Strategic Wealth Partners
Matt Garasic is a Planning Analyst at Strategic Wealth Partners. Matt assists advisors in creating comprehensive financial plans that encompass all areas of financial planning. In addition, Matt helps young professionals start their quest for financial freedom through investment advising. A graduate of The Ohio State University, Matt earned his BS in Consumer & Family Financial Services on the CFP® track. Upon graduation, Matt sat for and passed the CFP® Exam and is looking forward to holding the marks within the next year.
Matt first became interested in financial services while taking a high school economics course, he was specifically intrigued by the concept of time value of money. Matt’s favorite part about personal finance is seeing a financial plan come to fruition and the satisfaction it brings to individuals. While younger individuals don't always need a full fledged financial plan, Matt is adamant about educating younger generations on the importance of saving and investing.
Matt is an avid Ohio State Buckeyes and Cleveland sports fan. A resident of Columbus, Matt enjoys participating in physical activity and watching sports. Specifically, fitness, baseball, basketball, football and mixed martial arts.
BS, Consumer & Family Financial Services, The Ohio State University
To start, tax-free bond funds should not be held in an IRA. An IRA is a tax-deferred investment vehicle, so, whenever you take a withdrawal from the account you will be taxed. Essentially, the tax-free benefits of the bond fund have been negated since it is inside an IRA. To answer the second part of your question, yes, any distributions from the account will count towards satisfying your RMD for the year. Be sure that you are keeping track of the amount you withdraw and satisfying the RMD requirement to avoid the IRS penalty. I would also suggest switching out of the tax-free fund in your IRA so you can earn more income from a corporate bond ETF/mutual fund. I hope this helps, best of luck!
Based on what you're asking, it sounds to me like your best option would be to follow a dollar cost averaging strategy. This involves depositing a certain amount of money into your account at a fixed frequency (Ex: monthly) and then purchasing as many shares as your deposit will allow. An example of this would be taking $150 from each paycheck in a month and then purchasing shares at the end of each month with the $300 you have deposited.
Now, that is the strategy I would suggest for funding your account to make purchases. As for diversifying and eliminating fluctuation in value, diversification is important to avoid over concentration to a certain position but there will always be market risk involved when purchasing equities. Before investing in the stock market it is important for you to understand the risks the market presents. Also, understand that if you are investing for the long term and not planning on using your investments in the near term, it is acceptable to have fluctuations in value so long as you don't sell the investments when the market is down. If you are planning to invest for the short-term then it is better to avoid investing in stocks as they are too volatile to depend on.
If you plan to invest for the long term and follow the dollar cost averaging strategy I summarized above then you have a few options.
1) Do some research and choose 10-20 individual stocks that you want to invest in. You can either purchase a certain amount of shares of one stock each time you make a purchase or you can buy fewer shares of multiple stocks. Continue to do this until you round out your portfolio with a diversified basket of stocks.
2) Invest in a low cost ETF that tracks an index such as the S&P 500. Not only will this keep your fees low but it will give you the ability to diversify without personally choosing individual stocks. ETFs are often invested in hundreds of different individual securities.
I hope this helps clear up some of your options, good luck in your future investing!
I'm sorry to hear about your loss and I'm glad that you are exploring different investment strategies for your inherited IRA. I woud assume the reason your advisor suggested using a more conservative investment allocation is because you will have to take required minimum distributions (assuming you are a non-spouse beneficiary) from the inherited IRA each year. The reason this is significant is because a portion of the investments will have to be sold each year to cover the required minimum distribution. Investing the IRA aggressively will subject you to the risk of selling the investments when they have a low value. Therefore, forcing you to sell a greater amount of shares. If you were forced to sell a greater amount of shares it would more than likely negatively impact your investment return far more than a conservtative allocation would over the long run. Your logic about investing aggressively over the long term in an attempt to achieve greater returns makes sense, but the required minimum distributions place a wrinkle in that plan. I believe your advisor's strategy makes sense as it seems he is trying to provide income from the inherited IRA for as long as possible while trying to limit market risk. The value of the inherited IRA could justify investing portions according to different risk levels. However, if the balance is smaller, it would make sense to try and stretch the income for as long as possible. I have included a link from the IRS website that spells out how required minimum distributions must be taken depending on the time of death and type of beneficiary. I hope this helps!
Great to see that you want to put forth the initiative to pay down your debt and begin accumulating your wealth!
That being said, one of the most important concepts in debt reduction and wealth accumulation is paying yourself first. To elaborate, when you receive your paycheck the first thing you should do is take a portion of it and immediately put it towards saving/investment or paying down debt, try to pay more than just the required payment to reduce your principal quicker. Be careful to not over extend yourself and take more money than you can afford. The goal is to leave just enough money to be able to pay your bills and still enjoy a certain lifestyle. Unfortunately, this requires cutting back on leisure activities in some cases. That is for you to decide depending on your inflows and outflows.
A tool that I use religiously is the Mint.com app. The app allows you to track all of your transactions and then comb over them to decide which categories you may be overspending in. I'll avoid giving a full breakdown of how to use the app but I strongly suggest downloading it and fine tuning your budget over the next few months. You will have a strong understanding of where your money goes in no time.
Watching your account balances grow and realizing your hard work and budgeting is paying off is a euphoric feeling and I wish you the best as you begin!
For starters, it is a good thing you recognize the lack of growth opportunity when your money is sitting in a little to no interest bearing bank account. Also, it is important to know that achieving growth in an account is not a guarantee and in some instances losses occur. Moving on, before I could give a firm answer I would want to know your goals/obectives for the money you plan to invest, whether you have an adequate emergency fund built, are you saving towards retirement, what is your risk tolerance, etc. The reason I am asking these questions is because it will have a huge impact on the answer you receive. If you just want to invest these funds for growth and have no need for them in the near future then you may consider investing in stocks. If you are planning to use these funds for something after a year then you may want to put them towards a safer investment such as a Treasury Bill that will pay you a fixed yield. If you don't have an emergency fund that can pay 3-6 months of expenses then you may want to accumulate the extra income to build that emergency fund. Finally, if you want to put this extra income towards retirement then it would make sense to open a retirement account such as an IRA or Roth IRA where you could possibly receive a tax deduction or provide tax-free future income in retirement. If you aren't looking to save towards retirement then a nonqualified individual or joint account will give you the option to invest in stocks, bonds, mutual funds etc. Just remember that any gains in the account will be taxable when you sell the investment. I'm sorry I can't give you a more direct answer but there are a lot of factors to consider when it comes to investing your hard earned money! Please let me know if there is any way I can assist you further!