Is a Self-Directed 401(k) Right for You?

Contributing regularly to a 401(k) plan is the foundation of retirement savings for many people. You determine the percentage of each paycheck you want to contribute, and you either select a target-date fund based on your expected year of retirement or pick from a relatively limited selection of mutual funds.

But what if you had more control? Suppose you’re a do-it-yourselfer in other areas of your investment plan. In that case, the limited options in a 401(k) can be very constraining – especially when it is often your most significant investment pool. If you prefer to have someone else manage your investments, you may be able to find an advisor that will make recommendations inside your plan, but again, they will be limited.

If you have multiple plans from different employers or a concentrated stock position, it can be difficult to line your 401(k) investing up with your risk tolerance and overall financial picture.

There is another option for investors whose employers offer the ability to self-direct your 401(k).

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It’s Not About Inflation, It’s About Volatility

Inflation is driving the headlines and wreaking havoc on budgets. But for long-term investors – mostly everyone – short-term inflation isn’t the biggest risk to financial plans. Volatility is. It’s being fueled by the Federal Reserve’s efforts to balance bringing down inflation with keeping the economy out of recession.

The Fed is raising the key short-term interest rate to slow economic growth. This makes money more expensive, which you know first-hand if you have a credit card account or you’ve tried to buy a home or refinance an existing mortgage.

The reason this is generating volatility is that markets hate uncertainty. Markets are forward-looking and attempt to price into stocks and bonds today, things that will likely happen in the future. The issue is that the Federal Reserve can’t tell the markets in advance exactly how much and when they will raise interest rates because it’s a delicate task depending on a lot of ever-changing economic data. And let’s be honest, probably some guesswork.

Fed Chairman Powell, and the Fed governors, have been examples of message discipline. They’ve been doing everything they can to reassure markets. But while markets may be rational, investors aren’t.

So, as an investor, how do you cope with volatility? We have some pointers.

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GMB #134: Crowdfunding Opportunities in Real Estate With Craig Cecilio

Historically, if you wanted to purchase a private investment, you had to qualify under the SEC’s standards as an accredited investor. After 2012, certain regulatory modifications made private investments accessible to non-accredited investors. This week our guest is Craig Cecilio – CEO and cofounder of DiversyFund Inc. DiversyFund is a crowdfunding platform that enables everyday investors to generate wealth by democratizing alternative asset investment.

Show Notes

[03:36] Background – Craig explains what caused the regulatory changes that opened up private investments to non-accredited investors.

[11:37] More Opportunities – Craig shares his thoughts on why opening up investments makes the most sense.

[15:16] Craig’s Story – Craig describes how his real estate investing background led to the founding of DiversyFund, Inc.

[27:28] Best Practices – Craig shares some important considerations when it comes holding or selling properties.

[29:18] Communication Cycle – Craig describes what it’s like to report to 30,000 investors and how he considers their needs when making decisions.

[35:29] Communication Transparency – Craig stresses the significance of transparent communication.

[39:26] Process – Craig outlines the steps required to acquire his company’s services.

[43:43] New Strategies – In addition to expanding geographically within the multifamily industry, Craig reveals his plans to offer new and alternative strategies.

[46:19] Lifecycle of Funds – Craig shares when it makes sense to collect money from investors in relation to the lifecycle of the funds.

[48:32] Challenges – Craig discusses the most challenging aspects of business expansion.

Resources

GMB #133: Retirement Income Planning in 2022

Managing income after retirement is one of the most important things a retiree needs to plan to make the best of their savings, and with the rising interest rates and stock market volatility, there are many factors that need to be considered. This week on Grow Money Business, Grant dives into several key aspects of retirement income planning, including how to minimize tax impact, prioritizing different sources of income, planning for social security benefits, making strategic tax decisions, and more.

Show Notes

[02:36] Recent Developments – Grant shares his thoughts on some of the recent changes in the economy and policies that affect the way people should approach retirement planning.

[05:24] 401k Plans – How to maximize tax benefits while utilizing a 401k.

[11:33] Expenses After Retirement – Grant explains how to best manage your after-retirement expenses

[16:11] IRAs & Tax – Grant explains the tax differences between traditional and Roth IRAs and what retirees should keep in mind when taking money from these accounts.

[21:00] Strategic Tax Decisions – Grant shares a strategic move that allows retirees to minimize the tax impact on their retirement accounts while taking advantage of the gap years between the age of 65 and 72.

[29:17] Deferring Tax – How to decide whether it is beneficial to defer tax based on life expectancy

[32:46] Medicare Premiums – How to plan for minimizing Medicare premiums after retirement.

[39:06] Social Security – Grant shares his take on maximizing the social security benefits after retirement.

Resources

Financial Fitness – Mid-Year 2022 Check-In

Summer will officially be here soon, but before kids get out of school and all the vacation planning you did begins to come to fruition, it can be a good idea to take stock of your financial picture and make updates where necessary. Below are a few things you should consider to keep your plan in shape. We’ve organized them by life stage, from having small kids to being closer to retirement. We’ve also included charitable giving, as that happens at every stage.

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GMB #132: From Tech Founder to Venture Capital & Real Estate Investor with Zain Jaffer

The world of real estate is full of opportunities for investors who strive to build wealth using innovative strategies. This week on Grow Money Business, we have a fascinating conversation with Zain Jaffer. Zain is a tech entrepreneur, a real estate investor, and the founder of Vungle, which was sold to Blackstone for $780 million in an all-cash transaction in 2019. Today, he invests in real estate and real estate technology businesses through both venture capital and private equity funds.

Show Notes

[02:15] Zain’s experience – Zain describes what he finds so appealing about real estate investing.

[09:58] Investment Opportunities – Zain shares what he looks for in new investment opportunities and how he assesses whether or not they are a suitable fit.

[16:54] Institutional Impacts on Real Estate – Zain and Grant discuss the argument that institutional interest in residential real estate is making it more challenging for individuals to purchase their own homes.

[22:15] PropTech Startups – Zain describes his future career goals and plans to continue investing in PropTech startups.

[26:33] More on Real Estate Investing – Zain shares some common themes he hears presented from startups seeking investments.

[34:09] Zain’s Journey – Zain outlines his professional journey, starting with the founding of Vungle, to his eventual $780 million exit.

[41:05] Cryptocurrency – Zain shares his thoughts on cryptocurrency.

Resources

A Charitable Strategy for Tax-Efficiency: Qualified Charitable Distributions

If supporting charities meaningful to you is part of your long-term financial plan, creating a strategy around your giving can help you maximize the gifts you give. It can also be tax-efficient across several dimensions of your overall plan.

A qualified charitable distribution (QCD) is a distribution from your IRA account that you are eligible for beginning at age 70 ½. But because it goes directly to the charity of your choice, it doesn’t count as taxable income to you. It can keep your income at a lower level and help you avoid taxes on social security and premium surcharges on Medicare. In addition, the IRS will allow the QCD to count as a required minimum distribution (RMD) from your account.There are rules to follow and limits to be aware of but being thoughtful about including qualified charitable distributions in your financial plan can help you achieve multiple goals.

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GMB #130: Innovation in Stock Market Structure: A 40 Year History Lesson With Kenny Polcari

With the widespread adoption of retail investing and the usage of handheld devices, investing and stock trading have become easier than ever. However, in the 1980s, it used to be an entirely different story. This week on Grow Money Business, we bring you an informative and entertaining conversation with a stock trading veteran who has been in the industry during many of the defining moments of the financial markets over the last four decades. Kenny Polcari, Managing Partner Kace Capital Advisors, joins us today to dive deep into how the stock market structure has evolved over the last few decades.

Show Notes

[02:54] Getting to Know Kenny – We start the conversation with Kenny’s long career in the financial sector and discuss what the New York Stock Exchange was like when Kenny began his career in the 80s.

[08:16] Building a Career – Kenny reflects on a couple of stories from the early years of his career and how he progressed through the industry.

[15:23] Stock Trading in the 80s – Kenny talks about the way stock markets worked in the 80s and why that environment was exciting.

[22:50] Members of Stock Exchange – Kenny explains the role of a member of the New York Stock exchange.

[27:17] Technology – Kenny discusses early applications of computer-based analytics for financial markets and how relying too much on technology led to a meltdown in the financial markets across the globe.

[42:19] The Tech Boom – Kenny shares his thoughts on how the massive expansion of technology that took place in the 90s shaped the financial markets.

[48:36] The Evolution – How the stock markets and the technologies used for stock trading has evolved over the last few decades.

[54:06] Impact of 9/11 – Kenny reflects on how the September 11th attacks destroyed the infrastructure of the New York Stock Exchange and the process of recovering from that destruction.

[1:00:55] Modern Stock Trading – How the modern stock trading systems make use of the latest technology available in order to make stock trading more reliable and immune to threats.

Resources

GMB Ep #129: No, Index Investing Isn’t Bad For The Markets

With recent developments in the financial markets, we’re seeing quite a bit of people who are concerned about index investing and the effects it may have on the economy. We dedicated today’s episode of Grow Money Business to addressing some of these concerns. Throughout the episode, Grant shares his thoughts on four of the biggest arguments against index investing and some studies that question the legitimacy of each.

Show Notes

[03:18] Recent Developments – How the recent developments in the financial markets reignited the discussion against index funds.

[06:15] Competition – One of the major arguments against index investing is that it reduces competition within an industry. Grant shares his thoughts on why this notion is not valid.

[13:11] Corporate Governance Standards – Grant explains how index funds allocate their resources in a way that’s beneficial to shareholders and why index investing won’t create corporate governance issues.

[16:46] Price Discovery – Grant breaks down how the price discovery mechanism works and why index investing is unlikely to hurt price discovery.

[28:20] Income Inequality – Grant shares his take on the argument that index investing exacerbates income inequality.

Resources

Are Fed Actions Working? Parsing the New Data

After April’s downturn, the first two weeks of May have not seen substantial improvement. By Thursday, May 12, markets were dangerously close to bear territory. The Fed enacted a 50-basis point increase in the Fed funds rate at the May FOMC meeting, and we also now have April’s key data. In addition, Fed Chairman Powell sat for an interview in which he discussed his definition of a “soft landing” and what it will take to get there.

Our three main points are the labor markets, interest rate hikes, and economic growth as measured by GDP. Let’s dive in.

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