Flourish Wealth Management
Director of Wealth Management
Derek Hagen has close to 15 years of wealth management experience. Derek has gained valuable expertise in leveraging technology to support the financial planning process. Derek has a passion for helping clients understand their relationship with money and aligning their money with their lives.
Derek worked full time while attending Minnesota State University Moorhead in his hometown of Moorhead, Minnesota. After earning his degree in Economics, Derek moved to the Twin Cities in Minnesota and started his career working for an investment management firm. There, he gained valueable knowledge about financial technology, calculating and reporting investment performance, trading investment portfolios, and investment operations. He later moved to an investment advisory firm helping clients determine the best portfolio to reach their financial goals. Derek emphasizes deeply listening to clients to fully understand their financial situation and long- and short-term goals. Only after diagnosing does he offer a prescription.
Derek lives in Minnetonka, Minnesota with his wife Katie and their animals, Whiskers the cat and Bingo the dog.
BA, Economics, Minnesota State University Moorhead
Assets Under Management:
Flourish Wealth Management is a Registered Investment Adviser. No information provided here is a solicitation or offer to sell investment advisory services. Flourish Wealth Management provides individual client services only in states in which it has filed or where an exemption or exclusion from such filing exists. Registration as an Adviser does not imply a certain level of skill or training.
It sounds like your son wants to buy a home but doesn't have the credit needed to get a mortgage, and you are interested in buying the home for him.
I would not advise doing this for several reasons. Your son can likely still rent an apartment and be happy. While renting, he can save money for a down payment and work on repairing his credit. You don't want to jeopardize your retirement to purchase someone else a house. Your retirement account is likely tax-deferred, so you would have to pay taxes on any withdrawals that come out of the account, and if you are under 59.5 years old you would have a penalty on top of that. Your son has more time than you do. Taking a withdrawal from your retirement account could mean you would have to work longer than you would want to. Lastly, consider what your son did in order to get bad credit. I don't know the backstory, but it's common to hear that kids in this situation have bad spending habits. So if that's the case her and your plan was for your son to pay you back, you have to at least consider the scenario where he doesn't or can't pay you back.
I am happy to hear you have taken steps to make smart decisions with your money. Great work.
It sounds like you want to take some of your savings and try to get a better rate of return. You may know this, but I'll point out that greater returns come with greater risk, meaning that the investments could fall in value. If you keep the long run in mind and study a little bit of market history, this shouldn't be too much a problem for you, though. Don't put any money into the stock markets that you might need within a few years.
Index investing is an efficient way to gain exposure to stocks. Props to you for knowing that. The first thing I would suggest is figuring out what areas of the market you are comfortable with. You can invest in an all-U.S. index or in an all-world index. I would suggest looking for funds that are broadly diversified. You should be able to find which index each fund tracks and find out what kinds of companies and how many companies are in that index. A good indicator is to look at the number of holdings (if you are looking for exchange-traded funds you can use ETF.com to find these data). Ideally this number will be very high. You also want to look for funds with low expenses. Look at thinks like the expense ratio, which is how much to pay to the fund company, and the turnover ratio, which indicates how much the fund buys and sells stocks. You want both of these number to be low.
If you have a brokerage account open (like at Vanguard, Schwab, Fidelity) than you can buy ETFs in your account. I would suggest looking at fund companies like Vanguard, Schwab, iShares, or SPDRs.
It sounds like you have done a lot of research - great work!
I like the simplicity of your approach and it may be a great strategy for you. I think the experts you refer to prefer different strategies because they want to either spend down the taxable accounts first since those are the least tax advantaged, or withdraw from retirement accounts if you are in low tax brackets so you can get money out of your retirement accounts at lower rates.
One option is to consider consolidating accounts. Depending on who the account holders are, you should be able to get all your retirement accounts down to two IRAs (one in your name and the other in your wife's name). That way you would only have 2 Required Minimum Distributions (RMDs) when you turn 70.5.
Until then, since you will not be makign earned income, your income will come from interest, dividends, and capital gains on from your brokerage accounts, and wirhdrawals from your retirement accounts. So, depending on the balances in your accounts and the amount of income you receive, one strategy is to "fill up" the lower tax brackets with money from your retirement accounts. That way to you don't waste the opportunity to get money out of your accounts at lower rates and it will get the balances of your retirement accounts down so that your RMDs aren't so high.
At the end of the day, your comfort level is more important than finding the mathematically optimal strategy. Research "tax efficient withdrawals in retirement" and find a strategy that work for you and your situation.
It sounds like you are new to investing and are wondering whether you should invest more in your 401(k), split your savings between your 401(k) and a Roth IRA, or split your savings between your 401(k), and taxable accounts that woudn't be penalized if you took a withdrawal.
If I have that correct, then let me talk about some of the differences between some of these accounts. Your 401(k) is money that you can put away pretax - meaning it comes out of your paycheck before taxes are, so that you pay less taxes now. The trade off is that you will have to pay taxes on the withdrawals when you start taking money from the account in retirement. The contribution limit is $18,500 (for 2018) for these accounts. A Roth IRA is just the opposite, you pay taxes, and then you put the money into your Roth IRA. So you don't get a tax break now, but the trade off is that you don't have to pay any taxes on the money going forward, even when you withdraw the money. The contribution limit for a Roth IRA is $5,500 (for 2018). For both of these accounts, if you take a withdrawal before retirement, you will have to pay a penalty (note, there are some special rules for the Roth IRA, but high-level you can think about it in the way I'm describing). With a taxable brokerage account, you don't get any tax breaks, but in return you never get penalized for taking your money out.
I would start by determining why money is important to you and what you need your money to do for you. Then you can work out some goals and then determine which accounts are most appropriate. If, for example, you want to save for a dowm payment on a house, or for a vacation, you will want to save that money in a taxable account so you are not penalized. If your main goal is to save a nest egg for retirement, then you can contribute to both a Roth and your 401(k). Doing so would give you some "tax diversification," meaning you've paid some taxes now (on the Roth contributions) and you'll pay some taxes later (on the 401(k) contributions). If you have the ability to save a lot of money, saving into both accounts gives you a higher limit ($18,500 for the 401(k) plus $5,500 for the Roth). Keep in mind, however, that there are income limits on Roth contributions - if you make too much money, you are not allowed to contribute to a Roth.
I hope that helps. I think it's great that you are saving enough that these questions are something for you to consider.
It sounds like you have an aggressive portfolio, and you recognize that the classic advice would have you reduce your stock exposure as you get older but you have concerns about bonds.
There's an old saying that personal finance is more personal than it is finance. Determining a stock-bond-cash mix for yourself involves 1) your financial goals, and 2) your tolerance for risk - including your ability, willingness, and need to assume risk. These are different for every investor.
1. Your financial goals: Many would advise that you shouldn't have any money in stocks that you will need within the next five years (some might even say longer). This is because you can't afford to have the stock markets crash at the same time you need the money. It could be the case that you dont' need much from your investment if you have a pension, Social Security, or other income to use.
2. Your ability to assume risk: This is related to your financial goals. If you need a large percentage of your investment in a relatively short amount of time, you don't have the ability to assume risk. If you don't need much money from your investment, then you have more ability to assume risk. You'll have to determine how much you'll need to determine your ability to assume risk.
3. Your willingness to assume risk: This is how you feel. If you watch the news or check your account statements and feel awful every time you lose money, then you have a low willingness to assume risk. If you don't care or if you understand the long run nature of stock returns, then you have a higher willingness to assume risk. This is important to get right, because the biggest risk to achieving your financial goals is sticking to your allocation. If you would feel awful when the next stock market crash happens, then you have a higher likelihood of wanting to sell your investments because of your level of discomfort with the stock market swings.
4. Your need to assume risk: If you have all of your needs met, then you don't need to take any risk. Why play the game if you've already won? Since risk and return are related, if you don't need the return, then you don't have to take the risk.
The classic advice calling for you to change your allocation from stocks to bonds assumes that you will need to rely on your investment in retirement so you'll want less exposure to the stock market. That may or may not be the case. But I wouldn't keep money in stocks just because cash is paying zero and some experts think bond prices will go down. In the long run, higher interest rates are good for you even if your bonds lose some value in the short run. Plus, a dollar invested in stocks can easily go down to 50 or 60 cents. A dollar invested in bonds might fall to 95 cent. Keeping money in stocks is still more risky than bonds even if interest rates go up (but remember that they can stay low for a long time).