MMBB Financial Services
Financial Planning Specialist
Alina has over 14 years of experience in the financial services industry. Previously, a Vice President and Credit Portfolio Manager with a major European investment bank in New York, Alina held major roles in investment banking, ranging from portfolio management and risk underwriting to investing in structured financial products.
Alina is CERTIFIED FINANCIAL PLANNER™ practitioner and graduated from the prestigious Personal Financial Planning Program at NYU. She holds her MBA in Financial Management from Pace University - Lubin School of Business in New York, for which she was awarded a Graduate Assistantship and the 2004 NY Annual Securities Conference Scholarship. Alina earned her Bachelor of Business Administration in Finance and Insurance from the elite The Academy of Economic Studies in Bucharest, Romania.
Alina provides comprehensive financial planning and asset management services to healthcare professionals, clergy, business owners and individuals. Alina abides by the Fiduciary Standard of care, which attests to acting in clients' best interest at all times. Alina works for her clients only, does not take commissions, so she can provide high level of service with no conflicts of interests.
Alina is a member of the Financial Planning Association (FPA) and a volunteer for the FPA-Pro Bono committee through which she spreads financial literacy among the under served low-income populations of New York City.
In her spare time, Alina enjoys classical music, playing tennis and skiing with her family.
MBA, Financial Management, Pace University Lubin School of Business
BS, Finance and Insurance, Academy of Economic Studies
The answers presented on Ask an Advisor, together with any commentaries, articles, or other opinions should be considered general information presented to inform the public. They are based on the information provided in the question, which may have omitted important details that would have changed the answer had they been known. Please consult a financial advisor before concluding that the information is relevant to your own situation.
1. The best investment you can make as a young adult is investing in yourself, in your own education, after figuring out what you want to do.
2. Get rid of credit card debt if you have any to the point that you pay your balance in full every month and have a strategy for paying down your student loans as well.
3. Build your emergency fund gradually. A good rule of thumb is to have saved between 3 and 6 months of non-discretionary expenses in a liquid money market account, but it should be whatever makes you sleep well at night in case you lose your job, or an unexpected emergency comes up.
4. Make a plan to save for your financial freedom. Spend less than you earn.
- Pay yourself first! The sooner you start saving for your long-term retirement goal, the better it is. You are young, so make the time you have until your retirement age work in your advantage by starting to invest right away: a) contribute to company's 401(k) plan if available, take advantage of the match if available; b) open up a Roth IRA even if you don't benefit from the tax deduction advantage available with the Traditional IRA. You will get your money and your earnings on them tax free in retirement, when your tax bracket could be the same or higher than now.
- Stick with your plan by investing in an automatic fashion from each paycheck.
- Invest in a diversified portfolio of low cost index funds: domestic and foreign equities funds (90-100%) with the balance in bond funds. Revise asset allocation 10 years from now to start gliding it to a little more conservative mix.
- Rebalance to the asset allocation designed on a yearly basis.
Alina Parizianu, MBA, CFP®
This is unfortunately an unrealistic expectation. The answer it no, you can't. Your average long-term total return (dividends and capital appreciation) may be somewhere around 8%, but can't expect 10% just from dividends alone. In general, dividend paying companies are in the mature stage of their life cycle, at which point company earnings would not be as high as 10% year over year consistently. In any event, even if in some years they did have, the dividend payout ratio is never 100%. Also, dividends are not guaranteed by the companies. Just because they pay dividends in one year or that they have a history of paying dividends doesn't mean they will continue to pay it without interruption every quarter.
Your best bet would be to have a diversified portfolio that matches your risk tolerance and your goals.
Alina Parizianu, MBA, CFP®
First of all, kudos to you for committing to saving so early in your career. It is great that it is your focus and that your relatives help too. It will pay off in the long run.
Before discussing additional investing beyond your existing maxed out 401(k) ($18,000 a year at your age), you should consider the following:
- 3-6 months of living expenses should be saved in a liquid checking/money market account, or considering you don't have rental expense at the moment, what your living expenses would look like had you not lived at home.
- Open up and max out a Roth IRA account ($5,500 a year) by having automatic withdrawals from your paycheck, $500/month for 11 months assuming your Modified Adjusted Gross Income is less than $118K. This will provide tax-free earnings growth until retirement. You pay taxes now, and withdraw money tax free in retirement. Think of the Roth IRA as a two in one account (brokerage and retirement account), as you can withdraw your CONTRIBUTIONS at any time Tax Free and Penalty Free. Conversions will be tax free but will have 10% penalty if under 59 1/2 and if the conversion was done within the first 5 years (calculated from January 1st of the year for which the contributions were made). Earnings will be taxed and 10% penalty if under 59 1/2 and if the account was open in less than 5 years. Penalty can be avoided in certain circumstances: death, disability, tax levy, first time home (up to $10,000), for higher education purposes, or certain medical expenses/health insurance.
- For investments inside the Roth, you can afford to be aggressive at your age and invest most of the funds in equity ETFs (90% to 100%), with the rest in bond funds.
Great job so far and keep working at it!
Alina Parizianu, MBA, CFP®
Hi, congrats on your new job.
Given you just started your first full-time job, time is on your side, so you can probably withstand significant volatility given that you are 20-30 years from retirement (and you have time to recover from potential losses before then).
With that in mind, you can probably go 80/20 or 90/10 split in equity/bond funds, with allocating both to domestic and international funds. Make sure you rebalance every 6 month to 1 year and as you get closer to your retirement age, you should shift allocation to something more conservative.
Your company plan should offer 10-12 mutual funds to choose from, or even a target fund geared toward your retirement year, which will start off more aggressive and gradually shift allocation towards holding more bond funds. Some 401(k) plans have self-directed brokerage options linked to them, so it pays to ask, as those you have access to have more options to choose from, like individual stocks, bonds, and ETFs.
The most important thing is to maximize your contributions to the plan not only to get the company match, but to get the maximum savings of $18,000/year (up to $54,000 including company match) and benefit from compounding of interest.
Good luck to you!
When retirement comes, you want to have different buckets from which to take distributions, to have enough flexibility from the tax perspective at that point:
1.Tax free savings: Roth accounts, whether in your Roth IRA with the bank with a maximum of $5,500 or $6,500 if over 50 years old, or in a Roth 401(k) with your employer, which allows for higher maximum of $18,000 or $24,000 if over 50.
2. Tax deferred savings, for which you get a tax deduction when you contribute, but will pay income tax at the time of withdrawal. This would be a pre-tax 401(k).
You can do a combination of pre-tax 401(k) and Roth 401(k), up to the limit of $18,000 or $24,000.
3. Taxable brokerage account, or other investments.
To answer the question, if you should contribute more than the maximum you are contributing now of $5,500 or $6,500, depending on your age, I would need to have more information about you. It is always good to save more for retirement, but an emergency fund should be established first or at the same time, depending on your situation. That is because there is a 10% penalty if you take withdrawals from the 401(k) account before turning 59 1/2 in addition to the income tax for the pre-tax component.
If the person at the bank can't give you advise on your unique situation, I would suggest finding a fee-only Certified Financial Planner (TM) who can assist with designing a financial plan for you and coming up with how much you can/need to save for your retirement goals. Good luck.
Alina Parizianu, CFP (R)