Finance 101

This is the home page of the Tines Capital money course. It is an easy step by step way to get your finances in good shape. This page is still being built out and will have more information added overtime. If you have any questions don’t hesitate to use our contact page. When you find things to be too complicated seek out a fee-only fiduciary like Tines Capital or see a list of other fee-only advisers here.

1. It can be better!

Money can be a very sensitive and scary topic for people, but it doesn’t have to stay that way. Though money is very important, it isn’t the meaning of life. It isn’t even that complicated once you know some lingo. Whether you think you have been good or bad with money that is okay! All we can do is move forward. Getting money under control can make life easier and enable you to help others in ways you just can’t without it.

We must always keep in mind that there are only three things we can do with money. To have a good relationship with money we are going to need to do a healthy mix of all three.

  1. Spend it on Ourselves.
  2. Save/Invest it.
  3. Spend it on Others.

2. Spend less than you make!

As the heading says, you must learn to spend less than you make. I usually just give guidelines, but this one is a rule. If overtime you continually spend more than you make, you will have problems. You must work towards spending less than you make.

Imagine you are in a small boat and ready to head to shore, but the boat has many leaks in the bottom. Before your imagination gets too far away from you, its on a pond not the ocean. No need to scare yourself. On the edge of the pond you have friends, family, church members, and others that care about you and can come to help you if you really get in trouble. Your life is NOT in danger, but your boat is going to sink unless you do something and you want to get to shore.

The leaks in the boat are not all the same. There are many different sizes and most of the holes are man-made openings that are easily fixable due to the attached caps that just need to be screwed on. The other leaks in the boat are different. They are splintered and impossible for you to effectively stop by yourself out on the water. The unfixable leaks are pretty small in comparison. You also have a bucket in one hand and a paddle in the other. Finally, your boat is unique to you. Think of the analogy this way.:

  • The shore is when money becomes easier. It doesn’t mean you are rich. It just means that you are not living with the risk of sinking. You are consistently spending less than you make.
  • The paddle is your current income. You may not need to do much other than paddle to shore. Your income may be large enough to overcome the leaks in your boat.
  • The bucket is a second job or source of income. You may not even need it, but if the paddle is too small you may have to bail some water out along the way.
  • The fixable leaks are the things that cost us money, but can be reduced. Often this include nearly all expenses to some degree. Even necessities like housing, transportation, food, and clothing usually in this category. But don’t fool yourself into thinking your particular choice in each category is a necessity and can’t be modified. You need a way to get to work, but do you need that method?
  • The unfixable leaks can’t be solved immediately, but can overtime. You can’t sell your college degree to pay off student loans. You can’t undo a surgery to pay off medical debt. These things can’t be fixed immediately, but they can be over time. There is hope!

The right course of action will depend on you and the situation of your boat. The bottom line is that you must learn to spend less than you make. You must get to shore eventually one way or the other!

3. Take a Look at Your Situation

The first essential skill is learning how to evaluate where you are. To continue the analogy of the boat, we have to consider how big the boat is and how much water is already inside. It may be a lot of water or none at all. We won’t know until we look. This can be scary, but it will be okay! The steps are very simple. You can use this Excel Sheet (best for filling in on a computer) or PDF (best for printing) and follow the steps below.

  1. Add up the value of everything you own or all your assets. Think home, cash, investments, stocks, bonds, cars, boats, and anything else that you could sell for money.
  2. Add up every debt or liability. Think credit cards, student loans, mortgages, care loans, and any other thing that you owe.
  3. Subtract what you owe (liability) from what you own (asset) and voila you have calculated your net worth, financially speaking only of course.

Select a balance sheet template link then click download.

4. Make a Monthly Money Plan

The second essential skill is figuring out how much money you expect to earn and send out the door this month. Not next month or last month. This month is all we are worried about. Whether it is the 1st or last day of the month use this Excel Sheet (best for filling in on a computer) or this PDF (best for printing) and follow the steps below.

  1. Income: Simply add up all the money you expect to get over the course of this month. Include money you have already received and expect to receive.
  2. Required Minimum Debt Payments: Add up every debt payment you are required to pay in order to not be delinquent for the month. For example, if you have a credit card with a balance of say $2,000, you may have a required payment of $50 and a suggested payment of $250. Right now we are just adding up the required debt payments. So in this case you would use $50.
  3. Spending and Giving: Add up everything you expect to spend or give this month. Don’t include debt payments. Think hard there are probably more than you think – phone bill, water bill, trash, rent, entertainment, groceries, insurance, gas, gym, Netflix, coffee, groceries, donations. You get the idea.
  4. Investments: Add up everything you plan to make as a debt reduction payment, put towards an emergency fund, contribute to retirement, or deposit into an investment account.
  5. Goals: Add up everything you expect to set aside into a checking, savings, CD, or money market account for spending in the next few years. This would include goals like a nicer car, new home, vacation, charitable giving, paying for college, wedding etc.

Select a budget or money plan sheet template link then click download.

5. Make it Easy

If you did steps 3 and 4 above you may be thinking, “Does Charlie really expect me to do these things every month.” The good news is I don’t expect you to fill out those forms every month. That can be quite tedious and difficult to do accurately, but now that you have done these things you get the idea and I can show you how to do it the easy way. It may require some setup but in the long term will be well worth it.

Pay Yourself First.

Budgets can be notoriously hard to stick to for some people, which is why I advocate the pay yourself first method that can help force you to stay on track. There are other methods you can do but this one is what I find to work the best.

  1. Pick two checking accounts that you will use. They can be at the same bank or two separate banks, but they need to be separate accounts. If you have a tough time following your budget it can be helpful to have them at separate banks. I use Charles Schwab personally because they have loads of good features that make this all very easy and they sync really well with my budgeting software I use called Right Capital. You can use any bank account and budgeting software you want, but I would do a bit of trial and error and make sure that both of these accounts you select sync well with the budgeting software you select. For me Charles Schwab and Right Capital work together like a dream, but there are many other bank accounts that would work just as well.
  2. Set up your Main (Primary) Account which will be used for important and various other regular bills. Once you setup this account up you don’t need to carry around a debit card or any linked credit card. Ideally, this will become something you don’t have to check frequently. You should get to the point that you just know that you have money in there and your essential bills are covered automatically with no work each month on your part. Eventually you will want this account to have somewhere between 1-6 months of expenses sitting in it at all times.
    • Setup all your paychecks and income sources to deposit to this account.
    • Setup essential bills to be paid from this account automatically. This can be done with bill pay services, auto-draft services, or linked debit cards.
      • Rent/Mortgage
      • Car Payments
      • Water/Electric/Power/Sewage/Phone/Internet.
    • You can setup a credit card(s) bill to automatically be paid out of this account every month if that card is only used for some form of regular bill. For example, I have a discover card that I don’t use for anything other than paying for our phone bill. The card doesn’t have great points, and I already have other cards I prefer to use on a regular basis. So that card sits in a safe place and all it does is pay that bill automatically and that credit card is paid automatically out of this Main Bank Account. I do this setup with a couple other bills and credit cards linked to this account, but I do not carry those credit cards around or make other purchases on them.
    • No credit card that is automatically paid out of this account should be used for everyday purchases around town or online. You can keep one card linked to this account on hand for emergencies in the back of your wallet, but don’t use them for everyday use. If that is just too much temptation then leave it at home or you can even cut them up after you setup your regular bills. The credit cards are just there to maintain a decent credit score and as an extra layer of security and consumer protection, but if they are a hinderance for you they are not required.
    • Later we will set this bank account up to automatically make deposits into investments every month.
    • Keep an emergency fund in this account. Try to keep 1 month or more worth of expenses in this bank account at all times. You can go all the way up to to 6 months worth if you like the security. Beyond that you should look at investing your money.
  3. Set up your Discretionary (Secondary) Bank Account which will be used for variable expenses. If you need a second account Schwab is a great option. Again you will want to make sure whatever bank accounts you use for this part work well with the budgeting software you select.
    • Funding: Fund this account with an automatic transfer from your Main Account each month. In conjunction with your budget pick how much you want to spend on a regular basis on variable expenses then setup your Main account to automatically transfer. Since all your money is going to your main account you have essentially paid yourself first. Now you can decide how much you want to allow yourself to spend.
    • Get serious: If you are having trouble sticking to your budget try removing all linked credit cards from this account and using debit cards only. If there isn’t money in the account then you can’t buy it. Also, set it up so that the account does not have overdraft protection. Meaning if you don’t have money in the account your debit card gets declined.
  4. Credit Cards: If you aren’t paying your credit card balances in full every month already, then I would suggest sticking with debit cards only until you can pay the credit cards off every month in full without any problem. I don’t want you to risk putting yourself in more credit card debt. So if that is you, ignore the references to credit cards in this section and just use debit cards. Any credit card you use for everyday spending should be linked to your Discretionary Bank Account and be paid of in full every month automatically or more frequently. Think of this credit card(s) as a debit card. In other words, when you swipe it the money that is sitting in this bank account isn’t there anymore. If it helps, you can download your credit card issuers app and regularly go in and make payments nearly everyday or week for next extra cost. If you get the habit of thinking of them as a debit card, pay them off in full, still save for your other goals, and use a no more than 30% of your available credit limit then I think you are fine to use credit cards if you wish. It can be nice to have a decent credit score.
  5. Alternate Bank Options: There are many banking options out there. Here are a couple that enable you in some way to do digital envelopes though they don’t all connect to Right Capital.
    1. OneFinance is probably the best solution for digital envelopes and budgeting. Their “pockets” feature makes it much easier to stick to a budget. Unfortunately, they do not sync well with Right Capital at this time.
    2. SoFi is also a great choice for digital envelopes, and has a lot of other features. Most other features are really good too.
    3. Ally is a great choice too. However, they only let you have up to 10 envelopes or “buckets” and they are only available with their savings account. The checking account does not have this feature.

pick a budget software to use

You may have found it challenging and time consuming to make a money plan (budget) and calculate your net worth in the previous steps. It doesn’t have to be hard. If you setup your accounts in the pay yourself first method you somewhat force yourself to follow a budget automatically. However, it is still good to track all your expenses and plan ahead. Fortunately, you can automate the majority of this, then just review briefly each month. There are many different software options. None of them are perfect for everyone. The only way to find out is to try one. Just make sure that your Main Bank Account, Discretionary Bank Account, and everyday credit cards sync well with whatever software you choose.

I use RightCapital.com to do my budget every month and will use it as my example. Tines Capital makes RightCapital.com available to all of its clients and certain non-clients that we work with gratis. You can get started with Right Capital by using the button and video below.

If Right Capital doesn’t suit you mint.com is another good option.

6. Get Debt to a Healthy Level

Having debt isn’t a moral failing, but it is a leak in your boat. After you get a minimum of 1 month of expenses in your primary bank account let’s check in on your debt and see if we should pay some off faster than planned. Here are some okay and bad ways to use debt.

Okay Ways

  • Buy a home on a fixed rate with a payment of 25% or less of your take home pay.
  • Get training or a degree that can pay for itself. However, usually there are ways to reduce the debt incurred by doing some classes at community college or working part time. Don’t use this as an excuse to rack up loads of loans for a degree you can’t use to effectively pay them off.
  • Using credit cards is okay if you pay them off each month in full. Just know that you will likely be spending more than if you use cash, because the card makes it much easier to spend.

Bad Ways

  • Car, boat, and truck loans. Even though you may be able to get a 2% rate, cars and things with motors in them tend to lose roughly 70% of their value in the first four years. When you buy with a loan you almost always will buy a more expensive car than you would otherwise. So buy what you can afford with cash. There are rare circumstances when it is okay to use debt to buy a car, but it is usually not ideal. I would not buy a used car unless you have a million dollar net worth or more.
  • Large student loans for a small income potential. It is fine to have a small income, but don’t get in over your head with large loans.
  • Anything with a variable rate.
  • Anything with a rate over 5% should definitely be paid off sooner rather than later.
  • Carrying a balance on credit cards from month to month!

How to Reduce Debt

There is a lot of debate on whether you should do the debt snow ball or the avalanche method for paying off debt. The good news is that 90% of the time they tell you to pay off debt in the same order. I recommend the avalanche method since it is mathematically the best, if you stay focused!

  1. List all your debts in order from largest interest rate to smallest.
  2. Make minimum payments on each debt.
  3. Put all the money you can muster towards paying off the highest interest rate debt, then work down the list.
  4. Once your only remaining debt is on appreciating assets, you may wish to start investing before paying everything off. This will take some analysis, but if any loan has a rate of 5% or more I would almost always continue paying debt off before investing.

Select a debt avalanche template link then click download.

Credit Scores

While some advisors recommend cutting up your credit cards and doing away with your credit score, I think it nice to have a credit score. However, this doesn’t mean you ever have to pay interest. Just get a few credit cards and use them for some small purchases. For example, I subscribe to Netflix and have a credit card set up to automatically pay for Netflix every month. I have that same credit card set up to pay itself off each month by withdrawing money from my checking account. I don’t even have that particular card at home. Its locked away in a lockbox in a bank. If you do something like that with just three credit cards you can typically have a really good credit score without much work. Just make sure you pay your cards off in full every month and don’t overspend with them. With just two credit cards you can have a really good score.

If you find credit cards too tempting and you tend to overspend then I recommend you try putting them all away in a lockbox or put them in a bag full of water and freeze them. I would recommend that you set up some small transactions with each card to keep them active so they don’t get closed and damage your credit score. Try to never use more than 30% of your available credit limit on your cards. If you use less your score will be better.

7. Top Up your emergency fund

After getting your debt to a healthy level, it is a good idea to build up 3-6 months of expenses in your emergency fund. I just keep this in my primary bank account. You can pick between 3-6 months. When you get really comfortable with money and have plenty to spare you can consider having these funds invested, but I wouldn’t do that at first.

8. What type of insurance do you need

Though many types of insurance are extremely important, you must never expect to make money with insurance or have that as your goal. The average insurance policy will cause you to pay more in premiums than you receive in benefit. That is okay! That is how it is supposed to work, but it is important to remember it isn’t a way to make money effectively.

Insurance is simply a way to offload risk for a cost. For example, you walk into the Apple store and buy a brand new phone. I just browsed the website and found a phone for $749. If I want to add their warrantee service, AppleCare, I can do that for by paying an extra 20% or $149. All that is happening here is I am offloading some of my risk, but for a pretty hefty cost. I am paying $149 in order to reduce the chances I have to pay $749 later to replace my phone. While some users will be happy they purchased the insurance, the average person will get nothing in return for the $149. It is estimated that Apple had revenue of about $7,000,000,000 in 2019 on AppleCare and similar services. Trust me they have done the math and are not going to sell the service if they lose on it most of the time.

Whether you are talking about car, life, home, renters, health, disability, or long term care insurance they all have the same fundamental premise – pay a smaller fee now to be covered in case you have a big cost you can’t afford later. It is very important to have insurance to protect your assets. One way to reduce your cost in insurance is to increase your deductible. This helps keep you protected from the catastrophic without costing you an arm and a leg.

When you shop insurance always use a service that shops multiple insurers. In other words, you need to price check. Here is a quick breakdown on the various types of insurance.

  • Auto: Make sure that you have state required levels at a minimum. Also, if you can’t afford to replace your car if it is lost, stolen, or damaged you may want to include comprehensive and collision. Consider shopping around. If you are willing to raise your deductible you won’t have to pay such a high premium.
  • Home/Renters: Definitely have one of these policies to protect you from lawsuits and catastrophic events at your home.
  • Disability Insurance: If you get hurt and can’t work it can sometimes be catastrophic for your income. If you are relatively young you are more likely to get hurt and not be able to work than you are to die. To keep costs in check, consider a policy that won’t start paying you for until you haven’t been able to work for a while. This can greatly reduce the costs since most of the time when you get hurt the recovery is temporary. If you have no savings and would be in big trouble if you lost your income, you may want to pay more and have a policy that starts pretty quickly after any injury or sickness.
  • Life Insurance: Buy term insurance only! This will pay your loved ones money if you pass away. If you have enough assets for your loved ones to use in the case of your death, you may not need it. You should virtually never buy universal life, whole life, or any other type of insurance that is pitched to you as an investment. If you think anything other than term life insurance makes sense for you, be sure to talk with a fee-only fiduciary like Tines Capital first. You can find a list of other fee-only fiduciaries like Tines Capital here. Fee-only fiduciaries don’t get commissions based on what products they recommend to you, so there tends to be less of a push for things you don’t need.
  • Long-Term Care: This is a type of insurance that is good to look for if you are in your 50s or older and don’t have a lot of assets to live on in retirement.
  • Annuities: These are not really the same as any of the above. This is a type of insurance policy where you will give an insurance company a lump sum of money and they will in exchange give you regular payments over a certain number of years. Typically annuities are a bad choice even though commission motivated agents love to sell them. Again, be sure to talk with a fee-only fiduciary like Tines Capital before getting such a policy. You can find a list of other fee-only fiduciaries like Tines Capital here.

Policy Genius is a great place to price check and get quotes for all kinds of insurance.

9. How to invest

We have arrived at one of the most exciting parts. This section will show how I recommend you invest, if you are doing it on your own or getting help from an average professional. If you ever solicit Tines Capital to manage investments for you, we won’t entirely practice what we preach here. There will be a little “do as I say and not as I do.” When we manage funds for people we sometimes do it almost exactly how I will describe below, but other times we do many of the things I suggest you don’t do below. It may sound hypocritical, but I believe there is nuance to the topic that is beyond the interest or ability of average and professional investors. With that disclaimer out of the way the following will teach you how to invest in a wise and easy to do fashion that you can likely do yourself if you want.

Inflation

Overtime cash goes down in value. We all know that a Coke used to be just $0.05. Now it tends to range from $1 to $2.5. This is because money loses its purchasing power over time due to inflation. This isn’t true every day or year, but in the long term cash becomes worth less. When you see a home appreciate in value from say $100,000 to $200,000 often a decent portion of that increase is typically due to inflation.

Stocks

If you buy a stock you become a part owner of the business. Because you are an owner you have the right to vote on who runs the companies day to day business and if their are profits to be paid out you get your fair share. If you own one share of stock in Apple and Apple has 100 shares in existence you get 1/100th of all profits paid out.

These profits that get paid out are called dividends. Say Apple stock (AAPL) is selling for $100 a share and it has a dividend yield of 0.68%. That mean that if thing next year are similar to last year you can expect to earn around $0.68 next year in profit payouts per stock. Sometimes, the people you vote into power to run the business decide to may no dividend payments and instead they have all profits reinvested into the company for a while, if there are dividends. When they do this it makes the price of your stock go up generally, but you don’t get payouts. You can make money buying a stock at one price then selling for a higher price or by holding the stock and receiving dividend payments. That may not sound like a lot, but it adds up and it all happens automatically and doesn’t take any work on your part.

In the short term the price of a stock can fluctuate wildly up or down. In the long term if the business doesn’t do well, the stock won’t do well and vice versa. I do not recommend you try and buy individual stocks without a great deal of experience and knowledge.

Bonds

Bonds are a way in which you lend money to the US government, your state, your city, or to companies. You get to charge them an interest rate instead of paying one yourself. Let’s say that the City of Tulsa wants to build a new stadium. They may issue bonds which you or I can buy for $1,000 each. Let’s say the bond is a 5 year bond and has a coupon or interest rate of 2%. That means that each year for the five years, each bond you purchase will pay you $20. Then at the the end of the five years you will get your $1,000 back. There are lots of different types of bonds but they all have a similar concept.

A major benefit of most bonds is that you are a creditor. This means for example, that if you bought a bond from Apple and they went bankrupt, they would have to try and pay you back before they gave money to the owners of Apple stock. They would try to do this by selling anything valuable the company had. I don’t recommend the average investor tries to buy individual bonds.

REITs

“A real estate investment trust (REIT) is a company that owns, operates, or finances income-generating real estate.” Have you ever wanted to own rental property. Well it is really easy with REITs. You can by shares of a REIT like a stock and when you do you will become a part owner of many different real estate properties. Other people will manage them for you, collect rent, and pay you money. These tend to offer higher dividend payments but lower price appreciation compared to stocks. For example, many REITs right now have an average dividend of 3% a year. Once again, I don’t recommend buying individual REITs on your own.

Commodities: Gold, Silver, Oil, Wood, corn, soybeans

Commodities tend to not be great investment vehicles for the average investor. Typically when you see someone show you how great gold has done compared to stocks they are not including the affect of dividends which can be misleading. I’m not saying there is no place for gold or silver in your portfolio, but if you want it I would keep it small and wouldn’t bother with buying it directly.

Mutual Funds and ETFs

These are the best options for 99% of investors. Mutual funds and ETFs are very similar. For the most part they generally give you the same result, but mutual funds tend to be easier to set it and forget it. ETFs tend to require a bit more hands on order entry. Both of them pool your money together with the money of other investors and go out and buy hundreds or thousands of stocks and bonds for you. It is way easier and typically more affective than doing it yourself. You can find ETFs for commodities too if you really want exposure to them.

Active vs Passive

Active investing means you will try to buy into and out of things at the most opportune times or hire someone to do it for you. This is primarily what Tines Capital does for clients. However, you should know that in the ballpark of 90% of individuals and professionals make things worse by doing this. It is hard to believe but it is true. That is why it is typically a good idea to be a passive investor that buys mutual funds and ETFs that buy and hold everything. This will tend to keep costs and taxes lower. If you want to really dig into this topic I suggest The Little Book of Common Sense Investing. I would stay away from actively managed ETFs, mutual funds, and mutual funds that charge a sales-load. Funds like that may charge you 5% just to start then 1% or more a year. An index fund from someone like Vanguard can cost as little as 0.03% per year with not sales charge.

How much do I need to save for retirement

This will depend on your age, current savings, spending, and income. A general rule of thumb is that you should aim to save 15% of your income in one or more of the following accounts. However, the there are a great deal of additional details to this. If you only save 10% it may be a long time before you can retire if you are starting with zero in savings. Use the tools below to get an idea of when you can retire, for a more detailed analysis contact Tines Capital.

  • You can use the estimates below with this calculator to make your own estimate.
  • Your rate of return is impossilbe to know ahead of time. Below are common estimates.
CategoryEstimated Annual ReturnEstimated Standard Deviation
Preservation5.3%5%
Conservative6.4%7%
Balanced7.4%9%
Moderate8.0%10%
Growth8.6%12%
Aggressive9.2%13%
Most Aggressive9.5%15%
The standard deviation means that the average year is expected be that much higher or lower than the annual return. However, there will be extreme years that will be much better or much worse. For example, the most aggressive portfolio would have likely fallen around 50% in 2008. All these numbers are estimates not guarantees. Also, remember that if you are getting close to the time of retirement you may need to be less conservative. These estimates were pulled from Right Capital
What Type of Account should I use
  1. Workplace Retirement Plan: This includes TSP, 401(k), 403(b), Keogh, and others. If you employer offers a match, DO IT!!!! It is a raise you are turning down if you aren’t. For example, many employers may say that if you contribute 3% of your pay to your 401(k) they will contribute another 3% for you. If you do that you get a 3% raise. These accounts also offer a lot of liability protection and tax protection and are the easiest for most people since the money goes into savings before you take it home.
  2. SEP, Traditional, Roth, or Backdoor IRA: These accounts are great because they allow you to receive a lot of tax benefits and allow you to pick if you want to have them at Schwab, Vanguard, Fidelity, Interactive Brokers, etc. You can pick from a wider range of investment choices and advisors, like Tines Capital management. The main downside is they don’t have the same liability protection levels as workplace plans, and because you have to put money in after you cash your paycheck, people are less likely to be consistent. Some advantages are the ways in which these accounts can be used before retirement in limited cases. For example, if you contribute $6,000 to a Roth you can take that $6,000 out anytime without tax or penalty. Of course, if your $6,000 investment grew to $7,000 you can still only take out the original $6,000 without tax or penalty. The rest needs to stay in until you reach retirement age to avoid tax and penalty. Take note that you can have multiple IRAs but the IRS won’t treat them as different. For example, most people can contribute $6,000 a year to a Traditional or Roth IRA. You can have multiple Roths and Traditional IRAs but that contribution limit covers all of them combined. Meaning you can’t do $6000 to the Roth and another $6,000 to the Traditional IRA. Typically if you are within the income limits, I recommend doing a Roth type IRA instead of traditional. If you are over the limits, I typically recommend doing backdoor Roth contributions or a mix of backdoor and traditional. For 401(k)’s and other retirement plans with a Roth type options I also tend to find those to be ideal. If you really want to reduce taxes and try to retire earlier, a Roth income ladder is a fantastic choice in many cases.
  3. Taxable Investment Accounts: Workplace retirement plans and IRAs have great tax treatment, but there is a limit to how much many you can put into them. If you reach your limit a regular old taxable investment account is a great choice. You can open one at Schwab, Vanguard, Fidelity, or Interactive Brokers at any time and put money in with no contribution limits.

If you received $1,000 in compensation, had a consistent tax rate of 20%, and had 8% returns each year for 40 years you would have the following spendable balances.

TraditionalRothBackdoorTaxable,
with 0% turnover
Taxable,
with 100% turnover
 $        17,380 $        17,380 $        17,380 $        14,064 $          9,566
There were a lot of assumptions taken to generate this table. This table is simply to demonstrate the power of tax advantaged accounts. It doesn’t represent a likely scenario. For example, it assumed a constant tax rate and equal capital gains and income tax rates. If you expect your taxes to be higher in retirement Roth is generally better than Traditional. The calculations were made using this sheet. For a more detailed analysis please contact us. Turnover rate is how often things are sold in your portfolio realizing capital gains.

Diversify

If you buy mutual funds that are all stocks or all bonds you will likely endure some larger drops in value for your overall account than if you have a mix of both. People use the word diversification to refer to the idea that you should have a mix of lots of different stocks, bonds, or mix of both. It is good to be diversified. For example, during the peak fear of 2008 and the covid crash US government bonds performed well while stocks dropped dramatically. A good investor will have a bit of various things and one one thing goes up and the other goes down they may “rebalance” and sell some of what is up to buy what is down.

Click Here to Annual Return Chart: This chart is from portfoliovisualizer.com. See how various years like 2008 tend to not be as volatile (move a lot) when there is a mix of bonds and stocks. Bonds tend to be less volatile than stocks, but stocks tend to make more money in the longer term. The Vanguard S&P 500 is a basket of the largest 500 companies in the US.

Performance of various assets: This chart is from portfoliovisualizer.com. See how various assets have had both good and bad periods. Have a mix, or diversity, can make your experience better. Bonds tend to be less volatile than stocks, but stocks tend to make more money in the longer term. The Vanguard S&P 500 is a basket of the largest 500 companies in the US. You can use this link to graph other items.

What are some common things to buy?

It can be confusing to know what you should buy, but its actually pretty simple with what I recommend. Here is a handy table of what I would buy with some common options. If the exact option isn’t available you can use use something similar. In other words VTWSX is the Vanguard Total world Stock Market mutual fund. It buys shares of companies all around the world. So, you can look for funds that do the same, or do something like what I did with Schwab and get two funds, one for American companies and one for foreign companies. The investment time horizon is crucial. Be aware that your stock mutual funds will likely drop 50% or more at some point. Don’t try and time the swings. Instead only put money into stocks if you plan to not tough it for 10 years or longer. As you get closer to the time you need to use it, shift it to on an investment with a more appropriate time horizon.

Investment Time HorizonETFsVanguard SchwabFidelity
+10 Years (Stocks)VTVTWAXSWTSX 60%
SWISX 40%
FSKAX 60%
FTIHX 40%
5-10 Years (Bonds)BNDVBMFXSWAGXFTBFX
1-5 Years (Short Term Bonds)BSVVBISXSWSBXFSHBX
0-1 Years (Cash)Bank Acct.Bank Acct.Bank Acct.Bank Acct.
Target Date Funds

These are funds that typically have a year in the name. For example, the Vanguard 2045 fund would be designed for people that plan to retire in the year 2045. They are designed to slowly shift your funds to be more conservative as you approach the target day. These are great one stop shop funds if you want to save yourself some work.

Compare Funds

If you want to compare funds and see how they do or did wo of my favorite free tools are linked below.

Be consistent!!!!!!

You do not want to be buying an and out of things frequently on your own. When things seem crazy just let it ride. Get in the habit of regularly contributing money to your investments. Expect to see your account drop. No matter how bad things seem just let it ride. Think of it this way with stocks. Would you want to be the owner of Amazon.com and thousands of other famous companies? If you would then don’t sell, just buy more mutual funds and ETFs when the markets are in panic. WWI, the Great Depression, WWII, Vietnam, Cold-War, Inflation in the 70s and 80s, a 20% drop in the market in a single day in the 80s, the dot com boom and bust, September 11th, the financial crisis of 08, the Covid crash. What happened in all these events? Life went on and people still needed businesses to provide them with goods and services. Own business and be an optimist. Don’t try and time the swings. It is very hard to do and usually results in worse results in the end. If you want to be active with your money take a small portion say 0-30% and trade that or take positions in a mix of risky items. For example, if you are really passionate about cryptocurrency or gold, maybe put just 10% into each. Don’t trade it all!

10. Give!

If you only spend money on yourself and save money for yourself, I think you won’t be as happy. Doing this often makes us greedy and depressed. Make it a habit to give money to others on a regular basis. I like to shoot for 10% that I may give to my church, missionaries, food shelters, community support, and things I love like Wikipedia. What percent you need to give will depend on your situation, but if you aren’t giving anything on a regular basis I highly encourage you to set up an automatic donation to something for 1% of your income. Just try it! If you find it rewarding and you are able steadily increase it. Giving can bring joy to you and the recipient. Just remember you need to get your finances in order first, before you give too much. Don’t take on credit card debt to give, but give out of what you have.

11. Enjoy Life!

Money isn’t the point of life. Automate your finances and try to focus on what really matters to you.

If you have any questions or need any help never hesitate to reach out on the contact page. If you would like to learn more about how Tines Capital manages investments for people in an active and passive fashion reach out or schedule a meeting below.

-Charles Tines