Purposeful Strategic Partners
Joshua is the owner of Purposeful Strategic Partners, and a Registered Investment Advisor. He holds an MBA from Azusa Pacific University and the Professional Financial Planner designation from UCLA Extension. During his time as a business consultant, he guided business owners with their business growth assisted them in integrating their business and personal finances. Now, he focuses on helping business owners and young families with more complex financial planning issues.
Joshua is also a tenured professor of business at El Camino College in Los Angeles where he teaches personal finance courses to college students and the broader community. He also heads up the Entrepreneurship program at the college, and has helped hundreds of business owners and aspiring business owners grow and start their businesses.
Leading up to 2008, Joshua was the Vice President of Marketing & Business Development for a federal credit union. Additionally, leading up to 2001 he was the Director of Marketing for an independent investment research firm which specialized in analyzing internet and technology stocks. These experiences have given Joshua a unique inside perspective on the past two market crashes, which he uses to provide clients a better understanding of how to prepare for and manage major market volatility.
Joshua founded and runs a financial literacy and education organization, Purposeful Finance. The organization offers financial literacy education, a free personal financial planning challenge, and financial planning articles distributed through Apple News and it's own website. Purposeful Finance is currently a California Public Benefit Corporation and is seeking non-profit status with the IRS.
MBA, Azusa Pacific University
At your age, and with over 40 years until you retire, you should consider investing mostly in a broadly diversified stock portfolio which includes both U.S. and international stocks. With four decades to go, you only need bonds in your portfolio to help you sleep at night. In other words, after doing your research, choose a bond percentage which makes YOU feel comfortable that you have enough "safety" in your portfolio. Do not choose a one-size-fits-all rule of thumb. Rules of thumb are often written to legally protect the author, and cannot be appropriate to your situation because your situation is unique to you.
Your investments should start after you have a cash buffer in savings of 5% to 20% of your gross income (your personal situation will determine where in this you fall, but if you have good insurance and a stable job, it can be on the lower side of this number). Investing without a cash buffer is dangerous for your investments, because it increases the chances you will need to raid your retirement accounts to deal with a major unexpectd expense.
Once you have that cash buffer, here are three places to look for starting a retirement account.
1 - START AT WORK
If you have a 401(k) at work, invest there first if the employer offers a match. The match means your employer is giving you free money and will incredibly boost your retirement account. Contribute at least enough to get the match. (For you a 3% match would mean contributing at least $100 per month). You will hear a lot of bad 'advice' from gurus and experts about when not to invest in your 401k. This article gives a good overview of why advice to not invest in your 401k is bad advice.
2 - CREATE YOUR OWN
If the 401(k) options aren't great, you can put any money after the match into your own Investment Retirement Account. You can easily open up a retirement account at a fund company like Vanguard and invest in a global index fund with low fees. I use Vanguard as an example not because I think you should invest there, but because they have (on average) lower fees than other fund companies.
3 - GET COMPREHENSIVE HELP
Many financial adviser clients wish they had started getting help when they were younger. If you would like more personal help, seek out a fiduciary, fee-only, and comprehensive financial adviser/planner. Generally this means a registered investment adviser (legally obligated to be a fiduciary) who does full financial planning (possibly with the CFP mark).
If all the adviser does is manage your non 401(k) investments, avoid them. Starting out you won't have enough money saved up to make their fees worthwhile. And they may encourage you to skip the 401k match so they have more money to manage. Instead you want a person who will advise you on your 401k, budgeting, career planning, insurance contracts, tax planning, debt management and other elements of your finances.
This is where the fee-only comes in, because fee-only advisers don't get kickbacks or commissions from selling your insurance or other products/services. They only get paid by you for the advice they give you. So it is more likely the advice you get will be based on what you need and what saves you the most money.
There are three ways to purchase Treasury notes directly; through a brokerage, a bank, or directly from the U.S. Treasury at https://www.treasurydirect.gov. Buying it directly through the U.S. Treasury will mean it is a noncompetitive bid purchase, so if that is a requirement, you will need to use a broker or a bank. There may be a fee with buying them from a bank or brokerage firm, but it likely won't be significant. As with all services, you will want to shop around to see what value each company provides and at what cost.
The amount you are looking at purchasing is significant, so it is probably worthwhile talking with a fiduciary financial adviser to get advice on the return expectations, opportunity cost, and risks of such a move. While most people think of Treasury Notes as risk-free assets, that is only partially true. While they are considered free from default risk, they still carry other risks such as interest rate risk and inflation risk.
If interest rates rise over the next few years, the market value of your portfolio will decline if you have to sell the notes prior to maturity. With a 10-year maturity, these notes are going to be impacted singnificantly by any potential increases in market interest rates. Similarly, with interest rates at their current lows, inflation could significantly eat away at the true value of this portfolio over the next decade. I am NOT saying this is a bad investment, as I have no idea what your goals are nor what the rest of your portfolio looks like. I do think, however, it will be important and benefit you to have a full understanding of how these and other risks could impact the portfolio so you are comfortable with the potential downsides.
There is definitely a chance you filled out the tax form incorrectly. While it is possible that the foreign income could have caused a swing,it seems unlikely to be that dramatic based on the amount of foreign income you earned. The tax credit should have taken care of the foreign income taxes owed. This is an area where you should definitely have a CPA and possibly a financial planner in your corner.
At your income, it is likely that having a CPA will pay more in tax savings than the cost. Additionally, a comprehensive financial planner could identify other ways to save on taxes going forward. (CPAs are historians by nature, while planners look forward. So the CPA minimizes taxes from last year, while a good planner should help with the future years).
While saving money by doing things yourself is often a good idea, most people don't have the expertise to get the most out of things like taxes and investing. A professional will pay for their fee many times over, if they are good at their job.
If this was the planner's only suggestion your gut was correct, you are probably not working with the correct adviser. It sounds like the planner is an investment-only person who doesn't work with clients in a comprehensive way. A planner should look beyond investments and look at your whole financial picture, you long-term, and short-term goals.
Although I don't have enough information to give you advice, here are some alternatives to consider regarding options for investing the money. These are just ideas to consider, and you will want to work with a comprehensive planner to determine which ones will be best based on your other life goals, tax situation (the Roth may not have been good tax advice depending on other factors), risk tolerances, and desired lifestyle. Keep in mind, I am focusing on how to make the money work for you as I believe that is what you are looking to learn. And these are only ideas, they may not be right for you and your fiancé.
INVEST MORE AGGRESSIVELY
I don't have any information about your portfolio's asset allocation, but it is usually a safe bet there is opportunity to invest some of your portfolio more aggressively. (I'm not talking about betting it all on Bitcoin) A good financial planner can look at your total financial picture and identify how much of your investment portfolio can be allocated toward higher risk, higher return investments. Investments in emerging market stocks, small-cap stocks, mid-grade bonds, or specific market sectors can all yield higher returns and are appropriate investments for a person of your age. The key question, of course, is how much to allocate toward these investments.
If you want to swing for the fences, you can do that just make sure it is with 'extra' money. Let's assume out of the $7,000 you currently save, you only need $5,000 each month to save toward your goals. The extra $2,000 monthly can be invested for higher returns without endangering your retirement, emergency fund, or other financial goals. Investing in an ETF which invests in micro-cap stocks, high-yield bonds, distressed assets, frontier market stock, or other similar asset class. Just be sure you can afford to lose a significant portion of this money, as the higher returns come with a heightened risk of loss.
OPEN A HEALTH SAVINGS ACCOUNT (HSA)
If you have access to a High Deductible Health Plan, an HSA could be a way to boost your retirement savings. HSAs allow you to take a tax deduction now and also pay no taxes later when you withdraw the money for qualified medical expenses. As a result, they really are a tax-free investment account. The trick with HSAs is to have enough money to invest the maximium (nearly $7k per year in 2018) and also pay for all of your medical expenses from your paycheck so you don't touch the HSA money. This article explains the benefits of health savings accounts in more detail.
Make sure you understand the costs of the health plan you choose howeve, and that you like the plan doctors. A high dedutible health plan means you will be paying much more out of pocket for your medical expenses and you will want to undestand the worst-case scenario before making this decision.
SAVE UP FOR A DUPLEX/TRIPLEX
Investing in Real Estate can provide a steady income from rent, capital appreciation from the value of the property, as well as providing for a nice home for you and your spouse. A duplex is a house with two living units, which is often the easiest way to enter into owning investment real estate. If you live in one of the units you know that 50% of your tenants will always pay on time. Then you only need to manage the other tenant. Keep in mind, real estate is very time consuming, and you will want to make sure you are comfortable with the lifestyle of a landlord. Collecting rent is fun, but getting a call at 2 a.m. because your tenant clogged the bathroom isn't fun. Still, if you make the purchase correctly you can have your tenants pay for a signficant portion of the mortgage and enjoy the appreciation of the house value. And rental income will naturally increase over time based on both inflation and paying down the mortgage.
You could also explore a Triplex (three units) or Quadplex (four units) but you will have more work with managing the tenants and dealing with problems. The advantage, however, is you are more likely to see possitive cash flow from day one. I would not recommend going larger than a quadplex as the laws for apartment complexes are much less landlord-friendly. Most states make the cut-off at 4 units in a building, so staying below your state's cut-off is usually advantagous for a new real estate investor.
SAVE UP TO START A BUSINESS
If you or your fiancé have ever been interested in starting a business, now would be the time to start one. You have no kids, no debt, no mortgage, and strong incomes meaning you have the ability to bounce back quickly if the business doesn't work. A business is a high risk investment, but nothing generates wealth better than business ownership. Keep in mind, being an entrepreneur takes a special kind of mindset and carries with it significant stress. So while it can be a road to wealth, it can also cause financial and marital problems. I would not recommend this unless one of you already had a desire to be a business owner and have something you are passionate about.
BUY A HOUSE
This might seem strange as I was focusing on things which make you money, but a house can provide you with the opportunity to lock in your housing costs at today's prices. While the cost of a house will actually set you back a bit financially, over a twenty year period your incomes will increase significantly, but your mortgage will stay the same. While the rental rates are rising around you, your housing costs will have been locked in.
If you have any questions or want to explore things in more detail please feel free to ask.
While there are some differences between the plans, it is the underlying investment options and fees which should really drive this decision. Each of the plans will have predominantly the same tax advantages; so instead look at the types of investments and the expense ratios of the funds you have access to in the 401(k), 403(b), 457(b) and 401(a) plan.
If your 401k plan has significantly cheaper fees and better investment options, then you should max out the 401k first ($18,500 in 2018) before looking to invest in the other plans. 403b and 457 plans, for example, often limit you to investing in high cost annuities, which will have a hard time outperforming cheaper investment options net of fees.
If all the plans have similar investment options and fees, then I recommned funding the 457 plan. These plans allow you to take penalty-free withdrawals before age 59 1/2. If you retire young, the 457 can be a beneficial source of income while you wait to have access to your 401k and IRA plans. You will still have the normal income taxes which are due on withdrawals at any age, the same as a 401k.
I also recommend talking with your financial advisor who is managing your Vanguard mutual fund. They should be knowledgable about the account details and be able to give you more accuarate advice based on your entire financial picture. If they aren't able or willing to offer advice on your entire financial picture, you may wish to consider if working with a different advisor would be better for your comprehensive financial plan.