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Financial Planning - Financial planning in general. (Moderated)
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Posted by on September 24, 2007, 2:23 pm
I am 30 years old, max out my 401k and traditional/Roth IRA's. I just
finished up paying off my house, so have no debts. What is the next
logical thing I should put my money in? A friend of mine sells life
insurance and said I should consider that because earnings grow
tax-free. Is there anything better than that?
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Posted by Douglas Johnson on September 24, 2007, 2:50 pm
dr_phill123@yahoo.com wrote:
>I am 30 years old, max out my 401k and traditional/Roth IRA's. I just
>finished up paying off my house, so have no debts. What is the next
>logical thing I should put my money in? A friend of mine sells life
>insurance and said I should consider that because earnings grow
>tax-free. Is there anything better than that?
Unless you have a need for life insurance (you need to leave someone lots of
money when you die), almost anything is better.
Buy "Investing for Dummies". Consider buying tax efficient, low cost mutual
funds such as Vanguard's S&P 500 index fund, SPINX in a taxable account.
-- Doug
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Posted by on September 25, 2007, 3:59 pm
Douglas Johnson wrote:
> Unless you have a need for life insurance (you need to leave
> someone lots of money when you die), almost anything is better.
I have no need for life insurance, i.e no wife or kids. But this
agent was talking all about the fact that your investment grows
tax-free and can outperform mutual funds. Is this just plain deceit?
> Buy "Investing for Dummies". Consider buying tax efficient, low
> cost mutual funds such as Vanguard's S&P 500 index fund, SPINX in a
> taxable account.
Thanks, I have just ordered this book used from Amazon.
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Posted by on September 25, 2007, 4:21 pm
On Sep 25, 12:59 pm, dr_phill...@yahoo.com wrote:
> I have no need for life insurance, i.e no wife or kids. But this
> agent was talking all about the fact that your investment grows
> tax-free and can outperform mutual funds. Is this just plain deceit?
Yes but only if you shop for products with rock bottom expenses.
Otherwise, the amount of money you save from the taxes all go to the
inusrance company.
If you are looking for tax-deferred growth, variable annuity from
Vanguard at 0.30% extra ER would be appopriate for bonds and reits.
The argument for VAs to hold domestic stock is less compelling. The
problem is that a VA would convert capital gains and qualified
dividends to income taxable gains so the tax-deferral edge is so
slight, it's not worth the 59 1/2 lock in. (10% IRS penalty for
withdrawal before this age.)
Variable Universal Life is approprite for a very small subset of
investors. The problem is you don't need life insurance so that's
money thrown away. *IF* you needed life insurance and if you had
another 30K/yr beyond your current investments and if you were in good
health to get good life insurance premiums and if and if and if and
if ... then maybe a low-cost, no commission VUL from TIAA-CREF might
suite your purpose.
Doubtful anything the agent is selling could beat the above two
options.
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Posted by Douglas Johnson on September 25, 2007, 4:22 pm
dr_phill123@yahoo.com wrote:
>I have no need for life insurance, i.e no wife or kids. But this
>agent was talking all about the fact that your investment grows
>tax-free and can outperform mutual funds. Is this just plain deceit?
No, it's more salesman's half truths than deceit. The money does grow tax
deferred (not tax free). You end up paying taxes when you withdraw it, although
I understand there are some ways of withdrawing that reduce those taxes.
However, a tax efficient mutual fund can limit your current tax burden and let
you pay capital gains taxes at 15% or less when you withdrawn. Anyway, paying
taxes is not all that bad a thing. It means you are making money. A favorite
line in this group is "Don't let the tax tail wag the investment dog."
Finally, money in taxable accounts is *your* money. You can do anything you
want with it without rules, age limits, or other nonsense. Go to Europe, buy a
house, go back to school, anything.
Insurance can out perform mutual funds, there are some truly awful funds out
there. But insurance as an investment tends to have fairly high costs
associated with it. (Who is paying your friend's salary?) High costs are a
drag on performance that it is difficult or impossible to overcome.
-- Doug
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