Portfolio Advisor, Financial Advisor
Justin joined Merrill Lynch in 2017 after spending three years as a consultant in the financial services industry. He provides tailored financial solutions for clients that take into consideration their needs, goals, risk tolerance, investment time frame, and liquidity requirements.
Justin’s passion to spread financial literacy drives his involvement in Chicago’s youth community as a volunteer mentor with Big Shoulders Fund, Friends for a Future, and Holy Trinity High School. He began investing when he was 16 years old and his passion for guiding others to financial freedom has only flourished since. A graduate of Miami University with a degree in Finance, Justin grew up in Naperville, Illinois, and now lives in Chicago’s River North neighborhood.
BS, Finance, Miami University
Without all information necessary to make a definite recommendation, the obvious answer is absolutely not.
You are far too young to invest in CDs. The reweard is not nearly high enough to even warrant consideration. Say you throw $50k into a 3yr CD at 3% per year compounded monthly, you won't even make $5k on the investment. You have plenty of time ahead of you - don't waste the early years (most important years) on low risk/low reward vehicles like CDs.
Other than the fees you mentioned, the other cause of underperformance comes from over diversification. The whole idea is that you can only diversify a portfolio to a point where risk can't be reduced any further by diversification. Refer to the Efficient Frontier for these levels which defines the maximum expected return for a given amount of risk. Once you are at the optimal level of diversification each additional stock will essentially cause your portfolio (index fund in this case) to retract to the mean of the market (index) minus the fees you pay. Because these funds own a couple hundred stocks, they are well past the optimal level of diversification causing the portfolio to retract to the mean of the market (index).
While every situation is circumstantial, based on the information given here you should forget the ESPP for the time being. DO NOT ease off 401(k) contributions. Remember that time in the market will always beat timing the market. The power of compounding is enormous, especially since you have 33.5 years left before you can withdraw those funds without penalty. There are plenty of ways to grow your savings without taking on nearly as much risk and keeping the funds liquid (depending on your timeframe) such as lattered CDs, money market funds, and high interest savings accounts. In the meantime while you are saving, look into first time home buyer programs in your state to discover ways to leverage assistance programs.
I can't give you a definitive response without knowing more about your entire financial, family, and health situation. HOWEVER, based on the information given, there is very little reason to even consider whole life insurance at this point. If you had responsibilities outside of yourself (i.e. own a house and have a spouse and children) then absolutely look into a great policy that would support those that depend on you.
Products like this are pitched to younger individuals by advisors who are incentivized by commission and these products can be an easy sell to those who don’t fully understand their options (AKA easy commission). Whole life premiums are expensive, policy investment options are typically narrow, and the 3-4% returns you mentioned are extremely low. Whole life insurance can offer many benefits to individuals in other situations but it doesn’t seem beneficial to yours, especially at your age.
- Max out your 401(k) and Roth IRA
- Pay down your debt