My two-year anniversary with investing is around today. This means I have been owing you this post for 2 years. In the past 2 years, I have spent more time learning about investing and actually investing than doing anything else with my personal finance. And yet I have posted very moderately on investing. The reason is, investing is complicated. Very complicated. I did not feel comfortable sharing my meager knowledge and experience with you in fear of leading you astray in this complex universe. 2 years later, I finally feel that I have something to offer. Continue reading Investing: The mindset
Hopefully I have given you enough tease to get you curious about the tax advantages of a retirement savings account. I recommend you peruse these introductory posts to gain a basic understanding of retirement saving before reading this number-heavy post.
Chances are you have heard about the tax advantages of a 401(k) or IRA somewhere before. Let me sum up and illustrate in an easy-to-understand way, and as always, I’m available to answer questions.
Let’s clarify this first: retirement savings accounts have tax advantages over what?
This post has 3 parts. Part 1, I explain what a 401(k) is. Part 2, I explain how you contribute to a 401(k). Part 3, I explain why you should contribute to a 401(k).
Part 1. What the heck is a 401(k)
A 401(k) is a retirement savings account sponsored by employers. In order to contribute to a 401(k), you need to be employed.
I’m sure you have heard of these terms before. They probably appear on the media more frequently than the Kardashians. Traditional 401(k), Roth 401(k), Traditional IRA, and Roth IRA are 4 types of retirement savings accounts.
On Tuesday, February the 5th, I finally opened an investment account at Scottrade, after missing out on a lot of good deals from the stock market recovery from late 2011 through 2012. My 401(k) plan with my employer consists of mostly stock rather than fixed income, and sure enough my annual return in 2012 was almost 20%. But I was particularly confident about the revival of Bank of America when its stock price was around $5 a share, and even now I still believe I would have bought a lot of their shares and would have benefited from the 100% return had I known how to invest and had the determination to step into the investment world. Regrets are my life enemy, and to end this agony, I just had to open an investment account.
I have a personal interest in investing, so investing is just especially exciting to me. But there’s another reason I wanted to start investing sooner rather than later, and this reason applies to everyone. Continue reading The power of compound interest: why you should start investing today