IFB05: Going 100% Stocks Even as a Conservative Investor

 

Finding the right mix of stocks and bonds is a common question among beginners. As a conservative investor, it is a must that I find a good mix to mitigate risk.  Most conservative investors go with a mix of 75% stocks and 25% bonds to help lessen any risk of loss. But as a younger investor, we argue that going 100% stocks is a better way to go.

Pros and cons of 401k/IRA accounts for beginners
Pros and cons of Robo-Advisors
Advantages to Roth IRA
Best Allocation strategy for young investors
Dollar Cost Averaging for those just starting out
Better to do it yourself or have someone manage your money? Or a Robo-advisors?
Any advice for where to start for beginners?

 
Welcome to Session number 5 of the Investing for Beginners Podcast show notes. Today’s session includes our guest, Phillip. He is a beginner that subscribes to Andrew’s eletter and he asked us some really awesome questions today.
So let’s get to it!
For a beginner where should you start investing? A 401k or an IRA?
Andrew: First off, a big difference between the 401k and an IRA is that usually, the 401k is pretty limited in what you can invest in. Just from experience and talking to other people. Of course, not every 401k will be like this but a lot of them will have different mutual funds you can choose from. Sometimes they will have ETFs that you will be able to choose from.
But most 401ks you will not be able to buy individual stocks inside of them. As far as an IRA, that is on the opposite side and you can buy mutual funds, etf and you can also buy individual stocks.
There is also different tax implications on each of those. Most 401ks are like the Traditional IRA in which you can contribute the money before the government taxes you. And basically, it’s not taxed until you withdraw it.
You can also have a Traditional IRA which works the exact same way. They also have a Roth 401k, which is not as common. That one they will withdraw the taxes from your paycheck and then put it into the 401k after the taxes. And you can do the same with the Roth IRA.
Which is what I recommend for most young people. You are paying the taxes up front but the money will grow tax-free for the rest of your life. So being an optimist you really that the tax rate you will have in the future will be much higher than it is now because you are hoping that your salary goes up with time.
That is why we sacrifice taxes now because you don’t have as big of an income now as you will when you get older. So why not take the hit now and let it grow. And when you withdraw it in the future you don’t have to pay taxes at that time.
So that is why I recommend the Roth IRA, and why I personally have one.
There are different allocations you can do for a 401k and an IRA. There are limits to what you can contribute to an IRA. For both the Roth and Traditional it is $5500 a year and if you are over 50 it grows to $6500.
But with the 401k you can invest up to $18,000 a year and if over 50 you can add an additional $6000.
For my individual IRA, I choose a Roth and have a Robo Advisor handling the investing. I like the fact that I have access to these funds before retirement age of 59 if I ever need them. Should I focus on my Roth IRA as opposed to my 401k?
Andrew: This is something that I have been giving a lot of thought too lately. So it is really cool that you are asking this now.
The idea of having a regular taxable brokerage account and being able to take that money out sooner without paying a hefty fee. I know there are some details in the tax laws that ...