Ep 14: How to turn $3,000 into $50,000,000!

Yes, you can turn $3,000 into $50 million dollars. What’s the catch? It takes a long time. So, unfortunately, you won’t be around to spend it. But this is a great way to think about setting up your kids or grandkids for long-term financial success.

It’s really simple math that relies on compound interest to generate significant growth over many years. The basics:

  1. Invest $3k into a Small Cap Value Index Fund when your child is born.
  2. Assume 12% growth of that fund (which is the historical average for the last 100 years for SCV funds)
  3. As your child has earned income, slowly transfer the account balance to her Roth IRA to grow tax-free forever.
  4. At age 65, your child now has a balance of $4.75m.
  5. She starts taking out 5% / year from the account and it continues to grow at 12% / year.
  6. When she dies at age 95, over the last 30 years she has taken out and spent roughly $20m (5% / year) and the balance is $30m = $50m

Ok, does that seem far-fetched? Well, it could have easily happened over the last 95 years (if there had been a small-cap value index fund in 1926!

There are a number of ways to think about this for your own life:

  • Invest some amount, whatever you can afford, for your child or grandchild. Let it ride for a long, long time.
  • This could be for their retirement, or for a home down-payment or something else.
  • Think about setting aside a small amount each month for something “down the road” for your kids, or grandkids.
  • Invest in a single stock when a child is born for their high school or college graduation gift (whatever it grows to!)

The point is the earlier you can invest, the more compounding kicks in. The longer the child can stay invested, the more compounding works for them.

Resources: This post is inspired by Paul Merriman’s fantastic work on this topic. Check out his entire site for great investing resources.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 13: Should you invest in individual stocks?

If you are thinking about investing in individual company stocks, what should you consider? In today’s episode we discuss:

  • Risk versus Reward: A company that does well has the potential to have its stock price go up over time, making you a lot of money. However, the opposite is also true: you can lose all your money if it goes out of business.
  • Diversification: Owning a single company makes you tied to their individual success or misfortune. Even if the sector or economy does well, you may not make money.
  • Portfolio: You can create your own portfolio using individual stocks – but it takes quite a few (20+) to get real diversification. Or you can invest a majority of your portfolio into low-cost index funds and use a small portion in individual stocks.

What are the pros of owning individual stocks?

  • No trading fees
  • Complete control: own exactly what you want to
  • Tax management: Buy and sell for tax advantages, when you want.

What are the cons of owning individual stocks?

  • Diversification: it’s harder to diversify your holdings
  • Time: it takes time to monitor your portfolio
  • fees: there are trading fees including spreads
  • Emotions: It’s hard to not get carried away by emotions when evaluating your stocks

Ultimately it’s up to you to decide if you want to invest in individual stocks. Just make sure you understand the risks and go in with eyes wide open!

Ep 12: How to invest extra cash into the Stock Market

A listener asks the following question:

“I’ve luckily survived the pandemic so far and my job has continued to be busy.  Through the last few years, I’ve found that my savings have grown quite nicely but I’ve been hesitant to invest the extra cash into the market.  Now I realize I have about $200,000 in cash that I can invest for the future.  How do I get that invested when the market seems high?  I know that I should do it, but it’s hard to pull the trigger. “

The academic research shows that the short answer is to put it all into a low-cost total stock market index fund. But we’re not robots, and this person is a N of 1 and that just feels really hard.

Therefore I typically recommend for clients to divide the amount into 3 or 4 “chunks” and put a chunk in every 2-3 months. After the first chunk if the market goes up you feel good because you’ve made money. If the market goes down, you feel good because you have more to invest at lower prices. It’s a win-win!

My recommendation is to put $50k into the market today. Mark the calendar for 3 months from now and put in another $50k on that date. Do not look at what the market does, or where it is, just do it on that day.

Of course, build a massively diversified portfolio of stocks and bonds, US and International. Have a plan for your money and stick with the plan.

We also discuss:

  • Automation is your friend. Automate your savings and investing.
  • The research about putting it all into the market at once
  • Even if you invest at market “tops”, you still come out ahead in the long term.
  • What to invest in: low-cost index funds.
  • Have a plan!

If you have a question, please get in touch! 

Resources:

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 11: How to think about Insurance to protect you and your family

I tell all my clients: you have to protect yourself from financially catastrophic events before we can plan savings and investments for your future goals.

Insurance involves thinking about “the bad things” that might happen, so it’s not a fun topic. But it’s very important to ensure nothing comes along and wipes you out financially.

In today’s show we chat about:

  • What to consider when reviewing health insurance? What are the premium, deductible, and out-of-pocket maximums?
  • Who should consider Long Term Care Insurance (hint: in your 50s is a great time to consider it)
  • What to look for in Home and Auto coverage?
  • How to increase your liability coverage with Umbrella insurance.
  • Save money on premiums by increasing your deductible.

While insurance might not be a sexy financial topic, it’s critical to have the right coverage.

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 10: After-Tax 401(k) Contributions

Would you like to have more $$ growing in a tax-free account forever? Let me show you how:

  1. Maximize your 401(k) contributions, $19,500 for 2021 into your Traditional 401(k) [or maybe the Roth 401k]
  2. Add after-tax contributions to your 401(k). Maybe 5%, $10,000 or even $30k. Whatever you are allowed within your employer’s plan.
  3. Immediately roll those after-tax contributions to the Roth “side” of your 401(k) plan.
  4. Enjoy tax-free compounding growth and tax-free distributions in retirement!

Your 401(k) account is a great place to save money for your retirement. These accounts are typically used to save from your current income, get current tax deductions and grow your money for retirement.

You are limited as an employee to contribute $19,500 to your 401(k). But some employer plans allow you to put in more money “after-tax”, which means you don’t get the tax deduction on those contributions, but they can grow tax-free towards retirement.

But the best part is if you can immediately roll these after-tax contributions over to the Roth side of your 401(k) plan. Since you have already paid taxes on these contributions, there is no change to your tax situation.

Now instead of having money growing in a taxable account, it’s hidden in a tax-free account!

Resources:

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 9: How to use your HSA as a Retirement Account

You could use your Health Savings Account (HSA) to pay for current medical expenses. However, if you can, I recommend that you invest the full HSA amount into the stock market and allow it to grow and compound.

The HSA is the only account that has triple-tax benefits: you don’t pay taxes on contributions, growth or withdrawals (for qualified medical expenses).

Did you know:

  • You can save your receipts for current medical expenses and pay yourself back in the future?
  • You don’t have to have the money in your HSA currently, as long as the account is open, start saving receipts.
  • After the age of 65, you can withdraw money from your HSA for any reason and pay taxes on the gains?
  • This is like having an additional 401k account!
  • Qualified medical expenses include dental, vision, hearing aids, chiropractic care, eyeglasses and more!
  • You can contribute up to $3,600 as an individual or $7,200 as a family
  • Plus an additional $1,000 as a catch-up if you’re over age 55

Resources:

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 8: How to use a Backdoor Roth

A backdoor Roth is a way for high-income earners to be able to contribute money into a tax-free Roth IRA account. It is a matter of contributing non-deductible money to a Traditional IRA and then converting that to a Roth IRA. The tricky part comes during the conversion: If you have any money in an IRA that has not yet been taxed, you’re going to owe taxes on that.

In today’s episode we discuss:

  • The difference between a Traditional IRA and Roth IRA
  • A simple example of a backdoor Roth when you have no other IRA accounts.
  • How taxes work on a conversion
  • How you can still do a backdoor Roth even if you have other IRA balances
  • A potential way to save on taxes if you can roll your existing Traditional IRA balance into your current 401k account.

Resources:

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 7: Which account should I save money next?

From savings to brokerage, 401ks, HSA, and 529 accounts: there are a lot of accounts to choose from! Where should you focus your savings? What is the “right” account to put your money to save on taxes and grow it for the future? Today we discuss the order of account funding, which accounts to focus on first, second and third.

Listen as we discuss:

  • Paying off high-interest debt first
  • Saving for Emergencies
  • Finding free money (401k match and 529 state-tax deductions)
  • Health Savings Accounts (HSA)
  • Roth IRA and backdoor Roth contributions
  • 457 deferred compensation plans
  • SEP IRA, 529s and more

Resources:

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 6: My company just went through an IPO. Now what!?

A listener asked the following question:

“My company just went through an IPO.  

I have been working for a large technology company for the past 7 years.  I am 34 years old, single, and find myself in an entirely new situation. My stock is now worth over $4m dollars and I have no idea what exactly I should do next!  How do I think about this new wealth?  Do I sell some of my stock or all of it? What else should I be thinking about?  I’m still working at the same company but might leave soon to explore other opportunities or take some time off work.

Any suggestions or advice would be so helpful.  Thanks!”

Listen in as Julie and I discuss how to think about a windfall, including:

  • Congratulations! It takes a lot of hard work, sacrifice and some luck.
  • How do you navigate friends and family as you’re suddenly a multimillionaire? Emotions are real.
  • How to think about $4m in a single stock portfolio.
  • How to handle taxes?
  • What do you really want to do and who do you really want to be?
  • Have a plan.

Resources:

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/

Ep 5: What is a Donor Advised Fund and why have one?

What is a Donor Advised Fund? How does it work and why would you want to open one? What exactly are the tax savings? And be sure to listen to the end where I review some real-world strategies used by clients.

We cover topics such as:

  • A Donor Advised Fund is simply an account that you own.
  • How to open a Donor Advised Fund
  • How to transfer money into a DAF
  • Why most Americans do not get a tax deduction for their charitable gifting
  • How to use a “bunching” strategy.
  • How to use a DAF in high-income years such as a bonus or exercising stock options or an IPO

Find out more about Mike at https://www.mortonfinancialadvice.com and connect at https://www.linkedin.com/in/mwsmorton/