if you are self-employed there are even more rules and more account types. Have a high deductible on your health insurance, there’s even another type of plan.

If growing your wealth was simple, we’d all be rich and accountants would be out of work. Have more questions, ask below or contact a professional. If you’re not sure, you should probably seek out help.

Why are Interests Rates Going up and my Savings Still earns Squat?

Esteemed Folk of Beard Lore. Interest rates are complicated animals. You see, they are wiggly, and come from two, very different parents. First, there is the Federal Reserve.

The Federal Reserve “creates” interest rates from thin air if you will. They set a Rate Target, and then loan money to banks in a way that they think will get Beard Folk to this target. When you hear that “Interest Rates are going up!” what you are actually hearing is that the Federal Reserve is charging Banks more money when they borrow.

Why does this matter? Because Banks are passing that cost on to YOU! So when you hear that “Interest Rates are going up!” then you will likely notice the interest rate on your credit card, new loans, and your variable rate loans is rising. You are PAYING more money. Interest rates have gone UP!

But Beard Man, why am I earning so little in my savings account?

Why? Because your Bank doesn’t love you. Think of a Bank as the popular girl/guy in school. You may love your bank, just like you had a crush on that person. But to your bank, you are just another personal admirer. Your bank’s heart belongs to money, and chances are you simply don’t have enough of it. Sorry. Love hurts sometimes!

So if you want more of your cash to work for you, the key is to find that popular boy/girl who is also nice and reliable. Sure, they may still love other people with more money better than you, but at least they will still treat your (unwanted?) advances with a level of dignity and not give you 0.01% on your hard earned Love Cash! I mean, really Love Bank? The Fed rate is like 3%! You think I’m worth 3 one-millionths of that? Is that Math even right? Ugh! Math!

So here you are, with a Math headache, and a broken heart, all because the bank you love, the bank you give money to every day through your loans, doesn’t even care if you exist or if have been hit by the school bus. But despair not, Folk of Beard Lore! There are other Banks out there that will love you more, or at least let you down more easily.

Like love, the easiest way to find a good match for your hard earned cash may be on the internet. But also like love, it can also be the scariest! You have to make sure your new Love Bank is not a Love Scam! Once you are part of a Scam, it can stick with you for years, like a disease in your financial life.

My go-to source for finding a good bank is Nerd Wallet, as it has a nice bit of data and advice when seeking out a bank that may suit your financial needs. This is certainly not the only place you can look, but it is definitely a good start.

For the Beard Man, I settled on Capital One 360 years ago. Their credit cards offer fair rewards and have good limits, their customer service on these cards is top notch (especially in Fraud Prevention), and their Savings Account Interest rates are very good. You can certainly find better, but I wanted a company I trusted and could work with. Synchrony, for example, typically offers higher rates, but I’ve had miserable times working with their loan departments, so they’ve lost my business on the bank end as well.

So Love, Banks, Math, and a school bus. Yup, I think we’ve covered as much as we’re going to cover today. If you do decide to give Capital One 360 a try, I’d encourage you to use my link (here). If you deposit $250 or more into your savings account, Capital One will give you an extra $25 (Free Money!), and hey, they’ll throw 20 bones my way as well.

Photos Used:
https://www.newsmax.com/ronpaul/fed-reserve-powell-federal/2018/01/29/id/840169/
https://3docean.net/item/broken-heart/11894594
//www.youtube.com/watch?v=-wkr_vf18cw
https://drawception.com/game/1KyLLP2eBy/youre-the-judge-oh-no-cont/
https://www.moneyunder30.com/capital-one-360-savings-account

Buying Bitcoin: 102

Bitcoin is tumbling today, so what better time than now to consider jumping on the bandwagon and buying some crypto-currency. Of course, it’s still too rich for me, but if you’ve been wanting to know the HOW of buying bitcoin, I’m about to explain!

You’ll notice that this article is called “Buying Bitcoin: 102.” Where’s 101? I won’t insult your intelligence. If you want to buy bitcoin simply, all you need is an online checking account with some money in it, and a Coinbase account. You can join Coinbase here!

Think of Coinbase as a bank account with a new online bank. You’ll need to move money over from your existing bank into your Coinbase account in order to buy Bitcoin without fees. And on that note: ALWAYS ACH YOUR CASH.

Sure, you can “Wire” your money over if you need to buy your Bitcoin immediately, but your existing bank is probably going to charge you money. Plan ahead and don’t rush. Use ACH, and keep your hard earned cash.

OK… Enough of that soapbox. So how do you turn cash into Crypto? I’m going to assume you can create a Coinbase account and link your bank account yourself. After that:.

• Step 1: Open the “Accounts” tab; scroll down to USD Wallet; Click Deposit and move money into your Coinbase Account.

• Step 2: Google “GDAX” – Navigate to this site and sign in with your Coinbase credentials. DON’T WORRY! Think of GDAX as the same company as Coinbase, so you aren’t giving your private info away. GDAX is just the “behind-the-scenes” trading platform that Coinbase uses to change your money into Crypto.

• Step 3: On the left side of the screen, near the top, use the drop down to select the Crypto you want to buy. Your choices are currently Bitcoin, Bitcoin Cash, Ethereum, and Litecoin.

Step 4: Select Deposit (inside the red box in the picture below) and move your cash from Coinbase into GDAX.

• Step 5: Navigate down the left side and select “Limit.” You are about to place a Limit Order for your crypto-currency. This makes you a Market Maker and thereby waives your purchase fee. You can simply buy cryptocurrency via your Coinbase account, but you will be charged a fee. If you’re curious, you can research and better understand a Limit Order on Investopedia, here.

What you really need to understand is that you are betting where the price is going to go. For instance, if the current price is $1000 per bitcoin and you think it’s going to go down, you could place a Limit Order at $995. Once the price goes down to that level, you purchase your bitcoin. And it works the same in the opposite direction. If you think the price is going up, you could select to pay more than the current price. DON’T GET LOST IN THE DETAILS. SELECT A PRICE CLOSE TO THE CURRENT PRICE (HIGHER OR LOWER) AND KEEP GOING. If you guess wrong and you can’t make the purchase, you can always cancel your trade and try again.

• Step 5: Enter the value you choose into the “Limit Price” field. Move your mouse up the page to “USD” and then over to the amount of dollars in your account. Click, and a number should appear in the “Amount” field.

• Step 6: Select the green “Place Buy Order” button. If you’ve done everything right, your order should appear on the right side of the screen now under “Open Orders”.

 

Step 7: Once your order is filled, it will disappear from the above screen and be found under the “Fills” tab. Congratulations! You now have converted your cash into crypto-currency. The last step is to move it back into your Coinbase account.

Go back to “Step 4” (above) but select “Withdraw” and move your money back to your Coinbase Wallet. It is now safe and sound. Let me know what you intend to do with your new cryptocurrency in the comments.

Coinflash – Maybe the worst way to buy Bitcoin

Today was a terrible day for Bitcoin and nearly every other Crypto-currency. Still, there has been a tremendous rally as of recent, and many have gotten rich off of Bitcoin speculation. I firmly believe Crypto-currencies are NOT a passing fad, and I also firmly believe that many of you could benefit by learning how to get your own. I even plan on teaching you one of the simpler ways to do so, but not today.

Today I am here to tell you what NOT to do. DON’T USE COINFLASH!

Coinflash is an “app” that works in a similar style to the investing app Acorns. The premise is brilliant! – Link a credit/debit card and a checking account to the app. Every time you make a purchase on that card, the app will “round up” to the dollar and gather that spare change total. Then, after a certain period of time that you set, it takes that total out of your checking account and invests it in Bitcoin via the CoinBase wallet. Think of Coinbase as a bank that opens a checking account for you to store your crypto-currency in.

OK, so if that seems like a lot, it boils down to this.

1. You spend with your credit card as you normally do.
2. The app totals a bunch of numbers over, say, a week.
3. The app deducts that total from your checking account (you are NEVER charged anything on the credit card) and MOVES that money to a Coinbase checking account.
4. The app uses that CASH to buy Bitcoin.

Here, maybe this picture will help:

For this service, Coinflash charges a fee. I believe that fee is currently $1/month, which is actually super reasonable for a set-it-and-forget-it-service. Initially, I thought this was an AWESOME way to sneak into owning my own Bitcoin through Dollar Cost Averaging. Through this app you can change just a few dollars a week into Bitcoin, without ever really thinking about it, and grow your bitcoin account.

Here’s the problem: Coinbase charges you a fee as well!

Again, a picture, to illustrate my point:

Let me break down what’s happening here.

• I set my Coinflash App to take my spare change and change it into Bitcoin and Ethereum (another type of Crypto-Currency) each week.
• On week 1 I had $9.58 worth of “spare change.” Coinflash split that in two and exchanged each for some Crypto-currency.
• For each exchange, COINBASE charged me $0.99. That means that on week 1, over $1 out of every $5 I exchanged disappeared as a fee to Coinbase. Over 4 weeks I changed $47.44 into bitcoin and ethereum, but was charged $8 to do so.
  • That’s like going to a bank, giving them $100 to deposit, and having them charge you $20 dollars to hold it for you, leaving you with only $80!

Why would you literally throw away your cash like this?

1. You didn’t know it was going to happen – Coinflash doesn’t make it clear that Coinbase (a SEPERATE COMPANY) is going to charge you additional fees.
2. You don’t know how to exchange your cash for bitcoin for free.
   1. More on this last one ina later post.

So in the end, my advice to you? Stay away from Coinflash and other “spare change” investment apps. Oftentimes the fees overcome the earning by a lot.

 

My most recent MOTIF

 https://www.motifinvesting.com/motifs/widget/xu2lp0fi?layout=layout490x230&theme=dark

No, I’m no investing genius, as you can see. In fact, I am lagging the S&P right now, though with a nominally higher dividend return. This isn’t an example of picking a high flyer, so much as it is a stable fund with steady income. My prediction is that, as the S&P lags in the second half of this year, this will begin to outperform.

Behold! The wonders of Project Fi!

It may not come as a surprise to many that I have recently become somewhat of a Google fan-boy. The company plunges tons of money into R&D into all sorts of tech meant to innovate in our lives. With that in mind, I recently wrote a short review on Google’s Project Fi, and why I thought it was worth a look for anyone interested in good cell service at half the price. Apparently, even without the Beard, I wrote the article well enough for my friends to believe it was some sort of scam or hack.

IT’S NOT!

I’ve been using Google as my Cell Phone provider for well over a year now, and I can honestly tell you the results have been nothing less than awesome. It’s essentially a floating data plan where you only pay for exactly how much data you use each month, and never a dime more. My bill averages under $50 per month, and my service is easily as good as I’ve seen on other carriers. Not only is it a fair, affordable plan, but it’s also a reliable plan. I’ve even used it overseas. Rates are clearly labeled, and data costs the same there as it does here. Plus, I never have to call them to “activate” some sort of overseas plan. I just turn my phone on in a new country and off I go with an excellent little “Welcome” message from Google.

 

What’s more, the service is always getting upgrades. There are now family and friend plans where everyone can pay their own way but at a reduced rate. And they even have a data only plan, which costs NOTHING additional. You just pay for the data you use on your tablet or old phone, as if it was part of your monthly phone bill.

 

If you have any questions about this excellent cell phone carrier. Please let me know and I’ll be happy to answer.

 

If you are interested in signing up, use my link and get $20 off your first month’s bill. Trust me. This is one of the best moves I’ve ever made.

 

Try Project Fi, and save both me AND you money!

From the Road

Not much to report in Beard Land, but perhaps that is because the beard is dead; long live the beard.

Some Nostalgia

Anyway, Beard Man now finds himself wandering the dusty, dirty road. A lot. Perhaps he will try to document these journey’s though the images they paint often seem pale compared to the reality of Life’s Print. Let us hope that in short order the vibrancy of the story shall present itself in a manner far more befitting of this twisted wanderer’s tale.

Motif Investing

Soon to come, the 6-month follow-up to my “Robo-Investor” review, to include ease of tax filing, as well a review of Motif:

Motif Investing – Create your mutual fund

And now for something…

 

FiveThirtyEight

The Economy Is Better — Why Don’t Voters Believe It?

I have failed you. “How?” you ask? Because I haven’t brought you more useful info, as I once promised this blog would be about. In fact, outside from a few good beer recommendations and some light information on on investment options for my young millennial brethren, I haven’t really given you anything. Oh yeah, and I’ve been on a two month hiatus.

“Why the break?” you might ask. Well, because. Because life gets complicated when you are just trying to make ends meet, as many of us know. For the past couple months I’ve been working nearly full-time as a Starbucks Barista, while taking night classes on tax preparation. That, plus trying to reaquaint myself with my wife (she was deployed for half the year), made me busy… and I’m still busy. This is the “new norm” for most Americans. Gone are the days when you could work 40 hours a week and have a good life. Post 2008, most of us are living in the Perma-Part Time Worker land. And so opens the era of Trump & Sanders.

“The easiest explanation for this paradox is that it isn’t a paradox at all: Americans are pessimistic about the economy because, for many of them, the economy hasn’t gotten better. Unemployment is down, but incomes are flat. Millions of Americans left the labor force in the recession and haven’t returned. Millions more are stuck in low-wage jobs or are working part time because they can’t find full-time work.”

Plus One, Minus One

Those of you who know me well, know that I’m always good for a rant. The finest of dictionaries, Urban Dictionary (for the lulz), defines a rant as:

To speak agressivly (sic) about somthing (sic). or to take your own tangent about a subject and talk for a long time in a passionate manner.

http://www.urbandictionary.com/define.php?term=rant

Yes, they misspelled “aggressive” and “something,” but who’s counting, right? In the interest of not ranting on WHY I think my fellow millennials should invest and WHY I think the “robo-advisors” are the way to go for many of us just getting started, let me just touch on a single(ish) pro and con for each of the 3 services I’ve experimented with and recommend.

Let’s start it off with Betterment                    

Pro: Betterment has the absolute best web interface. It’s clean, fairly bug-free, and can give you access to a wealth of information, if you know where to look. You can also start with $0 until you get an idea for how it works. Finally, out of all 3, Betterment contains the broadest scope of individual investment ETFs

Con: My biggest pet-peeve with Betterment is the way they display your portfolio’s gains/losses. For some reason, it DEFAULTS to giving your your lifetime gains/losses in terms of a %. While they have since added an “Earnings” % which mildly corrects the issue, I believe it is at least mildly misleading, and I suspect this is a tactic meant to amplify your perception of how good the service is. In simple terms, it tells you your % gain/loss as if you invested all of your money the moment you opened your account; so if 3 years ago you opened your account on 3 July, it will tell you whether $100 (or any static number, regardless of how much you’ve added or subtracted since then) has increased/decreased since then. *sigh* Can you tell this aggravates me?

Now on to Wealthfront                

Pro: Wealthfront gives you the first $10,000 fee free (as far as the service goes – the individual underlying funds still have fees, though they are very low). In fact, if you are referred by another customer, both you and the customer get an extra $5,000 fee free, for life! That means, if you join through the link above, you are getting $15,000 managed in the service for free, versus Betterment, where you pay 0.35% points for management, right off the bat. AND, when you go over your $15,000, you are only paying 0.25% points, which is the same as Betterment at that account size. Put simply, you are saving more money, which means you are making more money. Also, as a Dividend investor, I appreciate that Wealthfront has a dividend fund, where Betterment does not.

Con: Where Betterment has a beautiful web interface, Wealthfront is only average, and their phone application provides you with next to nothing. In fact, aside from seeing your overall gains/loss and your lifetime ETF stats next to a pretty black and green graph, you get almost no data. Setting up recurring contributions on the phone is equally confusing, as it doesn’t show any existing contribution plans, and you could end up double contributing on accident. You also have to start an account with $500, which is higher than the other two services.

Lastly, the mysterious Wise Banyan            

Pro: Wise Banyan is the least well-known of the “Robos,” but also possibly the most advantageous. Where I said Wealthfront charges you nothing for the first $10-15k, Wise Banyan currently charges you nothing, EVER. That’s a LOT of money in savings over the life of the account. Moreover, Wise Banyan’s web interface, is very easy to read and clearly presents important data regarding your account on a single page. It may lack some of the bells & whistles of Betterment, but it does the job here better than Wealthfront. Wise Banyan, also like Betterment, lets you invest with next to nothing ($10, I believe). Lastly, your portfolio will have access to REITs and Junk Bonds, two new classes of investment not seen in either of the other two services (whether or not you want those classes in your portfolio is a separate question you must answer)

Con: Wise Banyan is the least well known because it makes many nervous. The other two make their money off of that “fee” I mentioned. Betterment makes money from the moment you start investing, and Wealthfront assumes you’ll like them enough to keep investing to the point where they’ll start to make money. Wise Banyan has no apparent mechanism for earning money for their service. They claim that “one day” they will offer additional paid services, making their platform akin to the “freemium” games you play on your phone (CandyCrush, anyone?), but for now, everyone is nervous they will go out of business. That DOES NOT mean your money would disappear; it does mean, however, that your account would likely close and you would need to transfer those investments to another adviser, or liquidate them – a hassle which no one really wants.

That’s all folks. I really don’t know how to keep it short, do I? But hopefully, that comparison will help you as you look at all your options!

~Beardman