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Is Your 401K Hurting or Helping You?

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In many cases, the 401(k) is the quintessential retirement plan. If you have access to an employer-sponsored option, it is usually a 401(k). Plus, this form of retirement account has been around for ages, making it seem like an incredibly solid choice. But, while a 401(k) can be a great way to save for retirement, it isn’t always ideal. In some cases, you might actually be better off with an alternative. If you are wondering whether a 401(k) is the best option for your situation, here are some points to consider.

Employer Matches

Many people who have access to a 401(k) through their employer are eligible for an employer match. Usually, that means that the company will make a contribution to the employee’s retirement account up to a certain percentage of the worker’s wages.

For example, if an organization offers a match up to 3 percent of the worker’s salary, and the employee earns $60,000 per year, the company would contribute up to $1,800. If the worker allocates 3 percent of their income to the retirement plan, they end up with their $1,800 contribution as well as another $1,800 from the company, bringing the total to $3,600.

In nearly all cases, contributing enough to a 401(k) to maximize the employer match is smart. The employer’s contribution is essentially free money, so it shouldn’t be overlooked.

However, if your employer doesn’t offer a match, then you might want to reconsider using a 401(k) at all. This is especially true if the plan has very few fund options, and none of those offered meets your needs. In those cases, it might be worth exploring Traditional IRA or Roth IRA options elsewhere, as you can often find a broad range of options, and only turning to your 401(k) after you have hit the IRA contribution limit for the year.

The Income Tax Factor

When you put money into a 401(k), it’s usually pre-tax income. This means you are lowering your tax liability for the year, so you won’t owe as much when you file your federal taxes. Instead, you’ll owe taxes on the cash when you pull the money out during retirement.

Whether a 401(k)s tax advantages help or hurt you depends on your situation. If you are in a higher tax bracket currently than you will be in retirement, then the ability to lower your tax burden now is a benefit, suggesting taxation rates stay similar. You’ll be spending less of your money on taxes overall.

However, if you are going to end up in a higher tax bracket during retirement, then using a 401(k) is actually hurting you. By delaying the taxation on that money, you are going to end up paying more.

Similarly, you usually have fewer tax deductions in retirement as well. For example, you might not have any dependent children living at home once you retire, and you might not be paying a mortgage, causing that interest deduction to disappear. As a result, by waiting to pay taxes on your retirement savings, you could end up owing more even if your income level is similar or even slightly lower in retirement.

If your tax bracket might be higher or deductions significantly lower when you retire, then you’re better paying taxes on your retirement contributions now instead of later. That means a Roth IRA, where your contributions are taxed, but your withdrawals (including on your earnings) are tax-free, might be an alternative worth exploring.

The “Set It and Forget It” Argument

One of the biggest benefits of using a 401(k) is that you can automate your retirement savings with ease. Usually, you simply tell your human resources department how much of your income you want to contribute, and they take care of the rest. Even portfolio selection is typically pretty simple, partially because your options may be very limited.

However, this isn’t necessarily a strong argument against Traditional or Roth IRAs. When you set up an IRA, you usually have the ability to set up automatic deposits into that account. While the money doesn’t come directly out of your paycheck before you receive any cash, it’s essentially the same process. You just have to track the contribution in your budget the same as you would with any other recurring expense. Once you do that, you are all set.

Income Restrictions and Contribution Limits

With a 401(k), your income level doesn’t impact your eligibility. As long as you are with that employer, your salary can get sky high, and you can still contribute. Also, the contribution limits are pretty generous. For 2019, if you are under 50 years old, you could allocate $19,000. If you are age 50 or older, the limit went up to $25,000.

With a Roth IRA, there are income restrictions. For 2019, if you are single, your adjusted gross income (AGI) has to be below $122,000. Otherwise, the amount you are allowed to contribute is reduced. Plus, if your income reached $137,000 or higher, you aren’t eligible to contribute to a Roth IRA at all.

Additionally, Roth IRA contribution limits are lower than with a 401(k). For 2019, you can only contribute $6,000 if you are under the age of 50 or $7,000 if you are 50 or older.

Traditional IRAs don’t have income limits, but there are contribution limits (they are the same as with a Roth IRA).

Selecting the Best Approach

While how you save for retirement is a personal decision, there are a few options that work best for many people. First, if you have access to an employer 401(k) match, then contribute enough to your 401(k) to maximize that benefit. Next, switch over to either a Roth IRA if you are eligible for a Traditional IRA if you are not. Then, if you max out your IRA, move back to your 401(k).

For those who don’t have an employer match, you might be better off starting with an IRA. Both Traditional and Roth versions give you more portfolio options that most 401(k) plans, so you have more control. Plus, if you might have a higher tax burden in retirement, starting with a Roth IRA makes sense if you are eligible. Once your IRA is maxed for the year, then use your 401(k) after that to keep saving.

Either of those options above can be great for retirement planning. However, you want to consider your personal financial situation before you make a decision and thoroughly evaluate your 401(k). Since 401(k) plans can vary significantly from one employer to the next, you need to examine yours carefully before you choose how to proceed. At times, the 401(k) might be enough, especially if you have a lot of investment options to chose from and you are confident that your tax liability will be significantly lower in retirement than it is now.

 

Do you have a 401(k)? Do you think it is helping you or hurting you? Share your thoughts in the comments below.

 

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Lyft Expected To Turn a Profit By 2021: Stock Rallies

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Shares of Lyft IPO increased on Monday after analysts predicted a Lyft profit by 2021, compared to the initial prediction of 2023. This made shares of the company jump by 4.3 percent.

Lyft Profit Predictions

The analysts’ report helped ease some of the concerns of interested investors because, since debuting on the market, Lyft has sustained some pretty serious losses. Shares have fallen almost 30 percent since March. On top of that, Lyft has not proven itself reliable when it comes to competing with Uber and other rivals. These factors led analysts to believe it would be 2023 before the company saw a profit.

Lyft, however, has stepped up and begun making an effort to profit sooner rather than later. Lyft Financial Chief Brian Roberts mentioned fare increases in certain cities in June. There has been no further information regarding how much fares were increased or where though.

Analysts predict the company’s annual losses will decrease in the next few years. Predictions state that losses will go from $911 million this year down to $24 million by 2024.

“We are raising estimates, putting us significantly ahead of consensus,” the report stated. “The main driver is assumed price increases, with limited impact on demand.” Lyft executives have a target price on shares of $60. It closed at $51.21 on Monday.

Lyft and Uber Controversies

Surprisingly, Uber isn’t doing much better in the market. Shares are down 26 percent since May (compared to Lyft’s 30 percent decrease). Both companies are having issues with transparency since going public though.

Mainly, people are concerned about ride-sharing safety as well as the rights of individuals driving for Uber and Lyft. Both have begun to take a larger portion of each driver’s fare in recent years. Neither company has reported accurate earnings from this. Jalopnik surveyed Uber and Lyft drivers to see how much they’re really taking.

According to the drivers, Uber is keeping about 35 percent of every fare. Lyft keeps around 38 percent. Neither claimed those numbers in public reports. Uber claimed to only take 19 percent, while Lyft does not publicly share their rates at all. That’s not to say you can’t make decent cash with these ride-sharing apps (see video below).

Despite these controversies, both companies are excelling. Millions of people use Uber and Lyft daily. While the apps aren’t going anywhere, it will be interesting to see how these IPOs perform in the near future.

Readers, what do you think about Lyft profit potential? Will the company see profit before it sinks on the market?

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Best Offshore Bank Accounts and Why You Need One

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I confess that for a long time I never would have thought about the best offshore bank accounts. I had a mistaken image that these accounts were for super-rich people who wanted to hide their money. In fact, I figured that most of them were criminals in the vein of an American Greed episode. However, now that I’ve learned more about what offshore banking really is, I understand that anyone can benefit from using these types of bank accounts. That’s how I’ve come to wonder about which ones are the best offshore bank accounts.

What Are Offshore Bank Accounts?

As you likely know, offshore bank accounts are bank accounts that are established in a country other than the one where you reside. More specifically, it’s an account at a bank that operates under an international banking license. Many people who live in the United States do opt to open offshore banking accounts around the world.

Benefits of Offshore Banking

There are many different reasons that people choose offshore banking. Here are some of the most common benefits people seek when choosing this option:

Protect Your Money

Nomad Capitalist reports that there are 39 countries that offer safer bank accounts than the United States does. If something goes awry here politically and/or economically, your money could be at risk. Theoretically, it’s protected, of course, if it’s FDIC insured. Nevertheless, you don’t want to be caught with your pants down when it comes to large sums of money. Putting some of your money in offshore bank accounts can help protect you from problems with the government and/or the American banks that you use.

Diversify Your Accounts and Your Currency

You don’t want to put all of your money in one account. In fact, you shouldn’t even keep all of your money in one currency. By saving your funds in multiple currencies, you protect yourself against a variety of changes in the global economy. The best offshore bank accounts offer the opportunity to utilize several different currencies and to easily transfer funds from one currency to another.

Earn More Interest

The best offshore bank accounts also offer very high-interest rates on your savings. Therefore, if you want to maximize the money that you earn in interest, you should explore your offshore options. Make sure that you do your research and understand all fees as you work to make the most of your money.

More Reasons You Need an Offshore Bank Account

International Man suggests these additional benefits:

  • It gives you financial freedom compared to tethering yourself to one country’s banking system.
  • It can give you access to medical care abroad just in case you need it.
  • Generally speaking, it helps with banking as an expat/tourist.
  • Acting now can help you make the most of your money in the future.

Of course, you want to keep your regular American bank accounts. But if you have extra money besides what you need in your immediate checking and savings account, then you might want to think about looking into the best offshore bank accounts.

Where Are the Best Offshore Bank Accounts?

You can open an offshore bank account almost anywhere. However, each country has its own rules when it comes to banking. Moreover, the United States has its own banking rules that you must understand if you engage in offshore banking. Depending on your specific needs, certain countries will offer better options than others. That said, some of the best offshore bank accounts are located in:

  • Belize, which has high-interest rates and 24 percent required liquidity; note that this one is controversial because of a poor reputation and should be considered carefully, weighing all pros and cons
  • Georgia, which Nomad Capitalist says is the easiest place to bank in and has good interest rates
  • Germany, which is widely recognized as one of the safest banking systems in the world
  • Hong Kong, which Sovereign Man ranks number one
  • Singapore, which has monetary stability and top financial advisors at their banks
  • South Korea, which has good business banking options
  • Switzerland, which leads the way in financial privacy
  • UAE, which is emerging as a strong new market for offshore banking

Generally speaking, the best offshore bank accounts are located in areas that are financially stable, don’t face a lot of US pressure for compliance, and have laws that are pro-business. Note that some countries (such as Sweden and France) have very safe banks but also have some drawbacks such as very high taxes.

What Are the Best Offshore Bank Accounts?

The best offshore bank accounts are located in countries where they are required to keep a lot of cash on hand (which isn’t the case with the United States, by the way). You want to choose a bank that offers good customer service, is relatively easy to bank with as a foreigner, and has terms you like (such as a high-interest rate.)

Here are some of the best offshore bank accounts to consider in 2019.

 

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Top CEOs Say Social Responsibility is Becoming More Important Than Profit

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The country’s most successful companies have undoubtedly proved themselves in the past by being able to make a profit. However, consumers are always changing. As millennials and gen Xers get older, social responsibility has started to become a more important area of focus for top CEOs.

What Does Social Responsibility Have To Do With Business?

The Business Roundtable is a group of CEOs of the largest companies in the United States. Occasionally, the group releases reports about how the world of business is changing and what is most important to shareholders as well as consumers. On Monday, the Business Roundtable released a statement suggesting companies should focus on social responsibility (maybe even more than profit).

More than 180 CEOs signed Monday’s statement, including executives at Amazon.com, American Airlines, and JPMorgan Chase & Co. It marks the first time the group has named something other than shareholder value as the number one priority for companies.

“This new statement better reflects the way corporations can and should operate today,” Johnson & Johnson CEO Alex Gorsky stated. “It affirms the essential role corporations can play in improving our society when CEOs are truly committed to meeting the needs of all stakeholders.”

Company executives also outlined four other priorities, including employee benefits and wages, support communities, and performing business with ethical suppliers.

How Businesses Are Changing

All of this comes at a time when many companies are taking stances on issues outside of the business world. Many companies have stepped forward in support of the LGBT community, for instance. Much of this pressure to support certain causes have stemmed from social media and even calls from employees.

It has been speculated that many Americans are looking to large companies to take a stance on important issues because the U.S. government has failed to provide solutions when it comes to economic changes like environmental challenges, gender, and race equality. Instead of serving shareholder first, companies have begun to focus on investing in their employees, giving consumers what they want and need, and supporting communities.

“While each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders,” the statement noted. “We commit to deliver value to all of them, for the future success of our companies, our communities, and our country.” The statement also listed a number of actions each of the companies is committed to making, including:

  • Providing value to each of their customers.
  • Investing in our employees through benefits and investment opportunities.
  • Abiding by fair and ethical business practices with suppliers.
  • Supporting the communities in which each company works through sustainable business practices.
  • Committing to transparency and long-term value for shareholders.

“The American dream is alive but fraying,” Jamie Dimon, chairman, and CEO of J.P. Morgan Chase and chairman of Business Roundtable said. “Major employers are investing in their workers and communities because they know it is the only way to be successful over the long term. These modernized principles reflect the business community’s unwavering commitment to continue to push for an economy that serves all Americans.”

Readers, how important is a company’s social responsibility to you when you’re choosing where to shop and invest?

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Stash App: Investment App Review

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Stash App Investment App Review

As a Mint user, I periodically receives offers to try out a variety of different financial services. Usually I just skip them. However, when I saw the deal to get $10 to try the Stash app, I figured it was worth a second glance. The terms seemed simple: start using the app with an investment as little as $5 and then they’d give me an additional $10 to invest. That seems fairly low risk to try something new, so I gave it a go.

What is Stash App?

Stash is an investment app. It allows you to invest in stocks and EFTs. You don’t have to invest in full stocks. Instead, you can invest in partial stocks in a system called fractional share investing. Basically, a larger company buys the full stock then divvies it up and people like me are able to invest as little as $5 for a partial share of the stock.

What to Know About Fractional Share Investing

I wanted to make sure that I knew what I was doing before I went any other further, so I did some research into fractional share investing.

Doing my research, I quickly learned that it’s extra important to pay attention to fees. This is always important when investing, of course. However, it is particularly important with fractional share investing. That’s because if the fee is a flat rate per trade then it can amount to a really large percentage of your investment. A $1 fee isn’t a big deal if you’re investing $1000 but it’s a big percentage of your $5 investment.

You can buy stocks that are doing really well and have high share value. In regular investing, those shares can get very expensive. You might not even be able to buy one share. However, with frational share investing, you’re allowed to just buy a “fraction” that you can afford.

As a newbie investor, I like this idea. It seems like a good way to start learning about popular stocks. Plus, you can easily invest in multiple stocks and EFTs without spending a lot of money.

A Little Bit About Stash

Before heading to the Stash website, I did some research into what others are saying about this investment app. Most people seem to have positive things to say. Here are the key things people report liking about the site:

  • Accounts start at just $1 per month.
  • Investments start at just $5.
  • You’re allowed unlimited trades.
  • You get access to advice from an online coach.

Moreover, people have frequently mentioned that they like the Stash app because it makes it easy to invest in themes that you want to support. For example, I ultimately chose to invest in green companies and women-led businesses.

Spend $5 to Get $10: Using Stash App

All of that seemed really legitimate. It was at least worth giving a try. So I clicked the “get my $10” promo offer that I’d received from Mint. That took me to the Stash app website. I set up an account (which was super simple, just name and password to get started).

Setting Up A Stash App Account

It took me to a page to start entering more info. Before beginning, I saw a happy little star character telling me “I’m Stash Coach.” Apparently you do certain tasks then you get rewarded with stars. While I think that this kind of gamification is a little bit silly, it’s popular across all different types of websites, today, so I wasn’t surprised to see it, and I’m sure some people like it. I appreciate the message behind it which is that I’ll get investing tips and website help along the way. From there I entered:

  • First and last name
  • Birthdate
  • Citizenship status
  • Level of investing experience
  • Conservative, moderate, or aggressive risk preference
  • Time frame for when I’d like to use my investment money
  • Tax filing status
  • Income range
  • Employment status
  • Marital status
  • If I have a retirement account
  • If I have children
  • Do I rent or own my home
  • Approximate net worth
  • Phone number
  • Address
  • Social security number

That all took about ten minutes.

Choosing a Stash App Investment Plan

Then I learned that there are three plans to choose from:

  • $1/month beginner plan, which is the basic personal investment account, with debit account access, financial education tools on the site, and the opportunity to get “stock back” rewards when you use that Stash debit card.
  • $3/month growth plan, which adds a retirement account to the beginner plan
  • $9/month Stash+, which adds investment accounts for two kids, a metal debit card with additional Stash Back rewards, and a monthly market insights report.

I went with the $1 plan. You easily link your bank account to Stash so that you can fund your stash account.

Editing My Plan Details

Stash sets things up to make saving and investing really simple for you. Based on the questions answered previously, it gives you a plan. However, you can edit that plan.

For example, it suggested that my automatic savings account plan should be “set aside $10 every week for my Personal Brokerage account.” It tells me that I’ll have saved $520 per year if I do that. However, I didn’t want to do that right now.

You can easily edit the dollar amount and choose to invest that amount every week, every other week, every month, or just one time. Once I agree to my plan, the money starts to move. Note that you don’t have to create a savings plan at all.

Build a Portfolio

Finally, it’s time to start building the investing portfolio. Like with the suggested savings, Stash provides a recommended portfolio. Then you can easily add and remove investments. Stash clearly explains how each change likely affects the portfolio. Once you’ve built the porfolio you want, you can invest.

They recommend that you start with $20 or more. However, I wanted to see if it was true that I could invest with as little as $5. So I started with that. Indeed, it worked. The Stash App quickly recommended a set of 6 different EFT categories:

  • $0.10 to “Small and Mighty” companies which are a set of little businesses poised to grow
  • $.25 to “Up and Coming” which are emerging markets
  • $.30 to “Happy Medium” – “medium-sized U.S. companies, generally worth under $10 billion” with room for growth
  • $1.10 to “Foreign Heavyweights” outside of the US and Canada
  • $1.47 to “an all-in-one fund for bonds … issued in US dollars from around the world.”
  • $1.76 to “Match the Market” which “tracks the S&P 500—a grouping of America’s largest companies.”

You can click on each one to see detailed information about the EFTs performance including inception date, last price, dividend yield, YTD change and, of course, exactly which holdings are in that investment.

It is easy to edit each one, changing the amount of investment or deleting it altogether. You can also add other investments. As you do, the green-to-red slider at the top tells you how those choices have changed how balanced your investment is. For example, I added “clean and green” investmensts and the slider indicated that I was taking more risk with my money.

It’s important to realize that if you add investments, the amount you’re investing goes up. You have to edit the amount of each investment accordingly. However, it’s clearly indicated how much you’re investing in each item and what the total is. You have to agree to the final total before you make a payment. It’s all really simple.

Once I set up my portfolio, I could easily view it. And immediately, I saw that there was a $10 payment pending. I set up an account, invested $5, paid $1 for a month for the account, and they really did give me another $10 to invest. That seems like a win-win. I’m happy that I gave it a try.

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Which of the Latest IPOs Are Best For Your Portfolio?

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IPOs have been making headlines throughout the first half of 2019. Lyft, Pinterest, and Uber are all huge names that have gone public this year. Many other large companies are working toward doing the same. But not every IPO is a great bet. For example, Lyft truly didn’t live up to the hype when it launched. So you want to be cautious. If you want to know which IPOs deserve your attention, here are a few worth exploring.

Okta

Okta is a Software-as-a-Service (SaaS) company that helps businesses keep their cloud-based data secure. While Okta’s IPO date was in 2017, there is still a ton of potential for growth hear. Its customer base has climbed steadily each year. This includes in the $100k+ customer segment. Plus, Okta tends to become ingrained in its customer’s landscape. Which makes them less likely to make a switch once they hop on board.

Roku

Another company with an IPO date in 2017 that you shouldn’t ignore today is Roku. The Roku platform is an incredibly popular method for streaming to televisions and is increasingly being sold as a built-in system in TVs. Roku is steadily adding customer accounts and nearly 8.9 billion of hours were streamed through them in Q1 2019 alone.

Plus, Roku has a range of income streams, including cuts from streaming giants like Netflix, and popular rental and purchase platforms, such as Amazon. The new Disney streaming service is also going to be stream-able through Roku devices. These collaborations have created another connection to the entertainment giant. Roku even gets a cut of the ad revenue from YouTube videos people watch through the platform.

MongoDB

Since data is king for many companies, businesses that help them manage it are primed to make waves in the market. MongoDB. They had their IPO date in 2017. The company is a market leader in the data management space. Plus, MongoDB Atlas – a fully managed cloud-based database solution – has experience rapid growth (over 300 percent per year). This database solution will likely still be popular for the foreseeable future.

PagerDuty

With an IPO date earlier in 2019. PagerDuty began as a solution that helps ensure only the right IT personnel at a company ae “paged” when an issue arises that needs to be addressed. Over time, additional service options were added. With these developments, PagerDuty is gaining popularity. This is especially true for companies who are open to spending $100k+ to secure their services.

CrowdStrike Holdings

Another tech option is CrowdStrike. Before its June 12 IPO, the company was highly known in the cybersecurity space, partially for being the company that investigated the 2016 Democratic National Convention service hack. The company uses a variety of cutting-edge technologies. It’s share prices have been strong. With cybersecurity being a top concern for many, CrowdStrike is well-positioned to thrive.

IPOs Can Be Very Volatile

It’s important to note that IPOs can be particularly volatile, especially early on. Plus, just because a name is recognizable doesn’t mean it will garner success. Lyft and Pinterest have both taken dramatic tumbles even though nearly everyone is aware of them. So you can’t rely on name-recognition when cultivating your portfolio. Instead, consider your risk tolerance and only invest if you are comfortable.

Do you have your eye on any recent IPOs? Tell us about it in the comments below.

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