Final Four–Asset allocation v. Index mutual funds

Basketball hoop

Welcome to the first game of the Final Four of my investing strategies tournament.  Here we have Asset allocation taking on Index mutual funds.  In the first round, Asset allocation blew out Diversifying mostly due to the higher returns that younger investors can get by investing more in stocks early in their investing career.  Index mutual funds upset Free money on the strength of lower management fees that can apply throughout an investor’s career and across every account type.  As always, check out the disclaimer.  With that out of the way, let’s see who wins.

bracket-game 4

Reasons for picking Asset allocation:

Last round we saw how being too conservative with Asset allocation can really reduce the returns of younger investors who aren’t as heavily invested in stocks as they should be.  If you go to the other end of the investor’s time horizon, when he or she is older and nearing retirement, you can make equally harmful mistakes.

On one end of the spectrum older investors can become way too risky.  As the years tick by and people get closer to retirement, they begin to take stock (pun intended) of where they are probably a little more closely than they did in their 20s or 30s.  If they aren’t quite where they want to be, knowing that on average stocks have higher returns than bonds, one natural response is to allocate more of their nestegg to stocks to “catch up”.  According to generally accepted investing theory, this is the exact wrong thing to do—as we get closer to retirement you should be reducing your allocation of stocks to lower your risk, not increase it.  Here you’re stepping away from the world of investing and into the world of gambling.  Maybe you’ll get lucky and ride a bull market up to get your portfolio back to where you want it, but you’re definitely putting yourself at risk of hitting a market pothole and putting yourself further behind.

On the other end of the spectrum, they can become way too conservative.  Some people have the natural instinct to want to get completely off the investing train in retirement because they don’t want to have any risk, so they put all their money in bonds or cash.  This is understandable because they’re going to be depending on that nestegg, so it’s got to last.  But the problem is that even in retirement, many people still need the higher returns that stocks provide to balance out the relative safety of their bonds.  This is especially true in a world where people are living longer and it’s not unreasonable to expect retirement to last a few decades or longer.  And actually, that time element also makes the case for stocks being a significant part of your retirement portfolio—you have time to ride out the storms, just not as much time as you had before.

These are what make Asset allocation one of the harder investing strategies to get right, because it’s changing over time and there are shades of grey (at least 50 shades of grey).  Other strategies like Diversification and Free money are much simpler because your strategy is absolute.  Diversification—you should be diversified at all times.  Free money—you should get as much of it as you can at all times.  But with Asset allocation, the right thing to do gradually changes from being mostly in stocks during your early years, and then slowly switching to more bonds and cash as you start to near retirement, but never shifting completely to bonds.

There’s no strict rule on what your Asset allocation should be at different stages of life, but I always look at Vanguard target retirement funds as a bit of a guide (although I’ll write about some of my issues with these types funds in a future post).  With 40 years until retirement, right around when you’re first starting out, Vanguard suggests about 90% stocks and 10% in bonds.  Once you hit retirement Vanguard suggests 40% stocks and 60% bonds.  Notice that even in retirement a very significant portion is still in stocks.

Vanguard target date funds % in stocks % in bonds
2055 (40 years to go) 90% 10%
2035 (20 years to go) 85% 15%
2025 (10 years to go) 70% 30%
In retirement 40% 60%


So what does that all mean?  Well early on Asset allocation done properly can get you higher returns over the long run, historically about 3-4% higher than if you completely screwed it up.  Later on, it’s going to help protect you from any market crashes, market corrections, or general market zaniness that occurs.


Reasons for picking Index mutual funds:

We know from the Elite Eight round, that one of the major advantages of Index mutual funds is their lower management fees, which are on average about 1% less than actively managed mutual funds.  We also know from The power of a single percentage that saving 1% of your portfolio year after year can lead to some serious ducats (I’ve decided to use as many slang terms for money over the next few posts, so prepare yourself).  But we’re in the Final Four now so we need something more than that.

Not above a little chicanery, Index mutual funds is going to steal a page from Asset allocation’splaybook.  Often with actively managed funds, they keep a significant portion of the fund’s assets in cash so they can buy an investment when the opportunity presents itself.  Of course we know from above that holding cash over the long term leads to lower returns than holding stocks.  Index mutual funds are able to be almost 100% invested in stocks (or whatever asset class you want) because they aren’t picking investments so much as just following the index.  Just doing some simple math, if actively managed funds have 5% of their assets in cash, and over the long term stocks return 6% more than cash let’s say, that comes to a long term benefit of about 0.3% (5% x 6%).  That’s not going to change the world, but even those little bits compounded over decades can make a huge difference.

Index mutual funds is also copying Tax optimization.  When your mutual fund sells shares there are tax implications on that (death and taxes, baby).  That’s why you get that statement every year from your mutual fund telling you what you need to report to the IRS. The more frequently your mutual fund trades stocks, the more likely it is that you’ll have short term gains which are taxed at higher rates.  But with Index mutual funds, trading is minimized because the fund is only following an index like the S&P 500 which doesn’t change that often.  That leads to lower taxes which we know can add up to some serious cheddar (see, I did it again).

There are also people who argue that Index mutual funds do better than actively managed funds because they take the human element out of it.  This is pretty controversial, and if you believe in the theories from A Random Walk Down Wall Street, which I unabashedly do, then shouldn’t active managers do just as well as a passive index?  Hmmm, that sounds like fodder for another post.  People debate this all the time and I’m not convinced that this really drives the needle.

The final major benefit of Index mutual funds is that they’re super easy, especially compared to some of the more difficult investing strategies like Asset allocation.  You can go to a place like Vanguard (that’s where the Fox family’s money is) or Fidelity or a dozen other places and sign up for one of their index funds, then as Ron Popeil says, “you set it and forget it.”  That means you’re getting pretty incredible value for a relatively small amount of work.


Who goes on to the championship game?

Index mutual funds pulled out all the stops, but in the end Asset allocation was just too strong.  Index mutual funds will definitely help build your nestegg, probably juicing your returns 1% compared to actively managed funds and maybe even 1.5% if you’re feeling charitable.  That’s nothing to sneeze at, but we’re talking about punching your ticket to the Championship round here, people.

Let’s say you completely abandoned the idea of Index mutual funds and went totally with actively managed funds.  How bad would that be?  It wouldn’t be ideal (just my opinion and one not shared by my good friend Mike), but you’d be fine in the end.  Actually this is what millions of people do all the time and it tends to work out.

Compare that worst-case scenario to Asset allocation’s and you see why they won.  Screwing up early on and investing too much in bonds and cash instead of stocks can cost 3-4% on your returns.  That dwarfs what Index mutual funds bring to the table.  Screwing up closer to retirement can put your whole financial plan at risk.  Ask near-retirees who were to heavily invested in stocks before the 2001 or 2008 crashes what they think.  In the immortal words of Winston Zeddemore “I have seen s%$t that will turn you white.

bracket-game 5

With Asset allocation the stakes are just too high.  I have Asset allocation pulling away, 68-59.  Be sure to come back tomorrow to see who they take on in the final, either Savings rate or Tax optimization.

First Round: Starting early versus Tax optimization

Basketball hoop

We’ve made it to the last contest of the first round, and this one is a doozy.  Yesterday we saw Savings rate take down Mortgage.  Today we have a true Kentucky versus Duke-style clash; this is a match of the real bluebloods of the investing world.  As always, check out the disclaimer.  Let’s go to the game.

bracket-game 3

Reasons for picking Starting early:

Starting early is one of the sage pieces of wisdom everyone gives, and for good reason.  The earlier you start investing, the more time you give the incredible power of compounding.  In this way, Starting early is very similar to Savings rate which we saw won the last game.  Because of the compounding the numbers seem to act “funny” (not funny “ha ha,” but funny as in not a way you would expect unless you are an expert in exponential algebra).

So let’s say Mr Grizzly just got his engineering degree at age 22 and wants to retire with $1 million on his 60th birthday.  Similar to the previous examples his starting salary is $50,000 and it gradually increases to $100,000, and he can get a 6% return on his investments.

If he starts saving at age 22, he will need to save about 9% of his salary to get to the $1 million mark by 60.  However, let’s say he can’t start right away, and instead he starts saving at age 30; now to become a millionaire by age 60 he needs to save about 13% of his income.  Wow!!!  By delaying a measly 8 years early on, he has to increase his savings rate about half again what it was.  If he puts it off until he’s 40, he needs to save 25%–that’s doubled his savings rate compared to starting at 30!!!  And if he delays starting until he’s 50, it will require he save about 67% to become a millionaire by the time he’s 60.

Starting age Savings rate to become millionaire by age 60
22 9%
30 13%
40 25%
50 67%


Clearly the earlier you start, the easier it is.  9% of your income isn’t trivial, but it certainly seems manageable.  On the other end of the spectrum, it seems just plain unrealistic to be able to save 67% of your income; even 25% would be a tall order for most.  So everyone can agree it’s better to start earlier rather than later.  Done deal.

But the problem with these types of analyses is saving more comes at a cost.  That $4500 you saved at age 22 (9% of your $50,000 starting salary) meant you couldn’t spend that.  Perhaps that’s not so bad if you were wasting it on clubbing and mani-pedis, but who am I to judge?  But maybe clubbing and mani-pedis are what makes life worth living.  Broadening that out, nearly all of us are making less early in our careers, so how realistic is it for us to be saving right away?

Also, early on you actually have higher expenses like repaying student debt, buying furniture for your new place, buying a work wardrobe, and just kind of experiencing life.  That’s not to say that people can’t be disciplined about those things, but there’s got to be a balance.  I personally started saving about 30% when I first started working and I think maybe I should have traveled a little bit more and enjoyed that time of my life (I was living right outside of New York City after all).

Nonetheless, Saving early is a tremendously powerful force if you can afford to do it.  There’s no doubt in my mind that the Fox family is at a comfortable place right now in large part due to the fact that I started squirreling money away so early.


Reasons for picking Tax optimization:

Taxes are a tremendously important part of investing.  It is a dominant force like Shaquille O’Neal on those LSU teams from the early 1990s.  Taxes impact every facet of investing—whether you’re young or old, no matter the type of account you have (401k, IRA, brokerage, Mortgage).

Shaq in college

Obviously taxes take a chunk out of nearly every financial transaction you do.  What makes Tax optimization so important is that during your earning years, that chunk can be in the 30-50% range, obviously depending on a number of factors like your income and the state you live in.  However, in retirement when you’re income is lower, that tax rate might fall to 10% or even less (of course, as my good friends Rich and Mike pointed out, no one knows what future tax rates will be—I am just assuming that tax brackets remain the same as they are today).  Many of the Tax optimization strategies to some degree involve finding ways to not pay taxes at the higher rate when you’re working, but rather pay when you’re retired and your rate is lower.

Just how big of a deal can taxes be?  Let’s look back at that example from The tax man cometh.  Mr and Mrs Grizzly are ready to save $1000 per month, either in a taxable account like a brokerage account or a tax deferred account like a 401k.  Using a regular brokerage account after 30 years (let’s assume a 2% dividend and a 5% stock increase) they have about $815k—certainly nothing to sneeze at.  However, had they invested the exact same amounts in the exact same stocks but instead in a tax deferred account, they would have had $1.12 million.  That’s almost $300k more, just for Tax optimization!!!

2015-02-16 deferred taxes graphic (qd)

The only difference is when they paid taxes on the money and at what rate.  In a taxable account they were paying taxes on the $12,000 each year at their high-income tax rate (34%) and they were paying taxes on qualified dividends (thanks Rich) at a pretty high rate too.  In the tax deferred scenario, they were paying taxes on the money after they were retired which I estimated at about 2% because at that time their income is only what they are spending.

That’s just one example, and there are tons just like that where Tax Optimization can really add up to tons of money.  There’s no such thing as a free lunch, but this gets pretty darn close.  When you put your money in a tax deferred account, it gets more difficult to access if you need it right away, but that seems a pretty small price to pay compared to the massive benefits of tax deferral.


Who wins?

This clash of the titans was super close.  In the end I have Tax optimization winning on a Christian Laettner-esque (sorry to all my Kentucky friends) miracle shot to push it to the Final Four.

To me I think this comes down between something that is not very complex but involved sacrifice (Starting early) and something that is fairly complex to pull off but doesn’t involve a lot of sacrifice (Tax optimization).  Ultimately, when Starting early you’re taking money that could have been spent on something else and started investing it.  So long as you weren’t planning on setting the money on fire, that will involve a sacrifice.  Conversely if you do Tax optimization you really aren’t foregoing anything, except a little bit of liquidity.  All it is is being smart with taxes and setting up the right accounts.

There are a lot of pretty easy Tax optimization maneuvers like 401k, IRAs, etc., that only take a few hours to figure out and then you’re set for decades.  So you’re getting those huge benefits without a lot of effort.  But Starting early is requiring a fairly significant sacrifice in your early years that could cause quite a sting.  Put all that together and I have Tax optimization coming out on top 83-82.  I have to confess though, I think Starting early would have beaten a few of these other strategies if it had lucked out a little bit in the draw.

Well, that was a wild first round.  I hope you enjoyed this and we’ll see you tomorrow for the first match of the Final Four, Asset allocation versus Index mutual funds.


bracket-game 4

First round: Free money versus Index mutual funds

Basketball hoop

After a thrilling first day where we saw Asset allocation blow out Diversification, we are now on to day two where Free money will face off against Index mutual funds.  As always, I am not an expert on these matters.


bracket-game 1

Reasons for picking free money:

Free money is . . . well . . . FREE.  And obviously the more money you can contribute to your portfolio the closer you’ll be to retirement, the better you’ll be able to ride out stock market downturns, and the more financial flexibility you’ll have generally.  I’m not telling you anything you don’t already know.

In the US, by far the most common opportunity for Free money is the company match for your 401k.  Of course, credit card rebates are another nice source of free money, but let’s stick with 401k’s.  Typically it looks something like they will match $0.50 for every dollar you contribute up to 6% of your pay.  And there are some companies that are even more generous; Medtronic has historically matched about $0.90 for every dollar up to 6% of your pay.  Do the simple math and your average 401k match comes in at about 3% ($0.50 * 6%).  Ever since I started working in 1999 I have always contributed at least enough to get the entire company match.

If you do a quick calculation (assume you work from 22 to 60, with a salary that starts at $50,000 and rises to $100,000 over the years, with a 6% investment return), the value of that match is about $350,000.  That’s not what your whole 401k would be worth, that’s just the value of the match!!!  Not bad considering the median nestegg for a 60-year-old living in the US is about $160,000.

So who says no to this?  Sadly, about one-third of employees who have access to a 401k plan are “leaving money on the table” by not contributing up to the amount that their employer will match.  This is some really low hanging fruit that is going unpicked.  I get that there is only so much money to go around, but man, every dollar you’re putting in gets you another $0.50 of FREE MONEY.  That’s a guaranteed 50% return; there are a lot of investors who would give their first born for something like that.


Reasons for picking index mutual funds:

Index mutual funds are mutual funds that mimic an index like the S&P 500, Barclays Bond index, FTSE Global Cap, or the MSCI US REIT index.  That may sound confusing—the point is these mutual funds find an index already established in the market and do their best to copy it exactly.

Index fund advocates, and I count myself among them with probably about 95% of the Fox’s nestegg in Index mutual funds, believe that these funds actually perform better than actively-managed mutual funds (an actively managed fund is one where the mutual fund manager picks individual stocks or bonds that he or she believes will out-perform the general market).  I personally think the data here is mixed to slightly favorable for index mutual funds (mostly because of tax implications), but that is a pretty deep discussion probably for another blog post.  For this analysis, I’ll assume that actively managed mutual funds and index mutual funds return the same amount.

The undeniable advantage of Index mutual funds is their lower management fee.  Like all things, mutual funds charge a fee for their services; it is a percentage that the fund managers skim off the top to pay for managing the fund.  For actively managed funds that fee averages to about 1% with some higher and some lower.  This goes to paying for all the research done, salaries for the different teams, brochures and disclosures, travel to different conferences, etc., and it tends to be a pretty decent chunk of change.  For Index mutual funds, you really don’t need all that because all the team is doing is tracking a pre-existing index; because of this management fees tends to be fairly low—in the 0.05% to 0.2% range.

Remember The power of a single percentage?  We actually called out mutual fund management fees there as ripe for a 1% coupon.  Running the numbers using the same scenario we just used for Free money (assume you work from 22 to 60, with a salary that starts at $50,000 and rises to $100,000 over the years, with a 6% investment return), that 401k account using a index mutual fund with a fee of 0.2% would leave you with about $990,000.  An actively managed account with a fee of 1% would leave you with about $820,000.  That a difference of $170,000 in your 401k over the course of your investing career.

But that’s just for one account.  Index mutual funds can be used for pretty much all your investing accounts—401k, IRA, 529, brokerage.  Also, they can be used throughout for investing career, from the time you open your first account as a youngster all the way through the end when you shuffle off this mortal coil and leave some cash to your loved ones (more cash than you would otherwise because you were paying lower fees).


Who wins?

This turned out to be much closer than I anticipated.  At first I figured that Free money would win this going away, but Index mutual funds definitely came to play.  Free money has a power effect (about 3% of your salary on average), but that is generally limited only to 401k accounts, only to the first 6% of your compensation, and only while you are working.  Even with all those limitations, it makes an enormous difference over your investing lifetime.  Index mutual funds have a smaller impact but a much broader application.  You can use them on every account, with every dollar invested, for every year you’re investing.

In a game that came down to the absolute wire, I think Index mutual funds barely edges out Free money in a Bryce Drew-style miracle finish.  The final score, Index mutual funds 70, Free money 69.  Ultimately I think Index mutual funds and that lower management fee will save more of your money in every corner of your investing portfolio, and that will ultimately lead to a bigger impact on your nest egg.  I hope to see you tomorrow when your Mortgage takes on Savings rate.

bracket-game 2

Top 5—investing moves when you’re just getting started

A week ago, my Uncle Lynx passed away.  At the funeral I was chatting with some distant family members (my cousin’s wife’s nephew).  He and his wife are a super cute couple.  They are in their early 20s and just getting started on this crazy journey called adulthood.

As we were chatting, the subject veered towards personal finance (me talking about personal finance . . . imagine that).  This couple’s ears perked up and then seemed genuinely interested; I suppose it’s possible they were just really polite, but I think it was something more.

It got me to thinking about what are the most important things to do in the world of personal finance when you are just getting started.  Here is my Top 5 list:


5. Figure out your debt situation: If you’re lucky, you won’t have a lot (or any) debt.  For most of us there is some out there, and that isn’t necessarily a bad thing.  List out every debt you have (student loan, mortgage, credit card, car payment, etc.), the balance, and the interest rate.

On a spreadsheet (see #4) rank them in order of interest rate.  As a general rule I use a cutoff of about 6%.  If your interest rate is above that pay those off right away, starting with the highest interest rate debt first.  If your interest rate is below that, that might be okay to keep that debt and just make the normal monthly payments.

If you have any debt (especially credit card debt) at any rate higher than 10%, that’s a “debt emergency”.  Really look at every purchase you make—if it’s not critical to your survival (food, shelter) then pass that up until your debt is paid off.  The only exception to this is #1—funding your 401k.

You can get creative with your debt by consolidating high interest rate cards onto a lower rate card or one that offers a low teaser rate.  That could save you a ton of money, and you should probably look into that, but ultimately, you’ll need to pay that sucker off.  So just hitting the grindstone of paying off your credit cards is a must.


4. Make a budget on a spreadsheet: Take a spreadsheet and put a quick budget together that includes your income, your expenses, and the difference between those two.  This can be simple at first (and it should be simple at first).  Over time, you’ll add more and more sheets to the spreadsheet for things like your mortgage, investments, kids’ education, and other things.

But at the beginning, you need to get a sense of where your money is going.  The budget will give you an aspirational view of this.  After your budget is done, you can track your spending with a website like  This two-step process lets you figure where you want to spend your money, and then also look at where you actually spend it.

Of course, this is an iterative process, and as you close a month and look at your expenses, you can see if you’re spending more than what you budgeted.  This isn’t a time to beat yourself up (being too hard on yourself is a sure way to stop looking at your finances closely, and that’s a REALLY bad thing), but a time to ask yourself why you spent more and if it was worth it.

As an aside, using a spreadsheet is a really good skill in general.  I was really good at spreadsheets and it’s hard to overstate the incredible impact it had on my career, as well as the incredible wealth those skills gave me and my family.  And really, my experience with spreadsheets started in college when I was creating a financial budget.


3. Educate yourself on investing: At a young age, educate yourself on investing.  Obviously, this blog is the universally acknowledged best place to learn about investing, but I have heard rumors there are others. is a great website that looks at personal spending and his early posts had a tremendous impact on my outlook.  A Random Walk Down Wall Street is a book on investing that really defined my investing strategy; I read that as a 19-year-old and still think about its insights today.

There are a lot of websites written by millennials about spending and personal finance that might resonate even more.  A few are:,, and  Most are about reducing spending and budgets and that sort of thing, but there are some on the nitty gritty of making investing choices.  You’ll want perspectives on both.

The whole point is that you need to know what you are doing here.  Spending 20 hours early in your life to figure out basics like asset allocation, tax avoidance, and fee minimization as well as a general attitude towards saving early can easily lead to hundreds of thousands or millions of dollars.  That comes to about $50,000 per hour—not bad.


2. Start an IRA with $1,000: This is as much about the experience gained as it is about actually investing your money.  Vanguard lets you start an IRA with $1,000 as the minimum amount.

You’ll navigate through their website, figure out how to make choices (like Roth or Traditional IRA—go traditional).  You’ll pick your investments, and then you’ll have something to look at every once in a while to see how it’s doing.

So many people are just at a total loss when it comes to setting up accounts for their investments.  That becomes a real problem once you hit 30 or 40 and you’re starting to get behind the 8-ball; you know you need to do something but are kind of clueless on where to start.  Doing it now lets you get your toes wet in this world and makes the next accounts you need to set up (529, 401k, brokerage, etc.) all the less daunting.


1. Get the company match on your 401k: #2 was more for experience than for investment.  Here is where you should start walking down the path for investments.  At a minimum, contribute the match and take the free money.

This is so important for a couple reasons.  First, you’re getting that free money.  Second, you’re making your first “asset allocation” decision.  When it comes time to pick which fund to invest in, unless you have very unique circumstances for an early-20s person, I would definitely go with a 100% equity index fund.

Third, your 401k is a really powerful tool.  If you had no other investing tool, you could still grow a 401k to well over a $1 million during your working career.  That is enough to fully fund your retirement.


BONUS—Stay poor:  Too many young adults make a huge mistake of trying to mimic the lifestyle their parents provided, once they (the young adults) get out of school.  That first paycheck of $2,000 is going to seem like a ton of money (and it is).  It’s really tempting to decide to buy a new car or go on a kickin’ vacation or upgrade the furniture.  Resist the urge.

Your parents took 25 or more years of working (with pay increases and investment returns) to provide the house and cars and vacations you enjoyed your senior year of high school.  It’s not realistic to think you can have stuff at that level of niceness so early.

A car is a really good example.  In general, automobiles are horrible investments.  To the degree you have a car that can get you from point A to point B, keep it.  A new car will be nice and cool and make your friends gawk, but it’s a horrible use of money.  A couple hundred dollars a month for a car, plus insurance, and maybe $50 for a gym membership, $50 for cable, and $80 for four dinners at a restaurant—those numbers add up.  Those alone could fund your savings in the early years.

Your early 20s are a time when it’s still okay not to have the best and nicest of everything.  If you can embrace that, even when you do have the money, and put that extra money to work in investments you’ll build a very strong financial foundation that will afford you many more opportunities are you reach your 30s and 40s (remember, I did that and I retired at 36).

The tax man cometh

“In this world nothing can be said to be certain, except death and taxes” –Benjamin Franklin


I love this woodcut from the 1600s.  I imagine the artist drew it so the skeleton’s hand is asking for the guy’s life, but it kind of looks like he has his hand out asking for money like he’s collecting taxes.  Either way, if you’re death or the tax man, you probably aren’t too popular.

Obviously taxes are important when you’re thinking about investments and your retirement.  Uncle Sam (for all you foreign readers, what is the name of the personified tax collector in your country?) is definitely going to take his share of your earnings and investments.  Given the progressive nature of most countries’ tax codes, as your nest-egg gets larger and larger, they take a bigger percentage, so that raises the stakes.

The government has built the tax code to offer huge tax breaks to people saving for retirement, particularly allowing people to defer taxes from their earning years to their retirement years. That’s really all that accounts like 401k’s and IRAs are doing, taking money you earn when your income is high and allowing you to pay taxes on it when your income is low.  It may not seem like a big deal at first but suffice it to say, optimally managing your tax situation can be the difference of hundreds of thousands of dollars.  As always, it’s important to remember that I’m not a tax expert; also I’ll be making assumptions on future stock returns which in no way guarantee that is what will actually happen in real life.


Working tax rate versus retirement tax rate

US tax rates go up pretty quickly the more money you make.  So when you’re in your prime earning years, that is when your tax rate is going to be the highest.  Take my old neighbors Mr and Mrs Grizzly as an example.  They both work and have a combined income of $150,000.  Throw in a couple assumptions like they have two cubs, a mortgage, and live in the great state of California, and they are paying a total of about $41,000 in taxes, about 27% (there’s a great website that I used for these estimates).  Look a little deeper and their marginal tax rate is 43%; that means if they earned one more dollar they would pay $0.43 in taxes, and conversely if they lowered their income by one dollar they would save $0.43 in taxes.  Wow!!!  That’s a lot in taxes.

Now let’s fast forward and think of Mr and Mrs Grizzly in retirement.  Their house is paid off and they don’t have to save for their cubs’ educations, so what they need to support their retirement lifestyle is $80,000 (believe me, I will have many future posts dedicated to estimating how much someone needs per year in retirement, but for now let’s just take the $80k on faith).  Each year they tap into their savings and the $80,000 breaks down into three buckets: $20,000 is interest and dividends; $30,000 is long-term capital gains on the profits from their investments over the years; and $30,000 is the basis, the original money they invested which doesn’t get taxed.  Run your tax calculator again and they’re paying a measly $1,200 in taxes!!!  Read that again; it’s not a misprint.  That’s only 2% compared to the 27% they were paying while they were working.  And their marginal tax rate is 4% in retirement instead of 43% while they were working.

That, my friends, is some powerful stuff!!!  Now, how do Mr and Mrs Grizzly translate that into cash money?


The value of deferring taxes

During their working years, Mr and Mrs Grizzly set up their budget to save $1000 per month.  Because they are avid readers of the Stocky Fox, they know they should save that through their 401k’s (in this unfortunate example, let’s assume their cheapskate company doesn’t offer any matching).  In a year they will have saved $12,000 but since 401k’s are tax deferred they don’t pay taxes on that money, saving themselves $5160 in taxes (remember, their marginal tax rate is 43%).  Nearly $5200!!!  That’s some serious honey comb.  They do that each year and after 30 years (let’s assume a 2% dividend and a 5% stock increase), and they have a nice little honey pot of $1.12 million for retirement.  They’ll withdraw their $80,000 per year and pay the lower tax rate on it, and life is good.

The Grizzleys are sitting pretty, but what would happen if didn’t use their 401k to defer taxes and instead invested their money in a normal brokerage account?  Each year, they’d pay the $5200 in taxes but then they would also have to pay taxes on the dividends.  If you assume the same investments as we did above, 2% dividends and 5% stock increase, after 30 years they would have $815k.  That’s nothing to sneeze at, but that’s about $300k less than what they had with their 401k.  Those numbers seem crazy, but that’s the power of tax deferral.

2015-02-16 deferred taxes graphic (qd)

So the lesson is that using tax deferred accounts offers a really powerful way to accelerate the growth of your nest-egg by cutting out the tax man (in a totally legal way, of course).

Invest in 401k before you payoff student debt

“The longest journey begins with a single step” –Laozi (580 BCE)

Investing is a long-term game.  As that really smart Chinese philosopher said, that long-term game needs to start with your first move.  For most people, investing will start when they get their first “adult” job after college (you already know how I feel about college).

Some people start with a clean financial slate when they leave college, but many have student debt from all the loans they took for that degree.  That sets up an interesting question as they get their first paychecks: what to do with the money?  You can even make the question more precise and ask: should I use my savings to payoff my student loans or start investing?  Let’s dive right in

My niece Starty Fox just graduated with her engineering degree from State U.  She has $20,000 in student loans that has an interest rate of 4.45% (I think that’s the current rate for government backed student loans).  Because she listened to her wise uncle, she got an engineering degree which presents many job opportunities.  She took a good job paying $54,000 per year (luckily her salary is divisible by 12 so this post is a little easier to write).  Plus, they offer a 401k which matches her contributions up to 6% of her salary.

After she accounts for rent (her parents made it clear she could visit, but not live with them), her car payment, food, and other living expenses  she is able to save 10% of her income each month.  She makes $4,500 per month and has $450 left over at the end of each month (let’s ignore taxes for a second, but just a second).

So what should she do, payoff that nagging student debt as fast as she can or start investing in her company’s 401k?


A match lights the world on fire

Let’s say Starty has a neurosis about her debt.  She was raised never to have any debt (although maybe that’s not always the best idea—here and here), so she wants to pay it off as quickly as she can.

If she applied all $450 each month to her student loans, she would pay off that whole $20,000 in a little over 5 years.  There would be a couple things she wouldn’t like.  First, that $450 would be taxed (just like the rest of her income).  Let’s say her marginal tax rate is 20%, so that means the $450 she has set aside is really only $360 after she pays Uncle Sam.  Taxes are unavoidable, so while that’s a bummer for Starty, she accepts it as a fact of life (although maybe she shouldn’t—more on that in a second).

When it is all said and done, she will have paid everything off by the time she turns 27, which isn’t bad.  Through it all she would have paid about $2,300 in interest.  That interest is tax deductible, so it would only feel like about $1,840.  After everything is paid off, she can start investing in her 401k with a clear conscious.

Let’s take the other extreme, and assume that Starty watched Wall Street a lot with her adoring uncle when she was little.  She’s not too concerned about debt, especially when there are other good investment opportunities out there.  She pays her minimum payment on her loan ($150 per month before taxes, $120 after taxes) and then invests the rest in her 401k.

Obviously, the downside of this is it takes her a lot longer to pay off her loan; instead of being done by age 27, she’ll have the debt until she’s 40.  That sucks.  But she more than makes up for that with her 401k.  Every year she contributes $3,600 to her 401k.  When she does this she has three really big spoonfuls of awesomeness working for her:

  1. Tax free—her 401k contributions are pre-tax so just off the top she is saving $30 per month that would go to taxes if she used that money to pay off her loan. That’s enough to buy a new Lululemon outfit and splurge on extra spin classes each year (Foxy Lady just took over my computer for a second).  Sure, eventually she’ll have to pay that in taxes, but there are a lot of things she can do to minimize that when the time comes.
  2. Match—the big one is that Starty gets to take advantage of her company’s match. They match dollar-for-dollar up to 6% of her salary.  Since she’s contributing more than that, she takes complete advantage of the match, and that comes to $270 each month.
  3. Investment returns—obviously this is why we do invest money. On average Starty is going to earn a 6-8% return on her 401k.

If you put that all into the pot and mix it, you’d have a 27-year-old Starty who is debt-free but with nothing in her 401k, or you could have a 27-year-old with $41,000 in her 401k and still with $16,000 in student loans.  Obviously, the 401k option is much better. She has a net worth of $25,000 on her 27th birthday (versus $0 if she paid off her student loans first).


The cause of it all

Those numbers tell a pretty powerful story that from a mathematical point of view, paying off your student loan at the lowest level is best so long as you put that money into your 401k (and not spend it on stupid crap).  However, there are some fairly big assumptions there.

Match—obviously the match is a big part of it all.  Without the match the numbers don’t look nearly as good, but the 401k option still comes out ahead.  On her 27th birthday, she would have a net worth of $5,500, without the match.  Many people may complain that this example isn’t realistic because Starty’s 401k match is so generous, but without the match she still comes out to the good.  And we know a 401k without a match is basically like a traditional IRA which is available to everyone.

Liquidity—when Starty chooses to go all in on her 401k she’s losing a lot of financial flexibility.  At 27 she’ll still have $15,000 of debt that she’ll have to pay off plus she’ll have a lot of her money tied up in her 401k which is very hard to access.  If something happened at ages 22-27 she’d be in pretty much the same boat either way, but after age 27 she’d have a little more flexibility if she had killed the college debt.  This becomes a question very similar to the one we raised with the post on the emergency fund.  Personally, I would be willing to roll the dice for that extra $5-25k over five years, but risk aversion is different for all of us.

That’s all good, but fundamentally this boils down to Starty being able to borrow money at 4.45% (3.6% after taxes) and being able to invest it at a higher rate, 7% for argument’s sake.  Over a 20 year time horizon (about how long it takes her to pay off her student loan), stocks have historically done much better than that 4% hurdle.  For all these reasons, it does make a lot of sense—in Starty’s case thousands of dollars each year—to slowly pay off her college debt and put that money into her 401k.

How much should I save during my working years?

Monday we started tacking the enormous question of “How much do I need to retire?”  We dove into the first sub-question:  How much will I spend in retirement?  Now we’re going to take on the next question: How much should I save during my working years?  Then tomorrow we’ll bring it all together by answering the third question: When can I retire?


Let’s start talking about savings.  We know that savings is the fundamental ingredient in investing and we know that starting early provides a great advantage.  We’re going to use the example of my cousin, Skinny Fox.  Skinny is 22 years old, just starting out with a $50,000 per year job.  She expects salary increases of 5% (a little more than inflation) and she’ll eventually top out at a salary of $150,000 per year (in future dollars).


Social Security

The first place to start when thinking about your nestegg is Social Security.  That’s the “forced” savings plan the US government makes you do.  It’s complex and there is a lot of nuance, but basically they’ll take 6.2% of Skinny’s income (plus another 6.2% from Skinny’s employer) over her working career.  When it’s time to hang up the spurs, she’ll get a monthly pension.  So in a very real way, Social Security is your first “savings” method.

Unfortunately, the rules for Social Security aren’t very straight-forward when it comes to figuring out how much you’ll get based on how much you put in.  However, it seems reasonable that a middle-class fox like Skinny will get a middle-class payout from Social Security like $2,000 (in today’s dollars) per month starting when she turns 67.

For Social Security, when Skinny “saves” her 6.2% of income ($3,100 in her first year of work), that gives her a pension that will be worth about $450,000 in today’s dollars; that’s about $1.6 million when Skinny turns 67.



When Skinny Fox was looking for her job she knew how important it was to consider the company’s benefits beyond just the salary.  Her company offers a 401k and matches $0.50 for every dollar up to 6% of her salary.  Skinny knows she should max out her 401k because of tax reasons, but that’s just not realistic for her, so she just contributes the 6% to get her company match.

Her first year she contributes $3,000 to her 401k and her company kicks in a $1,500 match.  Over her entire career her 401k will steadily build until she turns 67 and it’s worth about $1.9 million (in future dollars)!!!


IRA and other savings

Skinny is a nervous soul whose father fox always taught her to save, save, save.  She knows that she can contribute to an IRA, after reading this blog she knows it should be a traditional IRA and not a Roth, with $5,000 per year.

When Skinny turns 65, that IRA is worth about $1.2 million.

If she’s still nervous, she can save in a regular brokerage account that doesn’t have the tax advantages of a 401k or IRA.  Each $1,000 per year she saves equates to about $200,000 when she turns 65.


This really illustrates the power of compounding.  I’m not saying that $3,000 per year for her 401k or $5,000 annually for her IRA isn’t a lot of money.  Especially when she’s first starting out—it’s definitely a lot.  But $8,000 doesn’t seem insurmountably unrealistic for Skinny.  Each year after that it gets a little easier.

However, the payoff seems huge.  Slowly and steadily, over her 43-year working career, her 401k will have steadily grown to $1.9 million and her IRA to $1.2 million.  She’ll also have a backstop of Social Security which would have a lump-sum value of about $1.6 million.  Combine all those, and she’s got a nest egg of about $4.7 million in future dollars (about $1.3 million in today’s dollars).

That certainly seems like a lot, but is it enough?  We know from yesterday’s post that $1.1-1.6 million is right in the range of a pretty decent retirement.  So Skinny’s there just based on her 401k, IRA, and Social Security.  The good news is that doesn’t include any home equity she builds over her adult life, extra savings just from making more than she spends, or any inheritances or other unexpected windfalls.  So maybe there’s some cushion there.

On the other hand, she maybe she shouldn’t feel especially comfortable.  She has a clear path to $1.3 million and she’ll need $1.1-1.6 million.  That’s definitely within the margin of error.  What is a vixen to do?

Come back next Monday for our final installment of this blog mini-series where we bring together what you’re going to spend in retirement with how much you have saved for retirement, and we’ll see if it all works.

I screwed myself by rolling over my 401k


Kind of, but not really.  I wanted to put a dramatic headline up to see if that would drive more traffic.  However, I did lose a little bit of money by rolling over my 401k from Medtronic into my IRA with Vanguard.  Here’s my story:


As you know, I left my job at Medtronic a while back.  Whenever you leave a job, there’s actually a lot of work involved with your finances.  You have to move them from the accounts set up by your company, to your own individual accounts.  Best case is it’s a pain in the butt; worst case is you can forget about some of it and lose it forever.  So it’s an important process.

So when I left Medtronic I knew I had to take my 401k account and roll it over into an IRA.  But there wasn’t a lot of urgency because Medtronic had their 401k at Vanguard, and all our other accounts are at Vanguard, so it seemed fine.  But then the Medtronic/Covidien merger happened, and as part of that, Medtronic switched from Vanguard to Aon Hewitt.  I wanted to keep all my money in one place for convenience sake, so I called Aon and initiated the rollover.

For those who have never done it, it’s a pretty simple process.  You set up an IRA account where you want the money to go (Vanguard in my case).  They’ll ask you how you want to fund the IRA and you click on a choice that says something like “Rollover”.  Then you call up the place where you’re money is at (Aon in this case) and start the process.  Usually they’ll send you a check which YOU DO NOT CASH, but instead just send it on to Vanguard.  Overall the process takes about two weeks.

But that two weeks is what screwed me a little bit.  During those two weeks your money is not in the market.  As you know from many posts I have done, the stock market is really unpredictable in the short-term, so it’s impossible to time the rollover process to your advantage.  Ideally, that two week process would coincide with a brief downturn in the market.  Conversely, you hope that two week period isn’t when the market stages a blazing recovery.

Based on the title of this post, you can probably guess what the case was for me.  As we know, the first few weeks of the year were really bad for stocks, and then they started a slow recovery.  If I could predict the future, that would have been the time to do my rollover, at the beginning of the year right before stocks fell 10% over the course of a couple weeks.  Of course, if I could predict the future, I would own my own island in the Caribbean.

I took the plunge in mid-February, and as you can see, stocks started inching up.  It was a perverse feeling: of course I like when stocks go up because we have so much invested in stocks.  But on the other hand, I felt that part of my portfolio was missing out on those gains.  Following the stock market too closely can really mess with your head.  Anyway, after a week, I got my check from Aon, which I promptly sent to Vanguard.  In that week, stocks were up about 0.8%.  My 401k from Aon was worth about $140,000, so missing out on that 0.8% gain cost me about $1100.

Once I put the check in the mail to Vanguard, the investing gods decided I needed to be further humbled, so in the next week stocks went on a major tear, rising about 3.2%.  Of all the times, why then?  My being out of the market for that week cost me another $4400.

Roll over IRA

Add that up and you’re talking a decent chunk of change.  My timing for doing the rollover couldn’t have been worse, and in the end I missed out on about $5500 in market gains.  That sucks.

But you win some and you lose some.  I am sure that I have come out ahead some of the other times I’ve transferred accounts, but as Matt Damon’s character said in Rounders: you tend to remember your spectacular loses more than your amazing wins.  Just human nature I guess.

That said, there’s definitely a lesson there, which is you need to stay in the market.  As we have discussed ad naseum, the market is very unpredictable in the short term often times with wild swings.  But over the long term it has a relentless upward march.  I had to get out of the market for a pretty unavoidable reason, so maybe I get a pass.  But what about those people who got spooked by the January plunge and then missed out on the February recovery?  They got crushed and could have really hurt their financial plan.


So there you go.  I hope you were entertained by my misfortune.

Biggest investing mistake—Forgotten money

Lost and Found 2

On this blog we talk about a lot of ways to scrape out a little bit higher return for your investments, or shave off some of the expenses.  That one or two percent may not seem like a lot, but over time 1% can really add up.

However, what if I told you there was a mistake a lot of people make that doesn’t cost them one or two percent of their investment, but costs the entire amount of their investment?  What if I told you Stocky Fox himself came really close to making this mistake?

Forgetting your money.  It seems absurd that you would ever “forget” about the money you have worked so hard to save, yet this happens to people all the time, maybe it’s happened to you and you didn’t even realize it (that’s what “forget” means), and it almost happened to Stocky.


My close call

As you know I left my job at Medtronic a while back.  Like so many, much of my nestegg was tied up there—my 401k, Medtronic stock options I had received, Medtronic stock I had purchased at a discount, money I had set aside for a flex spending account.  When you switch jobs you’re especially vulnerable to “forgetting” about your money because you have to move it (sooner or later) to a place that isn’t dependent upon your former employer.  Probably similar to when your packing up all your stuff after a hotel stay, you’ll probably get most of it and certainly the most important stuff, but you might forget something that isn’t top of mind.

To make matters worse for me, Medtronic just merged with Covidien so the companies that held all the accounts changed.  Our 401k was with Vanguard but got switched to Aon Hewitt; our stock purchase account went from Wells Fargo to Fidelity; our stock options went from Schwab to Prudential (I think it was Prudential).

So, if you use that hotel analogy, I thought I got all my stuff, but if I did forget anything it would be nearly impossible to find it because they kind of changed the location of the hotel after I checked out.  But I wasn’t really worried because I tend to be on top of this stuff.  I am Stocky Fox after all.

Fast forward and the Fox family moves to North Carolina.  Because we bought our NC house before our California house had sold we had to scrape together a lot of money for the down payment.  That worked out well because when I quit my job all my stock options expired, so I had to cash those out anyway.  We just used that money to go to the down payment.  Simple story right?  All well and good.

As it turns out, I did exercise all those stock options, but didn’t get the check for all of them.  For reasons that aren’t worth diving in to, the money for my most recent options couldn’t be sent to me for a while longer.  I didn’t realize that, and I thought I had gotten all the money.  Wrong.  There was still about $8000 of the Fox family’s hard earned money sitting at Schwab that I had stupidly forgotten.  But then, because of the merger, that money I didn’t know about got moved to Fidelity.  So I had money I didn’t know about in a place I didn’t know existed.

Luckily, Foxy Lady’s 401k is with Fidelity so I log in there every once in a while to check on that.  One time when I was at the Fidelity website, just on a wild lark, I put in my old username and password (my 401k from another employer was with Fidelity).  To my shock, there was $8000 in my account.  It took a little bit of digging and calling them to figure it all out, but that was the money I had thought I had taken (just like the shirt hanging in the closet of the hotel you thought you packed).

Since then I have double and triple-checked all the old accounts and called the new places that have the accounts and I’m pretty sure that I haven’t left any money behind.  But I was pretty sure I had done that before, so I don’t know how “comfortable” I should be.


How this might affect you?

Maybe the details are different, but this same story happens ALL THE TIME.  I help out a lot of people with their finances, and it’s not uncommon for people to say after they’ve shown me all their accounts: “That’s pretty much it.  But you know what?  I think I had something with someone from that job three jobs ago.”

Maybe it’s not a lot of money (if it was a lot of money, you’d probably remember it), but it still adds up.  That $8000 for me will probably grow to $50,000 by the time I’m 65.

Obviously it’s not easy to remember things you have forgotten; that’s what the word “forget” means.  But if you know this can happen, you can put your guard up and maybe be a little more diligent.  A few of the common ways this can happen, based on my own experience and that of people I work with, are:

  • 401k from previous jobs—this is probably the single most common example. A good practice is to know where all your money is.  When you switch jobs, this is a time when you really can take it all with you.
  • Other investment accounts with your job—like my situation, you might have money in other places with your employer.
  • Life insurance—Foxy Lady has a policy that her dad, Papa Ocelot, set up for her when she was a little vixen. It has a cash value and every year we get a statement on it, and every year we don’t do anything with it and the cash value steadily decreases.
  • Money when you move—If you move you have about a thousand balls in the air. Often times you might have a deposit with a utility or you have prepaid for a year with your insurance or something else.  That money is yours but you might have to put a little effort in to get it.  Otherwise, it will just sit like an orphan is some abandoned account.


The point here is obvious.  We all work hard to earn money, and even harder to save it.  And of course, no one intends to do this.  But so many things can hit you at once and even someone who is really on top of their finances (as I believe I am) can let something fall through the cracks.  But this is the easiest money you’ll ever make.

Do yourself a favor tonight.  Take 15 minutes to go back in your head and try to remember all the places you’ve saved money—that 401k account, those savings bonds your late uncle gave you as a kid, what ever.  Can you account for it all?

The power of a single percentage

2014-02-18 (1 percent)

“How can something so small be so impressive?” –Belinda Heggen

1% doesn’t seem like a lot.  It’s the extra sales tax my city adds, hoping I don’t notice it.  It’s the maximum amount of gross stuff food companies can put in packaged food without having to tell us (I don’t know it that’s true or not).  But in investing 1%, while so easy to overlook, can make a huge difference.  Here we’re going to find out how we can get that 1% to help us.

Let’s go back to my neighbors, Mr and Mrs Grizzly.  Each year they will save $10,000, investing it in a stock index mutual fund with an expected annual return of 6%.  After 30 years, they expect to have $790,581 saved (good time for the disclaimer that I am not predicting future stock performance, just giving an example), a tidy little sum to help see them through their golden years.

However, Mrs Grizzly starts playing with her spreadsheet and changes the annual return from 6% to 7% just to see what happens.  She’s astounded to see that the $790,581 that she gets with a 6% return balloons to $944,608 if she assumes a 7% return; that increase in the annual return of 1% led to an increase in her nest egg of 19%.  Tempting fate she sees what happens with an 8% return: $1,132,832.  She’s a millionaire now.  Cranking the return up to 9% made her nest egg $1,363,075; just increasing her return 3% nearly doubles how much she and Mr Grizzly will have to retire on.  Ladies and gentlemen, welcome to the power of compound interest!!!

Percentage graphic

The point here is that a seemingly small 1% change in your investment return can make a huge difference over time.  By tailoring your investment strategies to collect as many “1% coupons” as possible, you can substantially increase, even double, the value of your nest egg.

So how do we get those higher returns?  Most people will default to higher stock returns: “It’s a no-brainer.  Instead of investing in the stocks and mutual funds that return 6%, let’s invest in the ones that return 7%.”  Unfortunately, after reading A Random Walk Down Wall Street we know this isn’t so easy.  For any given level of risk, our investment return is probably going to be what it will be.

Now that changing the actual investment return is out, what are our options?  Fortunately there are a lot of other things that affect our total return beyond just what our investments give us.  We’ll dive into each one of these with its own blog post, but a few to think about at a high level are:

  1. Mutual fund management fees: Each year mutual funds charge between 0.05% all the way up to 1.50% or more for management fees.  Going from high-cost mutual funds to low-cost funds can easily get us a 1% coupon.
  2. Financial planner fees: There are a lot of people out there who are more than willing to tell you how to invest your money for a small fee.  Except that fee doesn’t tend to be all that small: about 1-2% of your total assets.  Do-it-yourself investing can absolutely give you that 1% coupon, and the results you produce will probably be similar to those your investment adviser would.
  3. Being smart with taxes: You know Uncle Sam is going to take his cut.  However, you can delay when he takes his share with IRAs, 401k’s, etc.  This allows you to keep the money longer, and it allows to you be taxed on the money later in your life when you will probably be in a lower tax bracket.  Being smart with your taxes can easily get you a 1% coupon.
  4. Take the “free money” offered to you: Many of us work for companies that match 401k contributions.  Except they only give you the extra money if you invest in your 401k.  So at least putting in up the minimum amount of get the match can absolutely give you one or two 1% coupons.
  5. Proper asset allocation: We all know that some of your investments should be in higher return, riskier investments like stocks and some should be in lower return, less risky investments like bonds.  Properly assessing your portfolio to know how much you already have in less risky investments (especially things like pensions, Social Security, your home equity, etc.), can allow you to safely put more money in investments like stocks.  Over the long term, this could easily increase your return each year and get you a 1% coupon.
  6. Fully investing: So many people I talk to have $10,000 or $20,000 or $50,000 in their checking account that they’re “just waiting to figure out what to do with it.”  These are certainly Champagne problems, but they are also fertile ground to find 1% coupons.  Just taking that money and putting it in a bond fund instead of a checking or money market account could easily give that extra 1% or more; investing in a stock fund will provide even greater returns over the long run.

Those are just a few examples of how you can squeeze an extra 1% or more from your investment returns.  You’ll notice that none of those strategies include “outsmart Wall Street and pick the stocks that are going to do the best.”  I’m not that smart; I wish I was because then the Fox family would own its own island in the Caribbean next to Johnny Depp’s island.  These are all really simple strategies that anyone can do, and each of which takes less than a couple hours to set up, and can lead to hundreds of thousands of dollars over your investing lifetime.  The Fox family has benefited by these little strategies probably to the tune of 4-5% extra return each year over what seems typical among your average American investor, and that has equated to hundreds of thousands of dollars.

So here’s the bottom line:  As you read this blog, we’ll constantly be finding “extra 1% coupons” that you can redeem to increase your overall investment returns.  As Mrs Grizzly showed, even one of those can add $150k to your nest egg.  If you can gather two or three or even more, you can double your nest egg.