![](\"images/QWC_logo_resized.png\"){kind=logo}
Let’s talk about the Three Fund Portfolio. For the beginner investor, there is no better way to start investing and diversifying than by assembling your three fund portfolio.
\nOur three fund portfolios are inspired by the Boglehead investing philosophy. Bogleheads are (pretty die-hard) fans of Jack Bogle, the founder of Vanguard and the father of the almighty Index Fund. Jack Bogle figured that in the long term, the average investor, yes, even the most savvy among you 😉, would never beat the returns of the overall market. In other words, keeping it simple means greater reward over time. Bogleheads favor simple and passive investment strategies over the long-term. Buy, hold, never sell.
\nRemember that we mentioned Bogleheads favor simplicity. A three fund portfolio is the best bet for investors who want a bit more tax efficiency than the simplest-of-them-all Target Date Index Fund, but who also want easy diversification at the click of exactly three buttons. A Boglehead-approved three fund portfolio will use only basic asset classes — typically a domestic stock \"total market\" index fund, an international stock \"total market\" index fund and a bond \"total market\" index fund. Because you are literally buying “the market,” you’ll never have to worry about your portfolio underperforming, you’ll always be right on target. Together, these three funds give you broad exposure to the market without overlap and a low maintenance strategy for long term, stress-free investing.
\nYou can dive in with 2 easy steps. First: Choose Your Allocation. Decide how you want to divvy up your investments across the three funds. Because it is contingent on your age, income, and personal financial situation, only you can choose the right allocation for you. Stocks are more risky, bonds are usually considered less risky (though they still carry quite a bit of risk). The younger you are, the more aggressive you can be (we currently hold almost 90% stocks!) As you get closer to your retirement date, you’ll want to rebalance and shift your allocation to become less risky. A more conservative rule tends to be “100 - Your Age = Percentage of Stocks” (i.e. you are 20, that would make your portfolio 80% Stocks and 20% Bonds). Every time you contribute more money to your investment account you have the chance to adjust your risk tolerance. Second: Decide on your Index Funds (or ETFs). Usually you make this choice based on where you invest. If you have an account at Fidelity, it might make sense to choose FSKAX as your Total Market Index Fund, or if you’re at Vanguard, VTSAX.
\nThe most important thing to know about the three fund portfolio is that it is a long-term, passive investment strategy. Once you buy these funds, hold them and never sell (no really, never sell). The market is volatile but in the long-term it ALWAYS GOES UP. With a three fund portfolio you can be prepared to weather the ebbs and flows of the market knowing that you are mathematically certain to out-perform most investors with this simple strategy. Investing now contributing regularly is the easiest way to financial independence!
","pages":[{"url":"/about/","relativePath":"about.md","relativeDir":"","base":"about.md","name":"about","frontmatter":{"title":"About Us","img_path":"images/QWC_logo_resized.png","img_alt":"queer wealth club logo","seo":{"title":"About Me","description":"This is the about me page","extra":[{"name":"og:type","value":"website","keyName":"property"},{"name":"og:title","value":"About Me","keyName":"property"},{"name":"og:description","value":"This is the about me page","keyName":"property"},{"name":"og:image","value":"images/about.jpg","keyName":"property","relativeUrl":true},{"name":"twitter:card","value":"summary_large_image"},{"name":"twitter:title","value":"About Me"},{"name":"twitter:description","value":"This is the about me page"},{"name":"twitter:image","value":"images/about.jpg","relativeUrl":true}]},"template":"page"},"html":"Queer Wealth Club is on a mission to build wealth in the queer community 🌈 by improving financial literacy. We breakdown seemingly difficult financial concepts into those that are easy to understand and action on. Come learn how to improve your finances so that you can build wealth!
\nThank You for reading!
"},{"url":"/contact/","relativePath":"contact.md","relativeDir":"","base":"contact.md","name":"contact","frontmatter":{"title":"Get in Touch","img_path":"images/contact.jpg","img_alt":"Post in the door mailbox","form_id":"contactForm","form_action":"/contact-success","form_fields":[{"input_type":"text","name":"name","label":"Name","default_value":"Your name","is_required":true},{"input_type":"email","name":"email","label":"Email","default_value":"Your email address","is_required":true},{"input_type":"select","name":"subject","label":"Subject","default_value":"Please select","options":["Error on the site","Sponsorship","Other"]},{"input_type":"textarea","name":"message","label":"Message","default_value":"Your message"},{"input_type":"checkbox","name":"consent","label":"I understand that this form is storing my submitted information so I can be contacted."}],"submit_label":"Send Message","seo":{"title":"Get in Touch","description":"This is the contact page","extra":[{"name":"og:type","value":"website","keyName":"property"},{"name":"og:title","value":"Get in Touch","keyName":"property"},{"name":"og:description","value":"This is the contact page","keyName":"property"},{"name":"twitter:card","value":"summary"},{"name":"twitter:title","value":"Get in Touch"},{"name":"twitter:description","value":"This is the contact page"}]},"template":"contact"},"html":"Fill the form below to get in touch with us.
"},{"url":"/","relativePath":"index.md","relativeDir":"","base":"index.md","name":"index","frontmatter":{"title":"Home","has_intro":true,"intro_content":"Queer Wealth Club is on a mission to build wealth in the queer community 🌈 by improving financial literacy. We breakdown seemingly difficult financial concepts into those that are easy to understand and action on. Come learn how to improve your finances so that you can build wealth!\n","intro_actions":[{"label":"Learn More","url":"/about","style":"primary"},{"label":"Contact","url":"/contact","style":"secondary"}],"has_more_link":true,"more_link_text":"Read more","seo":{"title":"Queer Wealth Club","description":"Our mission is to build wealth in the queer community by improving financial literacy.We share easy to understand tips on investing and managing your finances .","extra":[{"name":"og:type","value":"website","keyName":"property"},{"name":"og:title","value":"Stackbit Ampersand Theme","keyName":"property"},{"name":"og:description","value":"The preview of the Ampersand theme","keyName":"property"},{"name":"og:image","value":"images/ampersand-preview.png","keyName":"property","relativeUrl":true},{"name":"twitter:card","value":"summary_large_image"},{"name":"twitter:title","value":"Stackbit Ampersand Theme"},{"name":"twitter:description","value":"The preview of the Ampersand theme"},{"name":"twitter:image","value":"images/ampersand-preview.png","relativeUrl":true}]},"template":"home"},"html":""},{"url":"/contact-success/","relativePath":"contact-success.md","relativeDir":"","base":"contact-success.md","name":"contact-success","frontmatter":{"title":"Thank You!","template":"page"},"html":"Thank you for contacting us! We will get back in touch with you soon.
\nHave a great day!
"},{"url":"/subscribe-success/","relativePath":"subscribe-success.md","relativeDir":"","base":"subscribe-success.md","name":"subscribe-success","frontmatter":{"title":"You’re in!","template":"page"},"html":"Your subscription to the Queer Wealth Club Newsletter has been confirmed.
\nThank you for subscribing!
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Is Bitcoin a worthy asset for investing? In 2017, Bitcoin had the highest yearly returns of all publicly available equity assets at 1318% 🤯. That’s enough to at least make me consider learning more about cryptocurrency. So what is Bitcoin? It is the granddaddy crypto-coin that allows easy global transfer of value without the use of financial institutions or governments. Typically, the creation and transfer of money is tightly controlled by the country’s government, who ensure that folks abide by financial regulations but also manipulate the value of their country’s currency. Bitcoin offers a way to send “money” to anyone in the world without dealing with exchange rates or paying middlemen. Bitcoin is rising in popularity and utility globally in places like Nigeria, which has a high number of unbanked citizens. Because of this, Bitcoin is very volatile (read risky). Bitcoin’s yearly return in 2018 was -72%, while its 2019 return was 87%. This year, Bitcoin is up more than 300% from March lows.
\nSome folks argue that Bitcoin does not inherently hold any value like a stock or real estate does so is worthless. Others counter that Bitcoin is like digital gold - it is a hedge against the stock market and tends to rise in value when the stock markets tank. The number of people and institutions with access to Bitcoin is rising as it gets easier to buy and sell crypto through popular services like Robinhood and Paypal. The more people use Bitcoin, the more its value rises, potentially setting up a nice profitable trade opportunity. JP Morgan recently reported that folks are moving their money from gold to Bitcoin, as Bitcoin gets adopted by institutional investors, which has only just begun. Bitcoin is also becoming increasingly scarce, as the finite 21 million supply gets mined. Currently, there are close to 2 million Bitcoins outside of circulation. As the supply remaining dwindles, its value will increase (supply, meet demand 🤝, flashback to Economics 101). Bitcoin is on an upwards tear right now and it is poised for short-term correction, potentially providing an opportunity to start a position. Bitcoin is a speculative asset, since it is a relatively new asset that we are unsure how to value. A small position in Bitcoin sounds appropriate, but be prepared to hold for at least 5 years and to lose it completely. Remember we invest for the long-term!
"},{"url":"/posts/inflation/","relativePath":"posts/inflation.md","relativeDir":"posts","base":"inflation.md","name":"inflation","frontmatter":{"title":"I-N-F-L-A-T-I-O-N","excerpt":"Let's talk about inflation - the word that everyone is talking about. But what is it and why should we care? Inflation is the loss of the value of money over time and while some inflation is inevitable, we share some tips for limiting the effects of inflation.","date":"2019-03-30","thumb_img_path":"images/3_1.png","thumb_img_alt":"A white modern house","content_img_path":"images/3_1.png","content_img_alt":"A white modern house","seo":{"title":"The Advantages and Disadvantages of Working from Home","description":"Work at home parent is an entrepreneur who works from home","extra":[{"name":"og:type","value":"article","keyName":"property"},{"name":"og:title","value":"The Advantages and Disadvantages of Working from Home","keyName":"property"},{"name":"og:description","value":"Work at home parent is an entrepreneur who works from home","keyName":"property"},{"name":"og:image","value":"images/9.jpg","keyName":"property","relativeUrl":true},{"name":"twitter:card","value":"summary_large_image"},{"name":"twitter:title","value":"The Advantages and Disadvantages of Working from Home"},{"name":"twitter:description","value":"Work at home parent is an entrepreneur who works from home"},{"name":"twitter:image","value":"images/9.jpg","relativeUrl":true}]},"template":"post"},"html":"Let’s talk about the i-word. Inflation. This is the loss of your money’s value over time. It’s like invisible termites, except these termites eat the value of your money instead of wood and you can’t see them. (scary emoji) You’ve dealt with Inflation before. Remember when your $1 used to buy so much candy years ago, but now barely gets you a bottle of water?
\nSo what? This means that even if you kept $100 from 5 years ago and put it in a standard savings account and didn't touch it, its value would be much less today. You would need to have $112 today to equal the $100 from 5 years ago. Cash loses value over time!
\nWhat can we do to combat inflation? We can invest our money in index funds and ETFs so that our money can grow and compound at rates that exceed inflation. If stocks are too risky for you, consider investing in an inflation-hedged asset like government bonds. These wont grow as fast as stocks but they will at least match inflation, preserving the value of your investment so that you don't lose money.
"},{"url":"/posts/managing-personal-finances/","relativePath":"posts/managing-personal-finances.md","relativeDir":"posts","base":"managing-personal-finances.md","name":"managing-personal-finances","frontmatter":{"title":"Managing Personal Finances","subtitle":"Personal Finance Tips & Tricks for beginners","date":"2021-11-08","thumb_img_alt":"lorem-ipsum","excerpt":"Let’s make these money moves so that you can create wealth. This article will help you guide you on how to start managing your finances. The key is to start small. Consider where your money goes. Every dollar needs a home on your money journey every month. ","seo":{"title":"","description":"","robots":[],"extra":[]},"template":"post","thumb_img_path":"images/5_1.png","content_img_path":"images/5_1-31673419.png","content_img_alt":"start investing"},"html":"Disclaimer: Hey there! This page includes affiliate links. If you click and purchase/sign up, we may earn a small commission (☕ money) at no extra cost to you. We only recommend tools that we have personally vetted. Queer Wealth Club does not accept money for reviews.
\nLet’s make these money moves so that you can create wealth. This article will help you guide you on how to start managing your finances. The key is to start small. Consider where your money goes. Every dollar needs a home on your money journey every month.
\nBudgeting sucks, why should I spend the time?
\nBecause without knowing where your money goes, it is hard to build wealth i.e. save and invest. You’ve got to plan to save or you never will. It has happened to me - money came in and before I knew it, it was all gone. No goodbye. Also, budgeting or tracking your money is easier now than ever.
\nOk, ok, so how do I make these money moves?
\nYou can link all of your accounts to a digital app and simply check it once a month. Some people use the envelope method, others use physical paper, spreadsheets or apps to track their spending. I use a few different apps like Personal Capital and Mint to manage my spending and track my net worth. Once you have an idea of how you spend your money, you can figure out where you can cut expenses. All money that is cut should go to your savings or investment account. Even $2 saved this year is $2 more than you had before; future you will thank you! You should identify buckets: core expenses (must-haves like rent/mortgage, utilities), luxury expenses (nice-to-have spending), savings (income minus expenses). Ideally, savings should be positive 😉 otherwise you’re blowing through money you don’t have in hand yet.
\nMint is great for folks who are interested in budgeting while Personal Capital is great for those who want a closer look at their investments and more retirement guidance.
\nQWC regularly uses both of these apps and has done so for years as they are both very secure. We believe in the value that they provide. If you are interested, sign up for Personal Capital and Mint for free.
\nTake stock of any debts that you may have and start to pay the debt off little by little. We suggest tackling the debt with the highest interest first. Paying off your debt should be top priority as it will truly allow your net worth to grow. Credit cards and student loans can have interest rates as high as 7%. Paying these debts off puts that 7% back in your pocket automatically.
\nOnce you have 3-6 months’ worth of living expenses in a high yield savings account, and any debt paid off, then you can start investing the amount that you save every month instead. Marcus by Goldman Sachs offers an online high yield savings account and you could earn an additional 0.50% Annual Percentage Yield (APY) - double their current APY - for 3 months if you sign up here. It only takes 10 minutes!
\nYou must know where every dollar goes. Every dollar, pound or lira has a home when it leaves your pay/income check to be ‘spent’, which could mean going to your savings account or to be physically spent on groceries. Now, you can make your big money moves with confidence!
"},{"url":"/posts/three-fund-portfolio/","relativePath":"posts/three-fund-portfolio.md","relativeDir":"posts","base":"three-fund-portfolio.md","name":"three-fund-portfolio","frontmatter":{"title":"The Three Fund Portfolio","subtitle":"An cheap & easy way to invest","excerpt":"Let’s talk about the Three Fund Portfolio - one of the simplest ways to passively invest. For the beginner investor, there is no better way to start investing than by assembling your three index fund portfolio. These index funds minimize investors' risk by enabling diversification across hundreds of stocks and bonds, instead of buying just a few equities.","date":"2018-01-15","thumb_img_path":"images/3_fund_portfolio_cover.png","thumb_img_alt":"A man looking at a beautiful lake and mountains landscape in Switzerland","content_img_path":"images/3_fund_portfolio_cover.png","seo":{"title":"What Is Photography and What It Means To Me","description":"A intresting tale about Photography and me","extra":[{"name":"og:type","value":"article","keyName":"property"},{"name":"og:title","value":"What Is Photography and What It Means To Me","keyName":"property"},{"name":"og:description","value":"A intresting tale about Photography and me","keyName":"property"},{"name":"og:image","value":"images/8.jpg","keyName":"property","relativeUrl":true},{"name":"twitter:card","value":"summary_large_image"},{"name":"twitter:title","value":"What Is Photography and What It Means To Me"},{"name":"twitter:description","value":"A intresting tale about Photography and me"},{"name":"twitter:image","value":"images/8.jpg","relativeUrl":true}]},"template":"post","content_img_alt":"three fund boglehead portfolio"},"html":"Let’s talk about the Three Fund Portfolio. For the beginner investor, there is no better way to start investing and diversifying than by assembling your three fund portfolio.
\nOur three fund portfolios are inspired by the Boglehead investing philosophy. Bogleheads are (pretty die-hard) fans of Jack Bogle, the founder of Vanguard and the father of the almighty Index Fund. Jack Bogle figured that in the long term, the average investor, yes, even the most savvy among you 😉, would never beat the returns of the overall market. In other words, keeping it simple means greater reward over time. Bogleheads favor simple and passive investment strategies over the long-term. Buy, hold, never sell.
\nRemember that we mentioned Bogleheads favor simplicity. A three fund portfolio is the best bet for investors who want a bit more tax efficiency than the simplest-of-them-all Target Date Index Fund, but who also want easy diversification at the click of exactly three buttons. A Boglehead-approved three fund portfolio will use only basic asset classes — typically a domestic stock \"total market\" index fund, an international stock \"total market\" index fund and a bond \"total market\" index fund. Because you are literally buying “the market,” you’ll never have to worry about your portfolio underperforming, you’ll always be right on target. Together, these three funds give you broad exposure to the market without overlap and a low maintenance strategy for long term, stress-free investing.
\nYou can dive in with 2 easy steps. First: Choose Your Allocation. Decide how you want to divvy up your investments across the three funds. Because it is contingent on your age, income, and personal financial situation, only you can choose the right allocation for you. Stocks are more risky, bonds are usually considered less risky (though they still carry quite a bit of risk). The younger you are, the more aggressive you can be (we currently hold almost 90% stocks!) As you get closer to your retirement date, you’ll want to rebalance and shift your allocation to become less risky. A more conservative rule tends to be “100 - Your Age = Percentage of Stocks” (i.e. you are 20, that would make your portfolio 80% Stocks and 20% Bonds). Every time you contribute more money to your investment account you have the chance to adjust your risk tolerance. Second: Decide on your Index Funds (or ETFs). Usually you make this choice based on where you invest. If you have an account at Fidelity, it might make sense to choose FSKAX as your Total Market Index Fund, or if you’re at Vanguard, VTSAX.
\nThe most important thing to know about the three fund portfolio is that it is a long-term, passive investment strategy. Once you buy these funds, hold them and never sell (no really, never sell). The market is volatile but in the long-term it ALWAYS GOES UP. With a three fund portfolio you can be prepared to weather the ebbs and flows of the market knowing that you are mathematically certain to out-perform most investors with this simple strategy. Investing now contributing regularly is the easiest way to financial independence!
"},{"url":"/posts/fast-facts-on-queer-wealth/","relativePath":"posts/fast-facts-on-queer-wealth.md","relativeDir":"posts","base":"fast-facts-on-queer-wealth.md","name":"fast-facts-on-queer-wealth","frontmatter":{"title":"Fast Facts on Queer Wealth","excerpt":"Why should we care about building wealth in the queer community? Because members of the queer community often face unique circumstances that drain their finances. Let's dig into some compelling research on queer wealth and discuss some first steps to building wealth.","date":"2020-04-09","thumb_img_path":"images/1_1_2.png","thumb_img_alt":"wealthy queer people ","content_img_path":"images/1_1_2.png","content_img_alt":"wealthy queer people","seo":{"title":"Basic Rules For Walking In The Mountains","description":"Hiking refers to difficult walking through dense forest, undergrowth, or bushes.","extra":[{"name":"og:type","value":"article","keyName":"property"},{"name":"og:title","value":"Basic Rules For Walking In The Mountains","keyName":"property"},{"name":"og:description","value":"Hiking refers to difficult walking through dense forest, undergrowth, or bushes.","keyName":"property"},{"name":"og:image","value":"images/1.jpg","keyName":"property","relativeUrl":true},{"name":"twitter:card","value":"summary_large_image"},{"name":"twitter:title","value":"Basic Rules For Walking In The Mountains"},{"name":"twitter:description","value":"Hiking refers to difficult walking through dense forest, undergrowth, or bushes."},{"name":"twitter:image","value":"images/1.jpg","relativeUrl":true}]},"template":"post"},"html":"According to a 2019 survey in Forbes magazine, 70% of LGBTQ respondents reported being behind when it comes to saving for retirement, This puts them almost 12% behind the general population. We want to change that.
\n\n\nA staggering majority of queer-identified people are behind on saving for retirement.
\n
An unexpected expense of $5k would create significant financial discomfort for 44% of LGBT respondents to the Forbes study. Building up an emergency fund is an important first step towards financial independence. $5 might seem like an insurmountable wad of cash to save up, but starting with smaller goals ($259, then $500 and so forth) will get you on track fast.
\n\n\nLess that 33% or one-third of queer-identified people have ‘emergency funds’.
\n
The Center for American Progress reports that queer and trans workers often earn anywhere between 10-32% less than similarly qualified cis- and straight colleagues. 15% of trans workers report earning $10k or less per year. With an increased risk for wage and workplace discrimination, it is imperative to build queer generational wealth and disseminate accessible and achievable advice towards financial security and independence in the queer community.
\n\n\nThe queer and trans wage gap is real.
\n
The Prudential Financial Wellness Census™ 2020 shows:
\n\n\n52% of LGBTQ Americans are anxious about their financial future.
\n
Over half of LGBTQ Americans are worried about their finances and how to financially support themselves in the future. This is very concerning as it means that there is lots of stress about upcoming bills whether they are anticipated or not.
\n\n\n25% of LGBTQ Americans saw household income fall by half or more from 2019-2020.
\n
COVID-19 affected everyone and particularly impacted the queer community by cutting their income in half.
\n\n\nMore than half of U.S. adults saw their finances compromised— with people of color, women, younger people, small business owners, gig workers, and those employed in the retail industry disproportionately impacted.
\n
The queer community is not alone in the financial hardship brought on by COVID-19, as many other communities were disproportionately impacted. These are sobering facts that hopefully compel us to take more action around lessening the impact of financial hardship. While preventing or even predicting the next world-wide pandemic is next to impossible, we can become savvy to mitigate the effect of unexpected circumstances on our finances.
"},{"url":"/posts/what-type-of-investment-account-do-i-need/","relativePath":"posts/what-type-of-investment-account-do-i-need.md","relativeDir":"posts","base":"what-type-of-investment-account-do-i-need.md","name":"what-type-of-investment-account-do-i-need","frontmatter":{"title":"What type of investment account do I need?","subtitle":"401(k), IRA, Roth, or HSA?","excerpt":"Investment accounts boil down to two categories: (1) taxable brokerage accounts and (2) retirement accounts. Within retirement accounts there are Roth IRAs, Traditional IRAs, 401(k)s, and more!","date":"2020-01-23","thumb_img_path":"images/opening-a-brokerage-account.png","thumb_img_alt":"opening a brokerage account (tax sheltered vs taxable)","content_img_path":"images/opening-a-brokerage-account.png","seo":{"title":"Few Things I Wish I Knew Before I Moved to New York","description":"A cautionary tale about life in New York","extra":[{"name":"og:type","value":"article","keyName":"property"},{"name":"og:title","value":"Few Things I Wish I Knew Before I Moved to New York","keyName":"property"},{"name":"og:description","value":"A cautionary tale about life in New York","keyName":"property"},{"name":"og:image","value":"images/5.jpg","keyName":"property","relativeUrl":true},{"name":"twitter:card","value":"summary_large_image"},{"name":"twitter:title","value":"Few Things I Wish I Knew Before I Moved to New York"},{"name":"twitter:description","value":"A cautionary tale about life in New York"},{"name":"twitter:image","value":"images/5.jpg","relativeUrl":true}]},"template":"post","content_img_alt":"opening a brokerage account- tax sheltered vs taxable"},"html":"Investment accounts boil down to two categories: (1) taxable brokerage accounts and (2) retirement accounts. Within retirement accounts there are Roth IRAs, Traditional IRAs, 401(k)s, and more! Retirement accounts have yearly contribution limits while taxable accounts are unlimited. It is always a good idea to “max out” retirement accounts first when new to investing because they offer great tax advantages.
\nSo which retirement account do I need to open first? If your employer offers a 401(k) (or similar retirement plan like a 403(b) etc.) and an “employer match” you should at least contribute up to the match. Otherwise you are leaving free money on the table, and that’s not good for anyone! Once you have done that, we recommend opening up and maxing out contributions to a Roth IRA. You cannot contribute to a Roth IRA if your gross income exceeds $139,000 for 2021. If you exceed the Roth IRA income limit, never fear, open up and max out a Traditional IRA. These accounts both have a $6000 yearly contribution limit.
\nIf you qualify for an HSA (Health Savings Account) via a high-deductible health insurance plan, your next step should be to max out your HSA contribution which is $3,550. HSAs are incredible tax-sheltered investment vehicles which allow you to access pre-tax dollars for medical expenses at any time and are available for unlimited withdrawal at retirement completely tax free.
\nFor the overachievers out there, if you can still afford to invest more, or if you are chasing FI/RE, you’ll want to completely max out your 401(k), which has a contribution limit of $19,500 for 2021, before starting to put money in your taxable brokerage.
\nWell, that depends on your current and future tax brackets and whether you have met your annual IRA contribution limit ($6k for 2020 for folks under 50 years old). A friend recently asked us whether they should open an IRA (tax-sheltered) vs individual (taxable) brokerage account for investing. Because she is a twenty-something year old student, we suggested that she max out her Roth IRA for the year before opening a taxable account. Keep in mind that you have until April 2021 to meet your $6K limit on IRA contributions for the 2020 tax year, so the IRS has their own schedule for IRAs that gives folks extra time to contribute. A Roth IRA means that she will fund her retirement account with after-tax dollars. What does this mean and why does this matter? When you sell your Roth IRA holdings, you won't be taxed on your profits (like you would with a taxable account). That means MORE money for her when she retires. This tax-sheltered account means that she has paid taxes on this money already, so she doesn't have to pay more to the IRS in the future. She chooses to pay taxes now because she is in a relatively low tax bracket right now, she will pay relatively low taxes on the funds she adds to her Roth IRA so why not get it out the way sooner than later. She could decide to contribute to a Traditional IRA instead, but that means that she would need to pay taxes on her contributions and the profits when she sells her stocks at retirement age. The amount of taxes could be higher if she happens to be in a higher tax bracket due to more income when she’s older. The Traditional IRA can be advantageous for those who are currently in a relatively high tax bracket now and anticipate being in a lower tax bracket by retirement age. Investing is for the long-term not next year - invest in your future by contributing to a Roth IRA. This money will be tax free when you withdraw it in the future.
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