- You have gotten out of credit card debt (or will, ASAP), and plan to buy your next car for cash – even if that means it has to have been “previously owned.”
- You are contributing the max to your employer’s 401K, at least up to the amount, if any, your employer matches with contributions of his own. (But you are NOT putting more than 20%, max, into your employer’s stock, and probably not even that much, unless he gives you a special incentive to do so.)
- Unless your adjusted gross income is too high to qualify ($95,000 filing singly, $150,000 filing jointly), you and your spouse or significant other have each opened Roth IRAs at Vanguard or some such place and will each be putting $3,000 into it this year as soon as you can. (If you’re over 50, you can each do $3,500.) You plan to add the max to it each year, and know that your retirement fund will not only grow tax-free, the withdrawals will all be tax-free. And with more flexibility and less paperwork than with a traditional IRA, to boot.
- If you have kids, you have set up Section 529 accounts for them, very possibly with the Utah or Missouri plans – which does not mean your kids will have to go to Brigham Young or Missouri State. Click here to choose a plan. Note that the money you invest will not only grow tax-free, it will all be withdrawn tax-free to pay for college or graduate school.
- Your stock market money – which must only be money you are setting aside for the long run, not money you would need if the transmission fell out of your car – should be invested periodically via index funds.
- If the market falls – good! You would keep making those periodic investments, adding new shares to your pile “on sale.”
- Maybe you’d play with a little on the side, through a deep discount broker – perhaps a $25,000 portfolio of five $5,000 speculations alongside $200,000 in index funds – both to keep you from going nuts with boredom and, more to the point, in order to generate a little tax twist. Namely, writing off the losers to lower your ordinary income tax, while riding that one big winner, if you’re lucky enough to have one, for a tax-deferred and ultimately lightly-taxed long-term gain. (Better still, if you’d be giving money to charity anyway, use that winner, once it goes long-term, to fund an account at the Vanguard Charitable Endowment Program if you can meet its $25,000 minimum, or at the Fidelity Gift Fund, if you cannot.)
- For bonds, forget mutual funds (and forget corporate bonds). Use Treasury Direct. And for tax-free bonds, consider a new service I haven’t tried, but plan to: munidirect.com.
See? That wasn’t hard. Now back to the other stuff. (Tomorrow: Exxon’s response.)
Quote of the Day
Every gun that is fired, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. The world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.~Dwight D. Eisenhower, 1953
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