Friday, October 31, 2014

How to Win at Investing

Below are links to short clips of a fantastic documentary called "How to Win the Losers Game." The documentary, produced by Sensible Investing, basically tells you the nasty truths about investing, but also tells you the very best way to go about investing.  Much of the documentary is focused on the United Kingdom, but most of the data and statistics hold true here in the United States as well the rest of the world.  

Regardless of where you live and invest, regardless of your age, EVERYONE should watch these video clips.  
In a nutshell, the lowest cost investment strategy will always beat a more expensive strategy.  So, you should index everything and ignore the so-called "experts" that chatter endlessly about the ups and downs of the markets, and always stay the course.  

Part 1  (6:02)
Part 2  (7:38)
Part 3 (10:41)
Part 4 (12:08)
Part 5  (8:37)
Part 6 (13:16)
Part 7  (8:14)
Part 8  (9:49)
Part 9  (8:55)
Part 10 (10.01)

If you are on Twitter, @InvestSensibly is well worth following.  (I'm on Twitter too @relmbo). 

Monday, October 20, 2014

The Self-Employed Should Open a Solo 401(k)

I ran some calculations on a self-employed retirement calculator, and as the chart below clearly shows, the Solo 401(k) is a superior retirement plan for the self-employed regardless of income level.  The Solo 401(k) allows self-employed individuals to put more money into a tax-advantaged account while reducing taxable income better than any other retirement vehicle.  

The one advantage the SEP IRA has, is that it can be opened AFTER the tax year has ended.  A SEP IRA can be created as late as April 15th (or as late as October 15th if you extend your tax return) for the previous tax year.  Thus, while the Solo 401(k) is the best way to go, you must open the 401(k) account before the end of your tax year (December 31st). 

Being self-employed means you are both the employee and employer when it comes to retirement plans.  You must create the solo 401(k) account before December 31st and make the employee contribution also before December 31st.  However, the employer contribution can be made as late as April 15th the following year (or October 15th if you extend your tax return).

Self-employed individuals can contribute up to 100% of their compensation to a maximum of $17,500 (plus an additional $5,500 if aged 50+) for their employee portion and up to 25% of net income for the employer contribution up to $34,500 for a grand total combined maximum contribution of $52,000 for 2014 ($57,500 if aged 50+).