Where Can I Put My Money?

Timothy Walt • October 30, 2023

Adapted from the Newsletter,

The Young Professional's Guide to Financial Success

"A Just Get to the Point Newsletter"

Today, I'd like to discuss the issue of how you determine what and where to save.

My hope is that you walk away knowing what some common investment vehicles are and how they are used. There are laws governing these accounts and I could not possibly go over everything, but I'd like to give you a basic understanding of what is out there.

Your timeline and which investment vehicles to use are interlinked.

Your Timeline

The first thing that you have to determine is your timeline. If you need to save for something within a year (a downpayment on something, for example), you probably need that to be in cash. As nice as it sounds to put your money "to work for you" in the market and boost that savings, realistically, that's not going to work. Dreaming of finding that one stock that costs $1, then becomes the next Amazon, making you fabulously wealthy, are just that: dreams. It's not that that can't ever happen, it's just too risky for short-term savings.

Short-term means saving the old fashioned way. This could be in a regular savings account, a high yield savings account, or even CDs if they are paying enough interest for you to lock your money up for a short period of time.

If you are looking at longer-term , like 7-10 years, then a brokerage account might be a good option. At this time frame, you are able to find some lower risk investments and ride out some of the ups and downs, although you need to determine how much ups/downs you have the stomach for and how much of the capital you can afford to lose. And remember: any gains are taxable when you sell, as are any dividends in the year they are paid.

If you are talking about retirement , then you are talking about tax-sheltered retirement account, such as a 401(k) or IRA.

Investment Accounts

There are a few options for investments. You could open an account with the US Treasury Department and buy government treasuries.
Some banks have limited investment choices, too.
Generally, though, if you are investing on your own, then you are talking about opening a brokerage account . There are many options, from Schwab and Fidelity to Betterment and Robinhood, just to name a few. For the most part they do the same thing: you open an account, wire in money, then buy whatever stocks, bonds, or funds that you have decided match your risk profile and timeline , then sit back and hope they grow!

If you are saving for retirement, then there are both employer-sponsored accounts and ones you can set up yourself.

The most popular employer sponsored plans, which are named after the tax code that created them:

401(k), 403(b), 457
- Some plans may offer a "Roth" option, which is named after the Senator who proposed it, and it means that you pay taxes on the money you put in, but it grows tax-free. This is the same concept as the Roth IRA, but is not the same thing.
- Anything employer sponsored is set up to take the money out of your paycheck before you see it. For many, this is a very good thing. When you have one of these employer sponsored programs, you should think of it like a menu in a restaurant. You want a few good things, but you probably don't need too much. How to determine which items to invest in is beyond the scope of this right now, particularly because each one is different and has different offerings, just like each restaurant is different.
  - Remember also that each offering is a fund, which means they are all diversified in their own way.
  - One bonus of an employer-sponsored plan is that many employers (but not all, so you need to check) match a certain percentage. This is the closest thing to free money that you can get!
- The downside to these plans is that there are fees involved and if there is a professional assigned to help you, that person is almost certainly paid by the company that sponsors the plan. Also, the fund choices are limited to what is in the plan.
- You can contribute a certain amount per year (for 2023, for example, it is $22,500).

Then there is the retirement plan you make for yourself:

Individual Retirement Arrangements (IRA)
- There is the traditional and the Roth. Traditional means your contributions are tax free and Roth means you pay the taxes up-front, but not on the growth. Here is a famous case of what that could look like (note: results from that link are not typical 😂).
- You set up an IRA the same way you would set up a brokerage account. The only difference is that there is a limit to what you can put in (this year it's $6,500) and if you take any of the money out, you pay taxes and/or a penalty, unless you meet certain conditions- typically starting with attaining 59 1/2 years old.
- In an IRA, you can buy any stock or fund that is available. This is a major advantage, but can also be overwhelming if you do not know what to look for.

Conclusion

There are many options for where to invest and what to invest in. The choice comes down to the purpose, the timeline, and what is available to you.

There are rules for whether and how you can use some of these separately or together, but conceptually I hope this helps!

Wishing you a prosperous career!

And of course, the fine print:

CVW Financial, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

< Older Post

Newer Post >

Maximizing Your 401(k): It's Not Just About Adding Funds

September 9, 2024

When it comes to planning for retirement, contributing to your 401(k) is often considered one of the best strategies. But simply adding funds to your account isn't enough to ensure a comfortable retirement. At CVW Financial, we want you to understand that your 401(k) is not just a savings account—it's more like a menu at a restaurant. And just like ordering a meal, you need to know what you’re choosing to make the most of it. Your 401(k): A Menu of Investment Options Most people think that once they set up their 401(k), all they need to do is keep contributing, and their retirement will take care of itself. However, a 401(k) is essentially a menu of investment options, each with different risk levels and potential returns. Imagine walking into a restaurant and being presented with a menu. If you don't know what you're ordering, you might not get what you want. The same goes for your 401(k). You need to choose your investments wisely based on your personal goals, risk tolerance, and time horizon. Choosing the Right Investment Options Within your 401(k), you’ll typically find a variety of investment choices, such as: Stocks: Higher risk, but potentially higher returns over time. Bonds: Lower risk, providing steady, more predictable returns. Target-date funds: Automatically adjust the mix of stocks and bonds as you approach retirement. Mutual funds: A mix of various investments, which can provide diversification. Each of these options has its own set of pros and cons, and the right mix for one person may not be the best for another. For example, someone with 30 years left until retirement may choose a more aggressive investment strategy, while someone nearing retirement may opt for more conservative choices. The Importance of Rebalancing Once you’ve selected your investments, it’s important to regularly review and rebalance your portfolio. Over time, the market can shift, and so will the balance of your investments. Without regular adjustments, you could end up taking on more risk than you intended or missing out on potential growth opportunities. A 401(k) is not a set-it-and-forget-it type of account. How CVW Financial Can Help At CVW Financial, we understand that navigating the world of 401(k)s can be overwhelming. That’s why we’re here to help you make informed decisions that align with your financial goals. Whether you need assistance choosing the right investment mix or want to ensure your portfolio is balanced appropriately, we can guide you every step of the way. Schedule a Consultation today and let us help you make the most of your 401(k). Don’t leave your retirement to chance—make sure you're ordering the right items from the menu.

Understanding Trusts: A Guide from CVW Financial

August 6, 2024

Trusts are an increasingly popular tool in financial and estate planning due to their flexibility and ability to address various objectives. If you're considering whether a trust might be right for you, it's essential to understand the different types, their purposes, and their pros and cons. At CVW Financial, we aim to demystify trusts to help you make informed decisions for your financial future. Types of Trusts Revocable Trusts Revocable trusts, also known as living trusts, allow you to retain control over the trust and the assets within it. You can serve as the trustee, make changes to the trust terms, and add or remove assets at any time. Here are some key features: Control: You have full control over the trust during your lifetime. Flexibility: Terms can be modified, and assets can be transferred in and out of the trust. Continuity: In case of incapacitation, the successor trustee you appoint can manage the trust without court intervention. Avoids Probate: Assets in a revocable trust bypass probate, saving time and maintaining privacy. Irrevocable Trusts Irrevocable trusts, once established, cannot be easily altered or revoked. They permanently remove assets from your taxable estate, which can have significant tax benefits. Key features include: Tax Advantages: Helps in minimizing estate and gift taxes. Asset Protection: Protects assets from creditors and lawsuits. Estate Planning: Ensures proper management and distribution of assets, often used to provide for family members in specific ways. Purpose of Trusts Protecting and Preserving Assets Trusts are a robust tool for protecting your wealth. They can shield your assets from creditors, lawsuits, and other claims, ensuring that your hard-earned wealth is preserved for your beneficiaries. Customizing Wealth Distribution With a trust, you can specify how and when your assets will be distributed. This control can be crucial in managing family dynamics, such as providing for a spouse and children from a prior marriage or ensuring heirs use the funds wisely. Minimizing Taxes Certain types of trusts can help reduce federal and state taxes, making them a vital part of tax planning strategies. By removing assets from your taxable estate, irrevocable trusts can significantly lower the tax burden on your heirs. Managing Family Dynamics Trusts can address complex family situations, such as blended families or supporting a relative with special needs. They allow you to outline clear terms for asset management and distribution, reducing potential conflicts among beneficiaries. Upsides and Downsides Benefits of Trusts Avoiding Probate: Trust assets bypass the often lengthy and costly probate process. Privacy: Unlike wills, trusts are not public records, maintaining your family’s privacy. Control: Detailed instructions in the trust ensure your assets are handled and distributed according to your wishes. Flexibility: Especially with revocable trusts, you can adjust the terms as your circumstances change. Downsides of Trusts Cost and Complexity: Establishing a trust can be more expensive and complex than creating a will. Irrevocability: Once set, irrevocable trusts are difficult to change, which can be a disadvantage if your circumstances change. Management: Ongoing management is required, which might necessitate legal and financial advice. Why Consider a Trust? Trusts offer peace of mind that your assets will be protected and distributed according to your wishes. While setting up a trust may involve more initial effort and expense compared to a will, the benefits often outweigh the drawbacks. Trusts provide a higher level of control, privacy, and efficiency in managing and transferring your wealth. Considering a trust involves evaluating your unique financial situation, family needs, and goals. To explore whether a trust is the right planning tool for you, contact CVW Financial. Our experts are here to help you navigate your options and create a plan that best suits your needs. Contact Our Business Ready to discuss how a trust can benefit your financial future? Reach out to CVW Financial today to schedule a consultation with one of our financial advisors. We're here to help you protect and grow your wealth with confidence.