Ask jlcollinsnh

Please note:

For the time-being, my schedule does not permit the time to respond to questions here.

Once I am again able to, I will post another note announcing it.

Thanks for your patience and I hope you will save your questions until then.


         JL Collins

Ever since the start of this blog I’ve received questions and requests for help from readers. Mostly these come as comments on one post or another and sometimes by private email. Since most of these questions are likely on the minds of others, I prefer to respond on the blog and I ask emailers to post their questions here.

So with that in mind, I’ve created this page. This is how I hope it will work:

  • If you have a question or comment that is specific to a given post, by all means please continue to put it there.
  • If you are one of my international readers and are trying to figure out how to apply the advice here to the investment options in your home country, there are two posts about that: Stocks — Part XXI: Investing in Vanguard for Europeans and What if you can’t buy VTSAX, or even Vanguard.Please check them out along with the questions and answers you’ll find in the comments. And post your own there.
    This is already growing into a nice data base of international investing info.
  • If your question doesn’t really fit with in other posts, right here is the place. Put it in the comments and I’ll try to answer as many as I can.
  • Some questions will also become part of the growing series of Case Studies.

The investment ideas of others:

Occasionally in the comments I am asked to read some book, article and/or blog and dispute the ideas in them. I simply don’t have the time or inclination to do this.

If you read my blog you’ll soon have a very clear idea of my views. You can then read other sources, compare and decide for yourself what resonates.

Important points before you post:

Be sure to read the Disclaimer Page.  You are always solely responsible for your own decisions.

If you choose to comment:

You are solely responsible for any comment/content you leave on this blog.  By leaving a comment on this blog it becomes a part of the public domain and you hereby grant the owner of this blog the unlimited right and license to use, copy, display, save, reproduce, distribute, or publish (including, without limitation, in another blog post, article or book) your content or comment free of charge.



  1. Eric says

    Mr. Collins,

    I’m a long time reader of your blog and thought I’d reach out with what I hope is a quick question.

    I have been living a fairly frugal lifestyle since I was a teen quite by accident and stumbled across the ERE website when trying to decide if I had enough money to retire. From there I ended up on MMM and eventually on your blog through google searches and blog rolls. I believe I’ve read your entire archive at this point and really enjoy your work.

    I’m a 41 year old single renter with very little debt ($23k in student loans at 2.85% so I invest the money rather than pay off the loan). I have roughly $400k split between a 401(k) and rolled over IRA and another $1.8m currently invested in Fidelity and Vanguard mutual funds. I currently make $450k ish from work and pay an obscene amount in taxes. I’ve been FI for several years, but don’t dislike my job and figure I might as well make hay while the sun is shining. I also wouldn’t mind building up a cushion so that family and other decisions can be made without an impact on lifestyle. That being said, if I were to lose this job I don’t think I would work again for quite a few years, if at all.

    After testing out a wealth tracking tool at “Personal Capital” I was approached by a financial advisor there and sat through a pitch on them handling my portfolio. The main benefits that they articulated related to tactical weighting and tax loss harvesting. Following this meeting I set up a similar meeting with a financial planner at Fidelity and another at Vanguard. Since you’re the smartest guy I know on this topic I thought I would solicit your advice as well.

    I know that you utilize a VTSAX/Vanguard Reit/Cash strategy but I was wondering if you think an alternate strategy is warranted for a person in my situation. Am I making a huge tax mistake by investing in mutual funds? Any other strategies you would consider in my situation other than the ones I’m hearing about above?

    I know that all advice depends on personal circumstances and results will vary. I also know that you aren’t holding yourself out as an investment advisor so I promise not to rely or make any investment decisions based on your answer, but I am very curious as to your thoughts.

    Thanks very much for your work on this blog. You are definitely making the world a better and more informed place!



    • jlcollinsnh says

      Welcome Eric…

      and thanks for the great question and very interesting situation.

      Let’s walk thru this together.

      First, as I suspect you already know from interviewing a couple, with your net worth and income you are a mouthwatering target for financial planners. Be very, very careful and if you haven’t already, please read this:

      Second, let me say that larger sums of money don’t change my basic advice.

      Third, I like your student loan strategy. Makes perfect sense. Because it is so small against your resources, I’d probably just pay it off. But that reflects my affection for simplicity. What you are doing is more correct financially.

      Fourth, you say you are FI. Since you have 2.2 million in assets, this implies you are comfortable living on 4% of that: 88k per year.

      If this is the case, with 450k in annual income, you either are willing to take a major step back lifestyle when you hang up the job or you have a very high savings rate. If the latter, I have to wonder why your net worth isn’t higher. Perhaps you’ve only enjoyed this income level recently?

      In any event, my overall advice would be:

      *Since you are financially independent, begin living solely on your investments.
      *Now you can decide anytime if you are still having fun and want to continue your career. Or possibly try something new.
      *If you keep working, invest 100% of your earnings. You are living on your investments now.
      *This will, of course, dramatically accelerate the growth of your assets.
      *This growth of your assets will, in turn, accelerate the growth of the spendable dollar amount 4% represents.
      *Now, should you so choose, is the time to begin expanding your lifestyle. Just be sure to keep it at 4% of your holdings.
      *Now is also the time to think about giving like a billionaire: There are some interesting tax advantages.

      (BTW, those points all come directly from this post:

      Ok, now finally to your actual question.

      No, I don’t think you are making a tax mistake investing in mutual funds.

      For the bond portion of your portfolio, you might look for a Vanguard tax-free municipal bond fund. If you live in a high tax state like NY, NJ, CA try to find on focused there to avoid those taxes, too.

      But if you are really FI and able to live on that 88k the 2.2 million will throw off, consider focusing on just VTSAX. As a broad-based stock index fund, this is considered a “tax-efficient” investment. Here’s why:

      –Taxable dividend payouts are relatively low and dividends still receive favorable tax treatment. VTSAX currently pays about 2%.
      –Capital gains distributions. These are distributed by mutual funds at the end of the year and represent a taxable gain, if any, on the trading the fund has done. These also have favorable tax treatment. But since VTSAX is an index fund it does very little trading and it mostly avoids these taxable gains.
      –Capital gains on the growth in value of your shares. This is the big one and what you are investing in VTSAX mostly for. Tax on these gains is due only when you sell shares, so you have some control. Like waiting until you hang up the job and your income drops.

      At your income level and with your growing net-worth, relatively high taxes are going to be a fact of life. Certainly you want to consider and plan for them. But don’t loose sight of the fact, as problems go, this is not a bad one to have.

      Finally if you are willing to share, and of course I have to ask, what do you do for a living?

      • Eric says

        I’m a corporate attorney in California.

        I recently went back and tracked my spending over the last ten years (very easy to do looking at bank statements). It has vacilated between a high of $67,250 (2008) and a low of $56,231 (2012) (excluding taxes paid in both cases). It’s pretty suprising how consistent it is over time considering that I don’t budget or think about expenses other than as a “to purchase or not to purchase” decision as they arise. I tend to spend on things I value (I play a lot of golf, travel alot and eat at a lot of nice restaurants) and not on things I don’t (I drive a 13 year old car with the paint peeling off).

        Over the last four years my savings rate has been roughly between 65% and 75% (again excluding taxes).

        In terms of why my net worth isn’t higher, I borrowed to attend college and law school, so started with a pretty high level of debt. I’ve also taken a couple of mini-retirements to travel (one year between jobs in 2001 and two years between jobs in 2005-2007). My income has also grown at a fair pace over the years so savings percentage wasn’t always this high and frankly has never been something I’ve focused on.

        I really appreciate the advice here!

        • jlcollinsnh says

          Thanks for sharing this, Eric, and major league kudos.

          Sounds like we share many of the same priorities, including the “mini-retirements” and except the golf. I’ve always felt I had enough grief in my life without that. 😉

          Speaking of grief, does your 13 year old car with the paint peeling off draw any from your colleagues or clients?

    • Joshua says

      A wise man once said that the first half of life is spent fucking up, the other half is dealing with it. Obviously you are a very wise man, because you seem to have side-stepped a lot of the fucking up aspect of life. But what advice do you have for someone who maybe did make a big financial mess, someone without John Goodman or JLCollins to sit them down and set them straight, someone staring down the barrel of their fifties with debt in the six figures? Pay off debt first, then build a nest egg? Hire a professional or try to figure it out myself? Thanks in advance -Joshua

  2. David says


    This is a topic that my wife and I have been debating (not arguing) for some time now.

    First off, we are both 29, make about 140k combined per year, and have zero debt except 130k left on our mortgage (3.25%, 15yr fixed), we also have our first child due this year. We have 120k saved in a combination of retirement accounts and straight mutual funds plus around 20k in cash accounts. My goal is to be able to retire at or before age 40.

    The question is a common one, but as I’ve found very few people who share my views on money and even fewer who have actually been down the road I hope to stay on, it’s been difficult to get any good advice on the topic. Every financial advisor I’ve spoke with thinks I’m crazy when I tell them I want to retire around 40, and then proceeds to try to sell me some high fee funds or cash value life insurance (blah).

    The debate we are having is whether it’s better to pay down our mortgage very quickly (in our case it would be paid off in about 3 years) or to only pay minimum payments on the mortgage and instead put all that money into retirement accounts and other investments. Since the mortgage is such a low rate, I know that purely mathematically we would be better off in the long term investing over paying down the mortgage. The problem is that I tend to value the freedom of a paid off house over a higher net worth, while my wife prefers to look at the overall picture and seeing our savings grow faster. I know she’s right based on the math, but a paid for house and zero debt just seems too sweet for me.

    We are currently putting 55% of our take home pay into paying off the house and about 10% pre-tax into retirement accounts to take full advantage of employer matching. After the house is paid for the plan is to divert the extra money into retirement accounts and mutual funds. Undoubtedly having kids will slow this down a little, but I prefer to have ambitious goals to easy ones.

    Thanks in advance,


    • jlcollinsnh says

      Hi David…

      First, let me offer my congrats to you and your wife on the upcoming birth of your first!

      And for the great start you’ve made toward FI. No question, with your discipline you’ll be there in 11 years. Probably a lot sooner.

      Regarding the mortgage, it sounds like you guys have already sorted out the issues:

      1. At 3.25% fixed no question it is financially better to pay the minimum and keep that going as long as possible. You have better options for the money. Point for your wife!

      2. But I also take your point on the emotional satisfaction of being absolutely debt free. I actually paid my mortgage off early for this very reason. But as I said to Eric above, that reflects more my affection for simplicity than financial acumen.

      Assuming that once the mortgage is toast, you crank those monthly payment into your investment portfolio, this will work almost as well.

      So you are really faced with a choice that is as much personal as financial. As you say, zero debt is sweet. But sweeter still just might be a happy wife. 😉

      Finally, as I suspect you already know from interviewing a couple, with your growing net worth and income you are a mouthwatering target for financial planners. And they are not likely to understand or appreciate your take on your financial life. Be very, very careful and if you haven’t already, please read this:

      Be sure to check back and let us know what you decide.

      • David says

        Thanks for the congratulations, we’re both pretty excited about the kid on the way.

        One thing I forgot to mention is that we would like to move to a larger house once we have a few kids (and the first house is paid for), it would add around 100k to our total house price and at that point we would just pay the minimum payments and put as much into investments as we can.

        For people retiring well before 59.5, where do you recommend putting money, all standard mutual funds? We already use the vanguard funds you mention elsewhere for everything outside of 401k/403b accounts. I know there are ways to withdraw from a 401k before 59.5 years old, but I’m wondering if the rules are practical for early FI. I’m wondering if you think minimum 401k/403b contributions and put the rest into vanguard funds? This is another point of disagreement, my wife would like to max out tax-deferred accounts, then roth, then other places, but I don’t like the idea of having so much tied up in accounts that are tough to get to before 59.5.

        I’m with you on the financial “advisors”, I mostly meet with them because it doesn’t take much time and I occasionally get some good information from them. After a while the sales pitch does get old though.

        • jlcollinsnh says

          Once again, David, I’m on board with you wife. 😉

          At 140k, you guys are at an income level where the tax advantage of 401k/403b contributions is significant.

          Your saving rate is also large enough that you can fully fund these and still invest outside them.

          Once you retire, it is these “outside” investment accounts you’ll be drawing on to live. Mostly likely, you will have to draw down principle in them to do so.

          No worries, even if you draw them to zero. Meanwhile your tax advantaged accounts will have been reinvesting all their earnings and growing unmolested. You’ll just switch to these when the time comes.

          The key is to look at your investment portfolio as a whole.

          Congratulations on being married to such a smart lady! 🙂

        • David says

          I definitely married a good one. Thanks for all the insight, she will especially like that you are with her on this 🙂

  3. Michelle says

    Dear Mr. Collins,

    Good day! I hope all is well with you.

    I’m an avid reader of your blog and really look forward to each new post you send out. I have especially read all your posts on investing in the stock market, as I know nothing about this field, and always felt quite hopeless ever understanding it, much less have the courage to invest in it, until I came upon your blog.

    If I may, could I please just ask your opinion on my situation, as I have been turning things over in my mind for the past several months, and really have had no one else I could ask.

    I’m single, 41 years old, working as a nurse in Australia. I have always been quite frugal and saved 50%+ of my pay by buying two rental properties and my “savings” was paying whatever the shortfall in the mortgage was from the rents I was receiving. In short, I’ve been negatively geared for both rental properties. I invested in real estate without really thinking much about it, as I felt this was an investment I understood, since I can see the bricks and mortar, so to speak, unlike the stock market, where all I saw was numbers on websites. I now realize that even my real estate investments weren’t the best ones to make, for many reasons I won’t go into now. But I have been staying afloat, and one will be paid off in 2015 after a 5 year mortgage, while the other one, located in New Zealand, I had a 30 mortgage on it, and at my current rate of payment and interest rate of 4.95%, I have about 15 years more to pay off. I have not thought of selling my New Zealand property as at this point in time, I would be selling at a loss, with agent’s fees, solicitor’s fees and other expenses related to selling a property, as you well know from recently selling off your house as well. At present, I am adding about Au$200+ every month to cover the shortfall in rent of this property.

    After reading your blog, Mr. Money Mustache, and Jacob in Early Retirement Extreme, I am thinking long and hard about investing in the stock market, but I am taking your strategy and keeping it simple, and want to invest in Vanguard here in Australia.

    My question to you is, at this point in time, I am not sure which option I should take with the extra disposable income I have coming in every month. Whether to keep making extra payments on my New Zealand property so as to expedite the number of years in which I can finish paying it off, or sell it when there’s a profit to be made, whichever comes first, or, should I instead just open an account with Vanguard already and start investing in the stock market here in Australia already?

    In case you’re wondering, and if it’s at all relevant to my question, I am aiming for early retirement, as early as I can make it anyway, so as to be able to do the things I love, and have all the time to raise my child, as I am currently pregnant.

    Thank you so much for your time, and for sharing your blog out there for all the rest of us.


    • Michelle says

      I realize my question is similar to Eric’s above, although my mortgage interest rate is at 4.95%, which is low enough for New Zealand, but doesn’t seem that low compared to the interest rates mentioned around here for the US.
      I do like the thought of owning my rental properties debt-free, but at the same time, want to be FI asap, so as to be able to spend as much time with my child as possible, especially since I’m a single mom. Wondering which fork in the woods to take. Thank you very much for your thoughts, Mr. Collins.

    • jlcollinsnh says

      Hi Michelle…

      Welcome and thanks for sharing your story.

      Sounds like you already know what mistakes you’ve made with the rentals, so we won’t dwell on those. Don’t feel bad. I have too. Here’s my tale of woe and lessons learned:

      Your NZ property is your main problem here and you are hemorrhaging (a term just for you as a nurse! ;)) $2400 a year. That’s huge. While you haven’t shared how deeply under water you are on this, my first instinct is to sell it, take the loss and move on. As you’ll see reading that series I linked too, that’s what I did. Tough medicine to take, but no regrets.

      Back when I was investing in RE we used to call this kind of property an “alligator” in that it would eat you alive.

      Rid of it, your life will be simpler, you’ll have more time for the much more important task of raising your new baby and you can begin to rebuild.

      If you are determined to keep it for some reason, then I would take the extra cash you’ve been putting toward the mortgage and open a Vanguard account. This will give you:

      1. Some much needed diversification
      2. Some much needed liquidity.

      If you haven’t already, be sure to read this post and the comments:

      Good luck, and congrats on the new baby!

      • Michelle says

        Thank you for your reply. After I posted my questions and read the most recent post and comments, I (belatedly) realized that if FI is my priority, the fastest way to get there would be to sell my rentals. Thanks again!

          • Michelle says

            Hi Jim, just an update on our discussion here. Like I told Linda below, I was able to sell my NZ property at last just in January of 2014. As soon as I didn’t have to think of that mortgage anymore, it felt like a huge weight lifted of my mind. I have since been investing all my extra funds in a Vanguard index fund. We don’t have as many choices in Australia as you seem to have in the US, and I chose the High Growth diversified fund that they offer here. I have realized the difference in just being invested in this one fund, over having to constantly think about how my rental house is doing and getting the occasional notice of yet another maintenance issue from the property manager. I now wish I had known all that I learned from you much sooner. 🙂
            At this point in time, I totally detest mortgages, and think that I will never take on another mortgage again in my life. I would rather save up all my cash in Vanguard, and if I do ever want to buy a property, just pay in cash. A mortgage is truly a form of bondage, to you your job.
            I lost a lot in that rental property. I sold it for NZ$10K less than I bought it for, but thanks to a consistently high-ish savings rate (50-60%), like you said in another post, it’s mostly a loss I don’t feel (unless I sit down and do the maths on it, them I might cry ;-)), and I’m not totally broke from it. Everything I learn from this blog, MMM and ERE have helped me so much, it’s invaluable what you share with the rest of us. Thank you again!

    • Linda van Zyl says

      Hi Michelle,
      What did you end up doing with this rental in New Zealand?
      If it’s in Auckland – the property market is rocketing at the moment and it should have increased a bit last year. Rent in Auckland is much cheaper than house prices – it would be difficult to find good ROI here.

      I also feel the market in New Zealand is completely overpriced, maybe even in bubble territory (inflated by overseas investors) and it would be to your advantage to sell now while the market is hot.

      Better than taking an even greater hit when the market inevitable tanks!

      And as an advantage to you, New Zealand dollar has strengthened greatly compared to Aus$, so you’ll get a bit more bang for your buck if you transfer the money back to Aus.

      If you’ve already sold the property – congrats on being free of that particular burden!

      • Michelle says

        Hi Linda! Sorry for the very late reply. Lucky I had a look at this thread again today, and saw your comment! Thank you! I was a bit tardy acting on my resolution, but I have sold the property, just closed the sale in January. The house is in Palmerston North. Like Jim said, I did have to bite the bullet, and sold for less than I bought it for. At least, I didn’t have to cover the costs of selling, which is what was most important to me. I ended up with less than NZ$2,000 to show for four years of owning the property and topping up my mortgage payments almost regularly. I did close in about two weeks though, and I was happy to end that chapter in my investment history.

  4. Dave says

    Hello Jim!

    I feel compelled to say that, first off, I have no formal education regarding finances and investments, and even less experience with it. With that being said, a majority of the lingo associated with the posts on this wonderful blog sometimes go over my head, and even the comments as well!

    Regardless, I figured that if investments were a path that I wanted to take, I should lay out my situation and see what advice I could receive from someone that has as much knowledge on the subject as yourself. Here are the current state of my affairs.

    I am 26 years old and I have only recently considered looking into savings accounts and investments (the latter term being a broad definition to me still). Currently I am sitting on a pile of debt that amounts to roughly 41k whilst my income is 44k (before taxes, etc).

    The only ‘investments’ that I have are in the NYS Retirement System (through work, and the details of which I do not recall at the moment) and in an online savings account with Ally (Interest Rate and Annual Percentage Yield at 0.84%).

    Currently, I have been focusing on whittling down my debt, primarily on paying off my car loan as to free up those monthly obligations in order to use that against paying off my student loans. With that in mind, I have been able to place whatever is left at the end of the month into the Ally savings account.

    My situation is not dire, but I am very interested in what you have mentioned about Vanguard, but putting in an initial investment of 10k is not feasible. As such, I read the one post (Stocks Part XVII) that mentioned ETFs.

    My question is as follows, would it be better for me to start committing to the ETFs? Or would the best course be saving up to 10k and investing it into the Admiral Shares? Or, perhaps I should not invest at all, and just continue using Ally?

    Any and all advice would be greatly appreciated, and if you need any details, I will do my best to be forthcoming with my information.

    Thank you, and I love the blog!

    • jlcollinsnh says

      Welcome David…

      ..thanks for your questions.

      First, don’t worry about just starting with this stuff. That’s what this blog is for.

      With that in mind, I am concerned that some of the lingo is confusing. I try hard not to slip into jargon, or at least to explain it when I do. But it can be an easy mistake for me to make. As you likely know in your own profession, after you get used to using certain terminology it can be easy to forget it isn’t second nature to others.

      So, never hesitate to ask around here about some term you don’t understand. Mmm. Maybe a glossary would be useful on the blog….

      Anyway, to your questions:

      Don’t worry about investing just now.

      With your debt load, it sounds like you are doing exactly what you should:

      Focus most of your resources to getting rid of it, fund your NYC retirement fund and build an emergency fund in a savings account. Ally is fine. This should be your sole focus until that debt is history.

      I’ll make the assumption you’ve dramatically cut back on your expenses and that you are making substantial payments on that debt each month. If not, this is your next step. The debt needs to be dead and gone.

      Doing this has two other great benefits:

      1. it trains you to live on far less than you earn.
      2. it gets you used to setting aside a substantial part of your pay.

      Once the debt is gone, start channelling 100% of those payments into your Ally account.

      Once you have $4000 there, take $3000 of it and open a Vanguard account in VTSMX:

      VTSMX is the “investors shares” version of VTSAX as described here:

      and it only has a 3k minimum. Once your account hits 10k, Vanguard will automatically convert it to VTSAX and the low costs associated with it. This is not a taxable event, so no worries there.

      Finally, don’t worry about ETFs. You don’t need them.

      • Dave says

        Sounds pretty solid to me, and thank you!

        As for what I said about the jargon, this is coming from someone who has only just started looking into investing within the past few months with no prior experience. As such, I have started reading through Mr. Money Mustache’s blog, and that is how I was linked to yours. So, the concern you mentioned, I would not worry too much about it. Someone who wants to understand it, and take the time to read, will have a thorough enough understanding to know where the start. Like myself!

        Honestly, I do have quite a bit to learn when it comes to living within my means, but I am learning and trying to find what works for me, and then doing what I can with the benefit of that and putting it against my debt.

        I will take your advice with Ally and continue with that up to the threshold you mentioned, and… See what happens from there.

        Thank you for your response! It’s difficult to find well versed people in this field. Keep doing what you do!

  5. Kim says

    Dear Mr. Collins,

    I would appreciate your wisdom with regard to my financial situation. I am an avid reader of MMM and more recently your site as well. Just in case you don’t browse the MMM forum questions, I wanted to post my question personally to you. As I just posted on MMM:

    Only 9 more days until my CD matures. A little background about me. Widowed in 2009 at age 45, luckily had life insurance so I didn’t lose my home. I paid it off. Put most of the rest in laddered CD’s. The last matures in 9 days. It is worth $188K. I’d like some advice on what to do with it now.

    I was lucky enough to find a wonderful man again and we recently married. Have thus far kept our finances separate but may join them at some point. I sold my house and we live in his now. My only expenses are food and gas. He pays everything house related.

    I work 30 hours a week as a nurse, make $30/hr, contribute $17,500 to my 401K, get an employer match of 8.9%, and I put in $5K/yr to my Roth IRA. Here are my own current assets as of today (I have no debt):

    Checking account (earning .25%) $1,064
    Savings account (earning .75%) $80,599
    Money market account (earning .75%) $116,330
    CD (earning jack shit) $188,500

    Retirement accounts (Vanguard IRA Target Fund 2030) $102,929
    Retirement accounts (Vanguard Roth IRA Target Fund 2030) $31,877
    Retirement account (Vanguard Employer Plan Target Fund 2030) $21,110

    I will also receive maybe $65K when my recently deceased parent’s home sells.

    2010 Subaru worth about $20,000

    I seem to be paralyzed with how to invest my CD and also the money gained when the house sells. Do I invest in Vanguard index funds? I’ve read every MMM post and know that I can’t just let it earn a paltry amount in a CD. I also know that I have way too much just sitting in my MMA and emergency savings account. My current net worth is over $600K and yet I’m afraid that I won’t be able to support myself should I lose another husband, who by the way is in great health. I’m tired of working my ass off as a nurse for very little praise and I want to retire ASAP so that I can thoroughly enjoy my life and new husband.

    All advice welcome and appreciated! Thanks!!!

    • jlcollinsnh says

      Welcome Kim….

      …and congrats on your recent marriage!

      Glad you found your way over here.
      As much as I like the MMM site I simply don’t have the time to keep up with the forums. Although I’d be curious as to what advice you are getting there if you care to post a link.

      Anyway, here’s my take.
      My first reaction is, as you seem to already know, you have a huge amount of your wealth in cash and cash equivalents: 387k/64% by my count.

      You also have 156k/26% in your TRFs (target retirement fund)

      20% of this is in bonds.

      For a young woman like yourself, this is extremely conservative. And risky. Risky because over time cash loses buying power to inflation.

      Once the 65k shows up you’ll have about 608k total. Using our 4% withdrawal guidelines that can generate 24k in annual income. If that covers your annual expenses you are FI. If not, it is easy now to calculate how much more you’d need in investments or how much you might cut in expenses to make it work. All depends on how motivated you are to step away from nursing.

      But, it sounds to me like you are already there. Your living arrangement seems very secure and low cost.

      My guess is the demand for nurses is such that you could step back in easily. If that’s correct, why not take a “mini-retirement” from it and see how you like it and how it goes?

      What I would do is move all my assets into your TRF. It is a good one, will give you an 80/20 stock/bond allocation and will automatically tilt more toward bonds as time goes by. Simple and effective. You can just set it, forget it and let it and time work their magic.

      But before you do, please sit down and read my Stock Series here on the blog. It will help you understand the wild ride you’ll be in for and why it doesn’t matter. It will also give you the understanding of the rational behind this advice you’ll need when times get tough.

      If, after reading, you have any doubts about your ability to stick with the plan, stay in cash.

      Good luck and let us know what you decide!

      • Kim says

        Thank you so much for your quick reply! So far the only response I’ve received on MMM was a link to your “Stocks Part VI.” I knew you were the man to ask! I will definitely go back and re-read your entire series of stock information.

        I’m not sure I understand “Once the 65k shows up you’ll have about 608k total. Using our 4% withdrawal guidelines that can generate 24k in annual income.” If all my money is in the TRF how is that generating 24K in income that I have access to? Wouldn’t it be better to put it into VTSAX non-retirement account?

        Thanks again!

        • jlcollinsnh says

          My pleasure Kim!

          The 65k is the money coming from your parent’s house as mentioned in your comment. I added that to the 387k in cash and the 156k in the TRFs to get the 608K.

          You’ll better understand the 4% concept after reading this post:

          VTSAX is a pure stock fund and, as you’ll find reading my series, my favorite tool. But it is very aggressive as there are no bonds to smooth the ride.

          My sense in reading your comment was that you are pretty conservative and so I figured the TRF would be a gentler step. Simpler too as I discuss here:

          It seems the best fit for you and it is a great approach.

          But if you are willing to do a bit more work and rebalance once a years, the strategies in the post the MMM forum sent you to work too. Depends on how much time you want to spend on this stuff! 🙂

        • jlcollinsnh says

          Hi Kim…

          One other thing?

          If you don’t mind, post a link to our conversation here over on the forum. Just in case others there are interested.

          Plus then I and others here can check it out.


          • Kim says

            Hi Mr. Collins, it’s Kim again. lol. I did post a link on MMM so that others can follow along. One more quick question. I’m in the TRF 2030 which as you pointed out is 80/20 stocks/bonds. I think you’re right that I’m a little more conservative and that a TRF is a good bet for me. Would it benefit me any to invest in the TRF 2060? It’s basically a 90/10 ratio, so a little bit riskier but maybe also more return. Would love to hear your thoughts on this. Thanks again!

          • jlcollinsnh says

            Hi Kim…

            Always a pleasure.

            Thanks for the link to here over at MMM, that’s great! But I was also hoping you post a link here to there so my readers here can find your thread over there.

            As for the 2060 fund, that would be my choice. But then I’m a very aggressive investor with a high tolerance for drops. So really, you question is more about your temperament than anything financial. Either will serve you well, as long as you stay the course. 😉

    • Michelle says

      Hi Kim, it’s good to see another nurse here. I can totally understand what you’re saying about work. In my case, I really just want to own my own time, and not be subject to a rotating roster for most days of the week. Unfortunately, I have a much longer way to go, you seem very well set up to retire already, if you wanted to. Congratulations on how far along you are on the path to FI. Wishing you the best of luck. Aren’t we lucky to have found Mr. Collins to show us the way to freedom 🙂

        • Michelle says

          At the rate you’re going, doesn’t look like you’ll need nursing care anytime soon, Mr. Collins. Unfortunately, yes, I’d want to be long retired by then 🙂

      • Kim says

        Good luck to you too Michelle! It is very nice to have other nurses here. I’ve already cut back to 30 hrs a week but like you it could be any 3 days of the week. After 20+ years of this, I’m pretty much over it! Freedom here I come.

  6. Darley says

    Hello Mr. Collins,

    I have been reading your site for the last few months, and thoroughly enjoy it, as it is very much inline with my thinking.

    I am new to the world of investing, as I am now managing a relatively complex portfolio, following my divorce. At first I was overwhelmed with the responsibility, as my ex managed our finances, and I was not involved.

    However, with due diligence, I am feeling much more comfortable in this new territory. After some effort and grit, I have come to the conclusion that Index Funds are the way to go.

    I hired a financial advisor to the tune of 2% of my portfolio, and although I knew I was paying too much, felt like I could trust him (and I interviewed several potential candidates).

    Now, one year later, I am convinced that I can manage my own portfolio (with the assistance of a financial advisor every now and then).

    I am having a heck of a time finding an advisor who is willing to work on an hourly basis; disappointingly, they all have their own agenda. Could you recommend a financial advisor to me?


  7. Kyle says

    Mr. Collins-

    Its finally glad to be in a place that feels like home and know that I am not the only one in the investment world that feels this way after reading some of the other comments.

    I have read many of your blogs, comments, and stock series articles over the last little bit and feel like I am ready to ask my own set of questions.

    I am 26 and currently have an income over 60k/year. I invest about 16% to my 401k two times a month (6% company match) and the annual allotment to my ROTH. I took your advice and just bought into the Total Stock Market Index today. As of now my ROTH portfolio sits at about 20% Total Stock, 25% Energy, 25% Healthcare and 30% Precious Metals (I messed up on this last year…I bought pretty low in hopes of it rising quicker than it has, but it keeps falling. Nonetheless, I want to get to a 50% Total Stock Market, 20% Energy Fund, 20% Healthcare Fund and 10% REIT allocation for the long haul. Do you suggest REIT for young people or would it be better served adding to my Total Stock Market Fund?

    My main concern is my 401k. In the three years I have been working and accumulated a portfolio totaling (33k) 70% is in company stock that pays ~4.0% yield, 15% in a high Expense Ratio REIT fund that I want to get out of and move to VG with a lower ER and tax-sheltered account, 5% Large Value, 5% small cap and 5% international. This is where I am totally clueless on what my AA should be closer too at this age and okay with high risk. I am thinking 60% Large Value, 25% Small Cap, 10% Non-US and 5% Company Stock.

    You seem to touch a whole lot more on mutual funds and vanguard in general, which I suppose is why I feel ok about the above mentioned ROTH; however, not so much on the 401k side. I am totally fine with the big risk, big reward scenario early in my career…that is why most of my holding are equities. I know this is a lot to throw at you amongst the many other readers that comment…but it always helps to get it off my chest and hear your opinion. What do you suggest for your daughters 401k AA (aside from her 100% Total Stock Market Roth)? I don’t want to dig into your personal life, but curious as to what you are suggesting others might want to do that are not as up-to-date on investing =)

    I appreciate your time and any advice that you can offer. If something is unclear or you need more info on please let me know. I am tired of worrying if I have the right AA and just want to set and forget for awhile 🙂

    • jlcollinsnh says

      Welcome Kyle…

      Glad this old place feels like home. Pull up a nice comfy chair by the fire and we’ll talk. This is actually going to be very simple.

      Four things jump out at me from your comment:

      –You are young: 26
      –You have a nice savings rate
      –You are “totally fine with the big risk, big reward scenario”
      –You “just want to set and forget for awhile”

      All great things and all completely at odds with the cumbersome portfolio you’ve put together.

      Here’s what I’d do:

      401k = 100% in the US EQ S&P 500 Index fund.

      This is Fidelity’s S&P 500 Index fund and it has a nice low expense ratio (ER) of just
      .05%. You might be wondering why I didn’t go with the All Cap Index that would more closely match a total stock market index like my favored VTSAX. Simple. The one offered in your 401k carries an ER of .16%. Yes, low costs are that important.

      A huge 401k concern is that you are holding 70% in your company’s stock. Double risk of holding an individual stock and one that is also the source of your income. My guess is that you get the juicy 6% match in choosing this option. If that’s the case, do it. They probably also require that you hold it for a certain period of time. But as soon as you can move as much as you can out of that stock and into your S&P 500 Index fund.

      Roth = 100% VTSAX.

      Non-tax advantaged accounts = 100% VTSAX. You should plan to build these too.

      With those two funds, you will now own a piece of every business held in all those other sector funds you now have. Sector funds focus on one business sector: Energy, Health, Metals, Small Cap, Mid Cap, International, REITS and the like. Almost any niche the investment industry can imagine. And they can imagine a lot.

      I am not a fan. In choosing sector funds you are essentially trying to do the same thing as in choosing stocks: pick the one that will out perform. Both entail predicting the future, an un-winable game.

      This is exactly what you were doing when you said: “Precious Metals (I messed up on this last year…I bought pretty low in hopes of it rising quicker than it has, but it keeps falling….)”

      In a very real sense, it is fortunate this trade moved against you. Had it worked, there likely would be no convincing you it was a mistake. At least not until your luck ran out on some much larger bet in years to come. Count you blessings, assuming you’ve learned the lesson here that is. 😉

      So given the four bullet points drawn from your comment, this is all you need.

      But it is also a very aggressive approach designed for maximum performance over decades and assuming you have the fortitude to weather the storms that will surely come more than once.

      If you are willing to give up some performance for a bit smoother ride, you can add bonds and REITS. In your case, they belong in your ROTH due to the ERs in you 401k offerings. Both need to be in a tax-advantaged “bucket” as they throw off taxable dividends and interest. VTSAX is the most tax efficient fund you can own outside IRAs and 401k.

      In addition to smoothing the ride, bonds and REITS offer some protection against the two really awful things that can happen in an economy:
      Deflation and Inflation.

      For more:

      That’s it. Set it and, except for continuing to fund it, forget it. 🙂

      • Kyle says

        Wow, thank you for your thorough and complete response… I would expect nothing less from you!

        I agree with everything you mentioned and that finally puts a lot of my concern to rest. Although, I do have a few questions … quick and simple I hope as I know you are busy!

        In regards to the 401(k) … my plan also has a US Equity Large Cap Value Fund with an ER of .07% and has beaten the S&P 8.09% to 7.66% for the lifetime of the funds. I am not at all going against anything you mentioned, but simply just asking if the S&P would still be a better choice with the -.02% difference in ER.

        In regards to my ROTH, would it be wise to wait until my PM&M fund rebounds before I sell and dump those shares into VTSAX? I am just thinking that it would hurt me more taking an $7/share loss than missing a few years compound interest … maybe not?

        One last thing, I know that bonds and REIT’s smooth out the ride a bit and offer some diversification. I am not to keen on Bonds at the present time as a safe haven, however, REIT’s have had my eye lately. Mainly, because I am trying to do some Real Estate Investing on the side with rental properties. Would you suggest REIT as a small holding in my ROTH at the current time for dividends, diversification, etc or stick with the plan and go all in with VTSAX? You mentioned you currently hold some bonds and reit’s but I am thinking that is only because you are taking less risk off the table and for me it may not be worth looking at right now?…

        As for me right now, I am going to set my allocations and forget them =) Thanks again!

        • jlcollinsnh says

          1. Doesn’t matter that the large cap fund has outperformed in recent years. Some sector fund(s) will always be outperforming at some point. Depends on what’s fashionable at the moment. In fact, the fact that large caps have had a good run is more a reason to move out of them now. Perhaps small caps are about to have their day.

          But again, this is all trying to out-wit the market and if you take nothing else from this blog, let it be knowing that’s a fool’s game.

          2. Same thing with waiting for your metals fund to rebound. You are assuming and hoping it will. Maybe. Maybe not. Trying to predict is, repeat after me, a fool’s game.

          3. You are right. I own bonds and REITS because of my age and being retired. Were I 26 it would be all VTSAX.
          If you are going to be buying rentals, you really don’t need a REIT fund. Rentals will be lots more work and you’ll be able to leverage them. Done well, the potential returns are greater than any REIT.
          (because, of course, you have something more than an investment at work: your labor and leverage)

          When you get tired of the work and hassles of rentals, look then to REITS. Owning them with your rentals will over balance you into real estate.

      • Kyle says

        oops… one more thing I failed to mention … *sigh* … my company matches 6% regardless of what its invested in. The 70% allocation was just me not knowing how to diversify a few years back and it just built up :/ however, atleast I have been receiving nice dividend payments, ha.

        • jlcollinsnh says


          Sounds like it hasn’t hurt you and there’s no reason not to leave it behind.

          Dump the stock into the S&P 500 fund. Have future contributions sent to the fund as well.

          Set it and forget it.

          • Kyle says

            I cant thank you enough! Your advice has finally put me at ease, ha! One last thing, if I am getting ready to open a ROTH for the wife in the near future, would you also suggest 100% Total Stock Market Allocation?

          • jlcollinsnh says

            Yep. Same advice for girls.

            unless maybe she’s 65 years or so old, of course. 🙂

          • Kyle says

            Haha… nope, at least I dont think so :-l

            I am going to pass your blog along to many friends and family and wish you nothing but the best…! I hope this makes your day =)

  8. Buck says

    Hi Mr. Collins,

    I know you and I are largely on the same wavelength and in my final step to become even more-so, I had a financial planning session with Vanguard last Friday. I wanted them to recommend a simplified portfolio for me given the answers I provided on their questionnaire (re: goals, tolerated risk, etc).

    I was tickled to see many of the usual suspects in their recommendation for me:
    – VTSAX (total stock)
    – VTIAX (total international stock)
    – VBTLX (total bond)

    I then asked why no REIT funds were represented (like VGSLX) and they explained that VTSAX (total stock) already accounted for all industries including Real Estate.

    I did a little verification and sure enough, VGSLX has 121 holdings and most, if not all (I didn’t check every single one) are also represented in VTSAX (~3200 holdings in total).

    I know in one of your posts you recommend an allocation as below:
    VTSAX – 50%
    VGSLX – 25%
    VBTLX – 20%
    Cash – 5%

    And just wanted to point out that investing in both VTSAX and VGSLX may be “double dipping” your exposure to real estate. This is not something I realized beforehand and thought I’d reach out to get your thoughts.


    • jlcollinsnh says

      Hi Buck….

      Always nice to see you here and your question is especially timely. I’ve been thinking about exactly that today.

      If you check out my conversation with Kyle, directly above in the comments here, you’ll see I slam his choice of multiple sector funds as being akin to trying to select individual stocks. Both are losing games. In the process I point out that with VTSAX he’s got exposure in all these sectors. REITS are even one of the specific sectors discussed.

      Then I go on to recommend VGSLX which is every bit as much a sector fund as any other he owns. Geez. 😉

      You are, of course, absolutely correct. REITs, like all other sectors, are well represented in VTSAX.

      This is one of the reasons I am comfortable with the concept of TRFs which combine just stock and bond index funds as discussed here:

      So, why do I still hold VGSLX? Mostly because it serves as a hedge against one of the two potentially devastating economic disasters that could happen:

      The bonds are my hedge against the other:
      Deflationary depression.

      More on those two ugly events:

      So REITS and bonds are a bit of ying/yang as I discussed here:

      and both provide a bit more dividend and interest income while we wait for disaster to strike. or if it doesn’t. 🙂

      Toward the end of that last post above, I offer an idea:

      “The Wealth Building with Cash Insurance Portfolio” and I begin by saying:

      “Confession time. I hate bonds and I’m not all that keen on REITs either.”

      I’m still toying with that idea and unfortunately readers didn’t much weigh in on it much at the time in the comments. But I’d sure be interested in your take over there.

      Along those same lines, in the comments here:
      I had this to say:

      “If I were to seek absolute security I’d hold 100% in VTSAX and spend only the 1.5-2% dividend it throws off. Basically, I’d be tying my future to that of every publicly traded company based in the most powerful, wealthiest and most influential country in the world. Companies focused everyday on dealing with the changing world around them and all the uncertainties it can create. Nothing is sure, but I can’t think of a surer bet than that.”

      But doing this would take more capital than I have. Maybe more guts in riding out the storms at this point too. 🙂

      Anyway, very astute observation on your part. I’ve been waiting for someone to catch this “logical inconstancy” and call me on it. Well done! I might even have to make this one a post.

  9. Kim says

    Thanks for such a super fast answer! I was just looking at the ER for the 3 funds. I believe it is .17%, .18%, and .05% for 2030, 2060, and VTSAX respectively. From what I can tell, Admiral shares aren’t an option for the TRF’s, hence the higher ER. Would it make a huge difference over the years to opt for the .05% ER over the other 2 options? Enough to make me want to accept the risk a little more?

    Here’s a link to where I posed my original question over on MMM forum:

    I’ve only received 2 responses there. I do truly value your opinion and gracious responses!

    • jlcollinsnh says

      Thanks Kim.

      Yep, ERs do make a surprisingly large difference over time. My take is if you can live with 90/10 bite the bullet and go for VTSAX. If not the extra cost is worth having the 80/20.

      Of course you can always add VBTLX to VTSAX and create your own mix. Then you just rebalance once a year to stay on track. I recommend on your birthday as it is easy to remember.

      I don’t believe any of the TRFs are offered in Admiral form.

      • Kim says

        Hi Jim,

        Back in June I wrote to you several times, with the following being our last convo:

        “I’m back for a little more advice. I received my payout check from the matured CD and deposited it into checking today. I’ve re-read (several times now!) your stock series and think I can suck it up and just go for VTSAX. My question is regarding cash reserve. I know you usually keep 5% in cash. May be a stupid question but is that 5% of your total net worth or what? I was thinking maybe keeping 7.5-10% of my total net worth in my MMA which is currently earning 0.75%. Also just realized that I can always take out my contributions to my Roth (not earnings on it) if I needed something in an emergency. So would 5% be best? Thanks!”

        I just wanted to tell you that I finally did bite the bullet last month and invested $300K in VTSAX. It felt great to have my green soldiers earning more money for me instead of sitting in a MMA. I will admit that these past few days of hearing about the gov’t shutdown, debt ceiling, etc., has made me a bit anxious but I will stay the course! My plan is to not check my account balance if possible. As per a recent MMM post I continue to be on a news diet. I never watch at home but sometimes see things on TV in our work break room.

        Thank you so much for all the advice you so generously offer here!


        • jlcollinsnh says

          Congratulations, Kim!

          No need to be nervous. After the gov’t shutdown, debt ceiling, etc resolve themselves there will be new crises to take their place in a never ending parade. Noise.

          We both KNOW there will be crashes, bear markets and pull backs to come. We both know the news will be filled with doom as if these things had never happened before. We both know they are part of the process. We both know they are not worth even a passing glance. We both know the market will not only recover, but march on to new heights making us wealthier.

          Everybody makes money when the market rises. But it is what you do when it is collapsing that will determine if it will make you wealthy.

          That was a classic MMM post and for readers who might have missed it, here you go:

  10. EGS says

    This response to Kyle answered something Ive wondered about:

    “Roth = 100% VTSAX.

    Non-tax advantaged accounts = 100% VTSAX. .”

    I wondered if this was too “weighted” into one category, but I think I understand the line of thought.

    • jlcollinsnh says

      Hi EGS…

      Basically, VTSAX is a total stock market index fund and it holds stock in around 3200 individual companies. Broad diversification.

      For more, check out the links I put in my reply to Kyle.

      If it still doesn’t make sense, come on back and we’ll kick it around a bit more. 🙂

  11. Steve says

    I really enjoy your posts, James. I have been generally following similar advice to what you give for a while but you are REALLY helpful on the particulars and I want to thank you.

    I am in my 20’s and have been recently inherited an IRA worth $50,000. My general investment strategy is 100% VTSAX. With the required minimum distributions (RMD, $1,000) I will need to take out each year I am thinking about 90% VTSAX and 10% in VMMXX. That gives me a few years worth of RMD in money market and the rest in stock. My question is will VTSAX my goal is to keep my money market value at $5,000 and reinvest the rest. Is this the right strategy? Will I be able able to make enough in dividends to replenish my withdrawals? Should I invest in bonds or REITs to produce more dividends?

    Thank you!

    • jlcollinsnh says

      Thanks Steve….

      Good to hear it’s helpful for you.

      I’m not sure I entirely understand your situation, but let me run down what I think I hear you saying and offer some thoughts.

      Seems you have 50k in an inherited IRA with a RMD of $1000 per year. Sounds like this is also invested in VTSAX? If not, my first step would be to move it there.

      VTSAX is currently paying a dividend of about 2%, so your 50k will throw off the $1000 you need to withdraw each year. Plus it has the potential to appreciate. Very sweet.

      Next it sounds like you are taking this $1000 per year and investing $900 in VTSAX and $100 in a MM Fund. 90/10 split, and you goal is to have $5000 in the MM fund.

      Since I don’t know why you want the 5k in the MM fund, it is hard to comment on the idea. My guess would be an emergency fund. But I can say that at $100 a year it will take a long time to get there. Way too long if an emergency fund is the goal.

      Unless you are very risk adverse, at your age I don’t see the need for bonds or REITs. This, of course, assumes you know market crashes will come and that you’ll be tough enough not to panic sell when they do.

      Hope that helps!

      • Steve says

        Thank you so much. You answered the question and sorry I didn’t explain very well. I have $50,000 which I need to transfer into an inherited IRA by the end of the year. I wanted to know what assets to have in my inherited IRA in order to produce enough cash to pay the RMD without selling funds at possibly disadvantageous times. My thought had been to put 10% in money market funds to cover the RMD but that is probably too much as you indicate and since the 2% dividend should cover my RMD.

        From reading what you wrote I should have a much smaller buffer than $5,000 (or 5 years). I need at least 1 year since I will have to pay RMD this year before I get any dividends and maybe a second year. That would be under $2,000. Is it stupid to put my money in the tax-exempt money market since I won’t meet the $3,000 requirement of VMMXX?

        Thanks again,

        • jlcollinsnh says

          Hi Steve….

          Got it. Given your age, I’d put 100% in to VTSAX. Set it up to have the dividends and capital gains reinvested. When you need to make the RMD each year just instruct Vanguard to transfer $1000 to your bank account or wherever you want it to go.

          You don’t need to worry about the $1000 coming from just the dividend. Treat the investment as a whole.

  12. Brendan says

    I am a recent reader of both your blog as well as Mr money mustache’s. Although your sites are full of valuable financial planning advice, I haven’t seen anything about your thoughts on life insurance or disability insurance for those of us who haven’t reached FI yet. I appreciate your comments and thanks again for this free and very valuable resource.

    • jlcollinsnh says

      Waddaya mean free?? Yer check better be in the mail. 😉

      Welcome Brandon…

      Glad you found your way over here.

      You are right, I’ve yet to write anything about life or disability insurance although I do have a planned post in my drafts folder. It is in the very early stages of development and is tentatively titled: Life Insurance v. F-You Money

      In a nut shell, I am not a fan of insurance. Fees are high, the fine print in policies is daunting and the value is low. It is sold based on people’s fears and the stories of tragedy.

      Personally the only time I’ve owned any was when my employer provided it as no-cost-to-me benefit.

      For those who follow the plan I lay out here:
      should have the resources financial and personal to deal with what comes. I’d rather see the money you’d spend on insurance go to building those.

      Having said all that, I also recognize that there are people who find themselves with young children and who have not built up any financial cushion. That is a mistake that needs correcting in my view. But until it is, some insurance is a good idea. Buy only term and buy as little as possible.

      Hope this helps!

      • Brendan says

        Wow, thanks for the rapid reply… I haven’t even finished my $5 latte yet. Just kidding of course.

        That’s what I thought you’d say. I have term only in an amount commensurate with the debt obligations I currently hold–mortgage, undergraduate and med school student loans–and I plan to only hold this policy until we reach FI. As an oncologist, I don’t need the insurance salesman to scare me with horror stories of young productive people gone before their time, I know it all too well. Plus being young, its very cheap and provides some peace of mind.

        But as my income is growing substantially now that I’m done with training, I am considering disability insurance as well to protect that income. DI is something the salesman are always pushing on us young doctors. “Protect your greatest asset–your ability to work and earn,” they tell us. Problem is its very expensive, and judging by how hard they sell it, I’m sure the fees are steep. Any advice on this conundrum?

        Lastly, I suppose I will forgive your butchering of my name. Its something I’m used to down here in the South, but I expected more from a New Hampshire man 🙂

        • jlcollinsnh says


          Well, Brendan, that’s the price you pay for the quick response written only half way thru my first cup of coffee. 🙂

          As for DI, I am no expert. But I think you have already figured the best way to call it. Anything sold that hard, especially insurance, is;

          A. Very profitable for the seller
          B. Highly unlikely to happen

          If it were me, I’d pour that money into my own investments with the goal of becoming FI, and therefore self-insured, on my own. If they are willing to bet it is highly unlikely I’ll become disabled, so am I.

          Are you going to practice in Florida?

          • Brendan says

            Since I’m a pretty risk-adverse type of guy, its a pretty safe bet I won’t be disabled. After all, I essentially need one functional hand and a brain to do my job.

            So either youre a good guesser or you’ve got good friends at the NSA. I am indeed practicing in Florida.

        • Kim says

          Hi Brendan,

          Just my 2 cents regarding DI: After my husband completed optometry school, we also had a mortgage and lots of student loans to repay. We decided to get a good DI plan. Sorry I can’t remember which company. Anyway I’m very glad we did so because he (age 48, very healthy) got leukemia and was hospitalized for a total of 144 days, before he died. If we hadn’t had that DI, I couldn’t have paid all our debts just on my measly nursing salary. We were nowhere near FI. It was a pain having to get his doctors to fill out forms every few weeks but the overall process of collecting the DI was not bad. So in our situation it was a godsend. I was already stressed just with his illness but at least I knew there was some money coming in, as I’d taken a leave of absence from work to be with him. Yes it was fairly expensive but as you are well aware being an oncologist, things happen. I see it everyday in my nursing world too. Best of luck to you, whatever you decide!

  13. Adam Waddell says

    Hey Mr. Collins,

    I just had to write and tell you how much I appreciate your financial/worldly advice. I am a huge Dave Ramsey fan – used his methods to drop $40K worth of debt after grad school and according to his advice, I also opened up and regularly contributed to a Roth/Simple IRA, HSA as well as put together a nice emergency fund (I am 26 by the way). Recently however, I kept asking myself, what’s next? I knew that I didn’t want to work until I am 65. Luckily, I stumbled onto your site after reading MMM. I wanted to do more and gain financial independence much earlier in life than most, so, as you can guess, I was extremely excited to find you. I had to write you because I felt like I knew so much of your story after not being able to stop reading your blog this past weekend that I had to stop and say thanks for such tangible, great advice. I look forward to continue reading!


    PS – I really enjoyed your interview on Mad Fientist.

      • Adam says

        Mr. Collins,

        I just had one question. Would you think it best to roll over my existing Simple/Roth IRAs and Mutual Fund Account (which are being “actively managed” right now) to Vanguard’s VTSAX? I know you are a big proponent of VTSAX. If so, how would I go about this?


        • jlcollinsnh says


          Actively managed funds almost always underperform index fund and they always charge more in fees to do so.

          Just give Vanguard and call and they’ll walk you thru the process of moving your accounts.

  14. Monrab says

    I learn a lot from reading the comments. I posted a question about what to do with my kids money and thanks for your advise.

    I will open an investment account with Van Guard and transfer the money over, but before I do that, I need your input: My husband is 48 and I am 39, have 2 kids, 9 and 2, house paid off, 500 credits in GET for boys education, no debts.

    My husband has a pension through his company, I contribute 15% of my salary to 401K, I max out my Roth IRA, just opened a Roth IRA account through Van Guard for my husband (I assume he will get pension so didn’t open one before, kick myself for that) this year, will max out every year.

    After I do all that, I will put my money into the investment account. I am in the process of opening an investment account to dump my kids’ money and our into this account, for $50,000 and will add $1,000 a month.

    What are the funds do you recommend?

    I like stock, real estate and energy funds. Besides my investment account, I will open another Roth IRA for myself with Van Guard and transfer my current Roth IRA account $37,000 with Chase, not making any money, over. Should I invest my money in the same funds for both accounts or different funds. I am really appreciate your input.

    • jlcollinsnh says

      Hi Monrab….

      At your age and with the long-term time horizon you have VTSAX would be my choice. Especially since your husband has a pension coming. That allows you to take an aggressive stance with your investments.

      Real Estate and Energy funds are what’s called “sector funds”
      With with VTSAX, you will now own a piece of every business held in all those other sector funds so you really don’t need them. Sector funds focus on one business sector: Energy, Health, Metals, Small Cap, Mid Cap, International, REITS and the like. Almost any niche the investment industry can imagine. And they can imagine a lot.

      I am not a fan. In choosing sector funds you are essentially trying to do the same thing as in choosing stocks: pick the one that will out perform. Both entail predicting the future, an un-winable game.

  15. Kim says

    Dear Mr. Collins,

    I’m back for a little more advice. I received my payout check from the matured CD and deposited it into checking today. I’ve re-read (several times now!) your stock series and think I can suck it up and just go for VTSAX. My question is regarding cash reserve. I know you usually keep 5% in cash. May be a stupid question but is that 5% of your total net worth or what? I was thinking maybe keeping 7.5-10% of my total net worth in my MMA which is currently earning 0.75%. Also just realized that I can always take out my contributions to my Roth (not earnings on it) if I needed something in an emergency. So would 5% be best? Thanks!

    • jlcollinsnh says

      Welcome back, Kim!

      Not a stupid question at all: Yes it is 5% of my total net worth. But 5% is just a guideline. What really matters is how much your expenses run v. what that net worth is. Also, how secure your income stream is.

      For instance, if you had 10million and only spent 100k per year, 5% would be 500k and excessive.

      So your 7.5%-10% could be a better call for you. But you’d be the best judge of that.

      You are right about being able to access your contributions in the Roth. But remember, if you have that in VTSAX we could be going thru one of those down drafts when you need it. That why we hold cash, so we don’t have to sell our stocks at a bad time.

      BTW, thanks for adding your comment and experience to the discussion with Brandon!

  16. RJ says

    Awesome insights! Thank-you!

    Some quick bullet points on my personal situation. Anything done well? What would you change? I am fascinated by how close I come to many of your recommendations before I even read them. Any ideas for improvement?

    – Early 30’s, happily single, no debt, living on 25% of my salary, and grateful for all the blessings God has brought into my life.

    – I currently max out my 401K with Vanguard and am 100% invested in VIFSX (60% of total assets) with an expense ratio of 0.05. I also can split this with VEMSX to get full exposure to the market as these are the only pure index options. The expense ratio is 0.14 for this fund. I have not taken any action with this as of yet. Should I?

    – I max out my Roth annually currently 100% invested in VGSLX (20% of total assets)

    – I currently hold the remaining 20% in cash in a HYSA earning less than 1% currently.

    Some concerns I would love feedback on:

    A) Part of the offerings in my 401K is VBTIX with an attractive expense ratio of 0.07 and no minimum within in the plan. Should I add this within the 401K? Increase slowly maybe over time? I would like some helpful diversification but am educated beyond media driven panics at this stage.

    B) I also have a Vanguard taxable brokerage account with $0 and am not sure whether to buy the international VTIAX, domestic VTSAX, or something else altogether? Which leads me to my final concern…

    C) At current savings rates and projected returns based on principles espoused here I should cross that FI threshold in approximately 7 years. I am not clear on what a good gauge for how much cash to keep on hand would be though and do not want too many lazy employees on hand. At current spending rates I have approximately 18 months worth. Is this too much? In the event of a “real financial crisis” there are many options to buy time of course. *sigh*

    Thanks for your feedback


    • jlcollinsnh says

      Welcome RJ…

      …your post is interesting to me in that you sound a bit unsure of the decisions you’ve taken and yet you’ve done a fantastic job. So my first comment is pat yourself on the back for a job well done and have confidence in your ability to sift thru this stuff.

      Further, early 30s — debt free — living on 25% of your income is seriously badass, to steal a term from my pal Mr. MM. I only wish when I was 30 you were around to show me the ropes!

      OK, let’s walk thru this together and I’ll offer my perspective and answer your specific questions. But really it will be only the finest of fine tuning.

      20% cash. You don’t mention the dollar amount and cash holdings are as much about that as they are a percentage. 20% of a million is way too much. 20% of 10k way too little. It also depends on your expenses. If your job is secure, I’d hold no more than 6 months expenses.

      A. Personally I’d skip the bonds. At your age you don’t need them and with interest rates so low they are pretty risky just now. But they do tend to smooth out the ride over time. It is a personal call, but if that’s important to you VBTIX in your 401k is a great way to hold them.

      B. I’d go for VTSAX. With that and VIFSX (and S&P 500 index fund) you don’t really need international for reasons I discuss here:

      C. 18 months is a good target, especially if you want to leave your other assets mostly untouched during a pull back. Personally I keep about a year’s worth, but just of basic living costs. My high travel indulgence I don’t count as I could easily cut it back.

      You are right, what you are doing is very close to what I would have suggested. I curious. Since you didn’t get it from me, how did you come to make the choices you have?

      Anyway, hope you stick around and add your thoughts to some of the other threads around here.


      • RJ says

        Thanks for the very specific feedback and response. Honestly some of the salaries presented here intimidate me and some seem light years ahead in terms of earning potential, but it is not hopeless. I was promoted recently with over a 20% increase and all is going directly into savings – so onward and upward! Funny thing is, I only calculated my savings rate after reading on these early retirement/FI forums and found that I was already saving 75% after my promotion within the last six months – so piece of cake. It was still very high before that as well.

        Six months of essential non-discretionary costs is particularly helpful and helps me nail down something decisive on the cash front. I am not so much unsure as simply very open to the the feedback of others especially those who have lived longer and experienced more. I am of the persuasion that nearly no one gets every point right so I like to get feedback from multiple sources if possible and “shop and compare before you buy” as there could be other slightly better options or ways to proceed.

        As far as knowing exactly what to do, not quite. I have gathered bits and pieces here and there over time from reading and had some low impact educational experiences provided during efforts to time the market and pick individual stocks ect. This timing the market effort has been the hardest to eradicate, and inaction with lump sums of cash has been costly to me. It really takes training your mind to think properly about all of the relevant factors. *sigh* I wish I could claim to have arrived.

        I am one who loves simplicity in its many magnificent forms, so naturally this rings true with me. For example it was immediately obvious long ago to me that consolidating accounts under as few roofs as possible is the only logical action before I ever read anything about it. Needless to say then the idea of owning multiple, large cars with extra seats, houses too large, too many clothes, shoes, toys…these things are real problems in my mind. All owned items must be used to their maximum potential and even beyond the intended scope whenever possible 😛

        I have made some shaky choices along the way, but these even tend to be moderate by societal standards. One example is out right purchasing a brand new VW GTI. While many here would cringe at the near 30K I forked over with that ‘questionable decision’, it is still the best vehicle in its class by combining every aspect of practicality you can get in a car and still satisfy that passion to drive! I have moved my entire apartment with this hatchback, and even RV in the high alpine at times as it sleeps a full 6 foot person in the back comfortably. I am not paying anymore than the amount I aggressively negotiated and paid in full. It is hard to fully explain the excitement its incredible handling and impressive torque has brought as I carve winding interstate and mountain roads through the inter mountain west – all while averaging over 30mpg highway. Pure bliss! Perhaps I would have chosen the almost 50mpg diesel TDI version today, but such is life. Maybe not, who knows. Live, Learn and Grow! I seek balance as I will only live this life one time.

        At any rate, thanks for your feedback and discussion on the specific funds. I have been targeting high impact funds with the lowest fees for a while and appreciate your candid information regarding what has worked and what has not for you.

        I will hold onto VGSLX in my Roth IRA, but not purchase more at this point and direct the rest of available resources to VTSAX.

        I wanted to finally add that I read your post on MMM and really appreciated your spirit and tone. It is amazing how if I was to give a speech on the subject, it would be exactly like yours. We are a rare breed. It is really about enjoying the journey, a journey filled with gratitude as well as options.

        God Bless You

        • jlcollinsnh says

          Don’t let salary numbers intimidate you. 🙂

          Getting to FI is every bit as much about controlling needs as it is having assets. I have a friend who has never made more than 40k per year who is FI and that’s after putting two sons thru college. I have another friend who makes $800,000 per year. Last time we had lunch he spent the whole time complaining that “you just can’t live on only 800k per year.” Given his expenses and lifestyle, he’s right.

          As for your GTI, I’d say anybody who has arranged their life in such a fashion as to live on 25% of their earnings can drive any car they please. Enjoy!

  17. enceladus says

    Hi Jim,

    I haven’t been able to find anything from you about Thrift Savings Plans on the blog… I was wondering if you could weigh in with your thoughts on TSPs and where to contribute in it.

    I’m a reservist in the military and I have the option of contributing to a no-match TSP. A big perk to the TSP plan is the .027% expense ratio, which is roughly 50% lower than that of VTSAX. I’m 26 and have many working years ahead of me. To me the C-Fund looks just like an index fund, but the targeted F-Funds also seems to be an intriguing option, as they adjust for acceptable risk over time.

    Currently I put 6% of my civilian salary (matched @ 50% by employer) into FUSVX, and max out my Roth IRA through Vanguard. After reading your recent 401(k) column, a TSP seems to have the benefits of an employer-sponsored plan and more (choice of traditional or Roth, tax-free Roth contributions when deployed(!), ability to roll money in/out from other plans), without most of the drawbacks.

    This seems to be a no-brainer to me (right?), but I can’t decide between the C- and F-Funds.


  18. Will says

    Hi Jim,

    Could you give me feedback for my plan? (23, Canada)

    Current Situation
    80-120k Gross Income (varies depending on project)
    500 Monthly Expenses (food/lodging provided while working)
    0 Debt (just finished 20k student loans)
    10k Emergency Fund + Savings for car/travel
    20k TFSA (70% Can. Equity, 30% Can. REIT)
    0k Self-Directed RRSP (will be adding all of next month’s pay)
    4k Company RRSP (6% employer contribution, no match, global fund with 1.4% fees)

    20% Canadian Bonds (VAB) – 0.26%
    20% Canadian Equity (VCE) – 0.11%
    20% American Equity (VTI) – 0.05%
    20% Developed Equity (VEA) – 0.10%
    20% Emerging Equity (VWO) – 0.18%

    -Treat TFSA+RRSP as one portfolio
    -Put VAB and VCE primarily in TFSA with VAB bridging into RRSP
    -Transfer money out of company RRSP quarterly
    -Use Norbert’s Gambit to buy VTI, VEA, and VWO in USD
    -Once these accounts fill up (about 50k for this year), move Canadian Equity to a taxable account using HXT (swap structure converts dividends to capital gains)
    -After deciding to stop working for a while/ever, sell HXT at low capital gains tax and buy a Canadian dividend ETF for dividend tax credit
    -Maybe diversify into REITs, US+Intl Small Cap, Intl Bonds once accounts get larger

    • jlcollinsnh says

      Hi Will…

      Sure, I’ll give it a shot. But please understand I have no experience with or expertise in the nuances of Canadian investing. So my comment will have to be pretty general.

      First, at age 23 you are off to a fantastic start with your income, low expenses, zero debt and money already in place.

      Your “global fund with 1.4% fees” is very expensive. Maybe that’s the only alternative, but if not look for a lower cost index fund.

      My biggest concern is that you are very heavily invested in Canadian stocks and bonds. The problem is, Canada is a very small economy on the world stage. If possible, I’d look for index funds that invest all over the world or funds that focus on the USA with the American multi-nationals they hold providing the international coverage. VTSAX being my favorite example.

      Finally, at your age 20% bonds is a very conservative position. Especially with interest rates at all time lows. With decades and decades ahead in your investing life, personally I’d want the growth power of stocks working for me. Assuming, of course, you can handle the wild ride that comes with them.

      Hope that helps at least a bit.

      For more specific insights from my other Canadian readers, you might post some questions here:

      There are a very interesting international conversations going on in the comment section there.

      Good luck!

  19. Darrel says

    Hi JCollinsH

    I’ve been following your blog for a while now. I found you through the Mr. Money Mustache blog. When I was reading the interview you did with MMM and your daughter (can’t think of the blog it was on now), I was reminded of a question that constantly comes up for me.

    You mentioned that when you reach enough in savings to be able to live off of 4%, you can “retire” whether you keep working or not. Just, from that point on send all income from work or other sources to savings. I love this idea (I also have seen plenty of back and forth talk about the 4% rule not being perfect, but I’m all for it).

    How do the mechanics of this work? I mean, since you aren’t earning 4% dividends you are actually selling off some of your shares to pay yourself right? I’m not the best at this, but here is how my brain says it would work:

    Month 1 of retirement: I have 1.5 million in my stock accounts and I need to pay myself so I:
    (1,500,000 X .04) / 12 = 5,000 and I pay myself 5,000 dollars

    Month X of retirement stocks have been taking a bit of a hit: I have 1.3 million in my stock accounts:
    (1,300,000 X .04) / 12 = 4333.33 and I pay myself 4,333.33 for the month.

    Is this how it works? Do you maybe take out 3 months or 6 months or whatever at a time?



  20. Joe says

    Hi Jim,

    I’ve recently started reading through your blog and I realized we have something in common… we both live in New Hampshire! From reading your guest post on MMM it’s clear you moved here at some point in your life. So my question is why did you move to NH?

    I have lived in NH my whole life, 23 years, and I really love this state so I’d like to hear what you think about it and what motivated you to move here.

    Also if you have any NH-specific advice about being FI that would be sweet too.

    Thanks for your time,


    • jlcollinsnh says

      Hi Joe…

      Welcome and thanks for commenting.

      We moved here in 2000 when I was recruited for a job in Nashua. During the interview they said, “Of course you’d have to move to NH. Would that be a problem?”

      “Mmmm…” I said. “You’re asking me to move to one of the most beautiful and lowest tax states in the Union. Yep. I believe we can make that work!”

      It’s been a wonderful place to live and great fun exploring it on the motorbike. Sometime in the next few years we’ll likely move. But that has nothing to do with NH and everything to do with my restlessness.

      I can’t think of any NH specific FI advice. Other than having no income tax is a wonderful boost to building your stash. And with everything to do around here, being FI and having the time is very sweet!

      My hometown of Chicago is my favorite city, but NH has been my favorite state in which I’ve lived.

  21. PFgal says

    I just wanted to thank you for your advice, and let you know that you’re on my Books & Blogs I Recommend page. I also linked to a couple of your posts today ( I wasn’t sure how else to mention it, so I hope that here is ok. I’d be honored if you’d check out my site when you get back and offer any suggestions you might have. And on an unrelated note, you chose a great time to travel – you’ve missed some horrid heat waves here in New England! I can’t wait to hear about your travels when you return.

    • jlcollinsnh says

      Thank you PFgal…

      …you made my day! Especially in the awful weather we’ve been having. This is the worst summer I remember since moving here in 2000. Hot, wet and humid.

      Yep. I am between trips and back in NH until August when I leave for Ecuador. Hopefully when I return in September a beautiful fall will be waiting. At least that’s the plan!

      I’ll definitely check out your site!

  22. Sean says

    Hi Jim

    Mid-thirties year old Irish man here. Debt Free taking home about 24300 euros a year.

    16000 in retirement account. 4500 in shares. 1000 in Cash.

    From next month, September, onwards I’m embarking on a budget which will see me saving 49% of my annual take-home pay.

    Advice needed – I’m Single (and ready to mingle !).

    In Ireland the dating scene is heavily tilted to bars & clubs and wining & dining your intended (target/victim ). I’m concerned that my plan to save 49 % of my take-home will be scuppered by nights out chasing the opposite sex or dates with the opposite sex.

    I’m not a monk and while the idea of sitting in watching Netflix saving like a Squirrel appeals to the Frugalo inside me, I am just dying for some excitement and to be brutally honest the touch of an attractive female who would condescend to suffer me as a lover.

    I have very little relationship experience and would dearly love to get out and above and date women to both have fun and learn from the experiences. I don’t want to be 55 and look upon 20 years of Dating Wasteland like I’m doing now.

    So how do I reconcile my goals of being an Irish Lothario and reaching Financial Independence on a modest (by Irish standards) salary.

    Please help me. My libido needs release from self-imposed imprisonment !!

    I thank you


    • jlcollinsnh says

      Hi Sean …

      While I Congratulate you on your savings rate, I’m afraid your relationship question is above my pay grade.

      Having been married for 31 years I’ve not clue about dating these days. Only faded memories.

      • Sean says

        Well thank you anyways for the speedy reply.

        All I can say is that I envy you having found your partner so long ago ! I’m a disaster when it comes to dating… when I guess I can only improve from here on in !

        Enjoy the rest of your trip ! 🙂

  23. Blake says


    Thank you for this blog, you are mine and my wife’s favorite “frugality blogger” that we’ve read/heard so far. (One of the reasons is that you’re the only one I’ve seen so far who discusses giving, which trying to give 10% away makes it hard to do a lot of the other things the blogs suggest.)

    One question (sorry if it’s already been asked, I did a quick search and couldn’t find anything): I’m trying to set up a budget to see what it would look like if we were to save 50% of our income. I deemed it necessary to assume 50% of income after giving and taxes, since 50% of gross seems impossible (at least at this point). However, since 401K savings are pre-tax, I’m having trouble trying to account for it in the “savings” part of my budget which otherwise consists of post-tax numbers. Anyways I’ve confused myself and this might not make any sense, but any help you can provide would be appreciated.


    • jlcollinsnh says

      Thanks Blake! I appreciate the very kind words.

      For what it is worth, I don’t actually consider this a “frugality blog” — more a financial/investment blog.

      In fact, as I said at the recent Chautauqua, I’ve actually spent every dime I’ve ever gotten. It is just that many, if not most, of those dimes were spent on buying my freedom thru investments rather than fancy cars, houses and the like.

      I’m not frugal in the sense of never buy a fancy car (or whatever) but rather buy such things only when you can not just afford them, but easily afford them. That’s why I occasional take fancy-pants trips like the one I described here:

      As for your question about calculating a 50% savings rate considering pretax and post-tax income, I believe you are over thinking this. Keep it simple.

      Focus on your pre-tax income and save as large a portion of it as you can, remembering that you are spending this money on investments to buy your personal freedom. Since will be the largest purchase you ever make, the more you save the sooner you’ll have it.

      Hope this helps!

      • Paris Parsa says

        I agree with Jim. The simpler, the better. One idea though would be to save 50% of your final check after taxes, 401K and all other deductions. That would be to save 50% of your net income. That is what I would probably do. Good luck.

  24. Paris Parsa says

    Hi Jim;
    I am really enjoying your blog. I was wondering, would you be interested to help me with my road map for building my future! I am very new at investing and started some Vanguard accounts. But am pretty scared about doing oo many mistakes. If you could be so kind and mentor me I would deeply appreciate it.
    If you are interested, please let me know, so I can write my financial break down for you.
    Thank you in advance for your attention in this matter.
    Paris Parsa

    • jlcollinsnh says

      Hi Paris…

      I’m honored you would ask and happy to help, if I can.

      If you haven’t already, take a read thru the stock series here on the blog. Once you’ve digested that you’ll be pretty well able to figure my take on most any financial/investing question you might have.

      But if not, feel free to ask!

      The whole point of this blog is to share what has worked for me and what has bitten me in the ass. It is what I do and the advice I give my daughter. When I can get her to listen. 😉


      • Paris Parsa says

        Thank you for your kind response.
        I’d have tried many times to read through all your posts and loved every bit of it. The problem is, due to my depression problem, my mind is not as sharp as it used to be and i have a hard time focusing and retaining information. I get lost somewhere in the middle every time I start. i even started taking notes about your posts that match our situations and still had a hard time and keep getting confused again. I would deeply appreciate your input since I trust your judgment.
        It is going to be a long one. Sorry.
        So, here it goes.

        Few months back, the retirement scare came to me and i started searching all our options. (Luckily, that is when i found our blog too)

        My husband is 46 and I am 41. Both dentist. We had a bad Bankruptcy two years ago and closed our dental offices. Short sale our home. Lost everything. I am staying home with our little ones and my husband works as an associate. I am frugal and he is a big spender. I separated our finances few month ago and it is much better.

        Based on my calculations, i came up with this system and he agreed. His income get divided this way.
        . 30% tax. (We owe IRS)
        . 30% savings and investments. He is pretty bad with keeping up with this one since his jobs were very shaky lately.(reduced hours and tons of patients not showing up to their appointments).
        . 40% gets divided by two and he gives me a check for my half. We share the bills and children expenses. This helped my to have a lot more control over our finances. I saved a ton from my share and he is always low in money. But he said it was a wake up call and helped him to reevaluate his spending habits. He is doing great 🙂

        Now as far as retirement goes.
        . 2. IRA
        . 1. ROTH IRA
        . 1. SEP IRS
        We had two old IRAs that we haven’t participated in for the past few years due to financial difficulties. This year, I opened a Roth IRA in Vanguard and we contributed to my husband’s traditional IRA and my Roth IRA to the max for 2012. The problem is, I found out later that my husband’s income for 2012 barely passed the maximum amount for us to have a Roth IRA. So I still need to figure that out with our accountant.
        I also just learned about and opened a SEP IRA which is for self employed. His income is significantly lower this year.

        Now, at our age, I am trying to figure out, what is the best way to invest. I also invested in REIT vanguard and Health index. REIT lost big time and HEALT gained great. Most of my investments are taxed and are not in an IRA. I was reading about the tax harvesting and made me think deep about what needs to be done. Should I sell the REIT with the lost and move it to our SEP IRA? Should I wait and leave it alone. Will the loss help our taxes? How about the gain from the Health index? What should I do to reduce the tax responsibility. We are in a high tax bracket. Have very little in our retirement plan and not in our twenties any more.
        We started very late due to tons of schooling, immigration, more schooling , opening our dental office, tons of loans to repay and finally our big fall at 2011 and bankruptcy.
        The fear of future is making me very uncomfortable.
        Oh and we have one 529 for one of our kids with only $10,000. Our second kid (6 years old) has none.

        I would deeply appreciate any advise .
        Thank you so much. You are awesome.

        • jlcollinsnh says

          Hi Paris,
          Welcome back, and thanks for the kind words.

          I’m very sorry to hear about your bouts of depression. It is an issue for me from time to time as well. No fun.

          I’m also very sorry to hear about your financial troubles. But they are in the past now and at 46 and 41 you are plenty young enough to build your fortune and as dentists you have strong earning potential.

          Sounds like you’ve got a solid plan in place with your division of income. Once you get the IRS paid off simply shift that money to your investments. Your wealth will explode!

          Key here is to keep your husband on the path. While you have the time to rebuild there is simply no room for big spending until you are FI. He needs to pull up his big-boy pants and understand this.

          OK, now some specifics:

          –Take those two old IRAs and roll them into Vanguard.

          –If you have overfunded the Roth, simply let Vanguard know and ask them to remove the excess. I’ve done this myself and it is very easy.

          –SEP IRAs are great tools once your incomes are back up.
          Sell both your REIT and Health index, letting the loss from one offset the gain from the other. While I like the REIT for an inflation hedge in retirement, that’s not where you are.

          –You should focus on wealth building and that means VTSAX.

          –The fact that the REIT is down and the Health fund is up is meaningless – just the random result of this year’s market. It could just as easily reverse tommorrow. These are sector funds and too narrowly focused for your needs.

          –You don’t mention where the 529 plan is or what it is invested in. But you should get this to Vanguard as well. For now I wouldn’t worry about further funding it or setting one up for your second child. Focus on building your wealth first.

          Finally, since it sounds like you find this all a bit overwhelming, I’m going to suggest you consider Betterment.

          If you look at the right hand column here on the blog you’ll see an ad for this company. In the next few days I should have a post up recommending these guys.

          Not quite as cheap as DIY with Vanguard, they do provide an exceedingly simple way to invest in a portfolio of index funds.

          Rather than choosing the funds yourself, you open an account and tell them your goals. The software then suggests the asset allocations to reach those goals. Very simple and effective, and maybe just the level of involvement you’ll find comfortable and without the risk of expensive mistake.

          Hope this helps!

          • Paris Parsa says

            Thank you so much for your advices. All of them sound great and I will start implementing them. Will let you know how I am doing. I also have an HSA account that is used for my huge medical bills for uncovered Antidepressants and dr. Appointments ( hundreds of dollars per month) But I am trying to use it to the max. HSA allows me to invest in Admiral funds without a minimum investment. It is awesome.
            I tried to move our traditional IRAs to Vanguard once online and it opened an Brokers account for me. But didn’t transfers the accounts and I forgot about them. I will do that ASAP.
            I placed an order to sell the REIT and once that is done, I will place an order of sell the HEALTH.
            Should I remove all the health or only the amount that is offsetting the REIT loss? I have more invested in HEALTH.
            Should I place this money in SEP IRA and then invest them in an VTSAX?
            I will have enough since VTSAX is an admiral account with minimum requirement.

            Sorry to ask so many questions. I truly appreciate your time and care you placed in answering my questions and sooooo fast.

            Thank you again. You are truly awesome.

  25. Jeffrey says

    Hi Jim,

    I’m yet another MMM reader drawn in by the features he had over your posts – specifically the Stock Market series. Great content there, and boy was my timing lucky! I was days away from fully funding a self-employed 401k program (for the business my wife and I run alongside my day job) with Fidelity only to have my eyes opened to the huge disparity in fee structures. I’d initially written off Vanguard due to their $20 yearly fee for members with less than $50k invested, but by comparison to the other Fidelity fees, $20 is quite a bargain!

    But I digress… Between you and MMM, I feel like I have a good handle on everything leading up to the point of FI. The two questions I have for you revolve around determining when one is at the point of FI, and the 4% withdrawal rate.

    First, I know that the basic idea for determining when you are ready to go FI is at the point that your living expenses are fully covered by 4% of your invested stash. Given that I know I will continue to operate our side-business for at least the first few years of “retirement”, how much should that impact the 4% concept? To put some numbers on things, we’re looking at a stash of $400k, with $350k in various investments and the other $50k in cash, pending a large dump into the self-employed 401k accounts once we get them set up.

    Since we’ve always spent less than we earned, we never really tracked expenses until I caught the FI bug this year. We’re on track for yearly spending of $35k, with a 60% savings rate (after taxes) including my post-tax income of $60k and our business income of $25k. The business income is variable, but in the past 5 years, it hasn’t dipped below $20k. Finally, Question #1: should this business income factor in to the 4% goal for FI in any way?

    And question #2 requires no rambling backstory: To what extent does the amount withdrawn in post-FI living vary according to the value of your investments? That is, if we grew our nest egg to the full ~$900k required for a 4% withdrawal rate of $35k, and then the market took a dive down to $450k, would we be forced to either get a job or live on $17.5k until the market recovered?

    Thanks for your input,

    • jlcollinsnh says

      Hi Jeffery…

      Well, I for one enjoyed your digression! Thanks for sharing and glad it worked out.


      1. If you are going to continue to operate the business and it can reliably throw off 20k per year, then you need 15k more for your target spending of 35k per year. At 4% it takes 375k to throw off the 15k using the 4% rule.

      So with the business you are pretty much there, although some would quibble that true FI would be having enough invested that you didn’t need the business. Semantics, I say. What matters more is how you feel about the business and how much of your energy it takes to create that 20k.

      2. In the classic trinity study the numbers were run assuming a 4% withdrawal, adjusted for inflation with no changes no matter how the market performed. Made for a great academic study and it is heartening that in all but a couple of cases the portfolios survived just fine for 30 years. In fact most of the time they grew enormously even with the withdrawals.

      All that said, I think that it is nuts to just set this up and let it run regardless of what happens in the real world. If markets plunge and cut my portfolio in half, you can bet I’ll be adjusting my spending. If I was working and got a 50% salary cut I would, of course, do the same.

      By the same token, at the moment I’m spending about 5.5%. The market is climbing and that provides a strong wind at my back to support this. At the end of the year, after all this spending, I’ll have more than I started with.

      But if the winds change, so will my spending levels.

      The key is to use the formula as a guide post and flexibility to make it work long term.

      For more:

      Make sense?

  26. Steve says

    Dear Jim:

    I was reading through your stock series and really enjoyed it, but I have one question. I noticed that you recommend keeping stocks in a taxable account and bonds and REIT in a non-taxable account, which seems prudent, but how do you do asset reallocation? I can see it would be easy to move assets from the taxable accounts to the non-taxable accounts, but I can’t think of a way to move assents from a non-taxable account to a taxable account unless it is a qualified distribution. Let me know if you need any clarification.

    Keep up the good work.



    • jlcollinsnh says

      Great question, Steve.

      In our case, we have about 3/4ths of our assets in tax-advantaged accounts. Since this provides enough of all three funds, including VTSAX, to do any rebalancing within, I just do it there.

      The 1/4th we have in taxable accounts I just keep in VTSAX.

      If I had to, I would keep some of the bands and REITS in the taxable account to maintain the allocation. It is not ideal, but being in the lower tax brackets now that I’m retired it is not the end of the world either.

      Make sense?

  27. Sylvia says

    Hi Jim,

    We are in our mid 60’s. (Although we have always saved, wish we had known some of this stuff earlier in life so we could have retired years earlier.) Anyway, we feel like we have more than enough money saved to live off the rest of our lives. In fact, we have enough income right now between SS and pensions that we have not touched our investments. However, what about Long Term Care? Is that something we should look into?

    I have been following MMM the last couple of months and have spent the last couple days reading many of your posts. Over the last couple of years we spoke to a handful of financial advisors about rolling over our 401k, and we just couldn’t decide who to go with because we just didn’t like all of their choices and/or didn’t understand all of the investments they were offering. We now know what were are going to do, and now will not have to pick which financial advisor we feel has the best advice. However, we still don’t know if my husband and I should invest in something like Long Term Care.

    We are also working on changing our will now that our children are grown. Trying to decide if we need a will or trust. Any thoughts on LTC, will, trusts?

    You have been a great help so far, and I have been sharing your articles with my adult children.


    • jlcollinsnh says

      Hi Sylvia…

      Great question, but a bit out of my pay grade. I’m no expert in insurance and in fact it makes my skin crawl. But here are my thoughts…

      My basic rule of thumb is the more willing and eager insurance companies are to sell you a specific type of insurance the less likely the bad event is to happen and/or the more expensive the insurance will be.

      These are very smart folks and they have very sophisticated analytical tools that allow them to predict with almost absolute certainly how frequently any specific bad thing is likely to occur within any specific group.

      Personally, I carry as little insurance as possible. So no LTC for me. I prefer to put what would be very expensive premiums into my own investments and “self insure” in this fashion. I’m betting that we won’t need it or, if we do, we’ll have enough by then to handle the cost.

      But this is me. I have a very high tolerance for risk and a willingness and ability to be very flexible with our lifestyle should bad stuff happen.

      This is a very personal decision that has as much to do with your personal profile and attitudes as it does with any financial analysis.

      As for wills and trusts, again a question outside my scope. This is very dependent on the laws in the state (or country) where you live, your net worth and your intentions.

      But simple wills are cheap and if you have any kind of wealth, are worth having. We do.

      Given where we live, the state and federal laws would pretty much distribute as we’d specify anyway:

      If my wife or I die, the other gets everything.
      If we both die, our daughter gets it all.

      But if we all three die, say during one of our travel adventures together, our will specifies what happens then. It also makes for a much smoother transition. Or so I’m told. For around $500, I see it as money well spent.

      Hope this all helps in some small fashion.

  28. Sylvia says


    On Sept. 18th I asked you a question about Long Term Care – I meant Long Term Care Insurance – obviously we should look into Long Term Care if we need it!!

    I have also been talking to my son also about investing, and we were wondering what your suggestions are for college savings. He has 2 children with the oldest being 3 and they have about $2000 started for each child. I notice that a lot of the Vangaurd funds require bigger investments. Also would he set up one of these college accounts or just put the money in his name.

    Thanks again.

    • jlcollinsnh says

      Hi Sylvia…

      It is great that you are talking about investing with your son, and that he is listening!

      Oh, and in responding to your last question I meant to congratulate you and your husband on the fine financial situation you’ve created. Being able to live on your SS and pensions while letting your investments run is a very cool thing. Kudos!

      College savings is a very tricky thing. The tools offered keep changing as does the effect such savings will have on the chances for future aid. Frankly, as my daughter is in her last year of university, I’m out of touch.

      My suggestion would be to look closely at the tax-advantaged options, and their restrictions and rules. Costs, too.

      Unless your son is in a 25% or higher tax bracket, and married with children that would be around 90k+ in income, I’d seriously consider avoiding the hassles and holding the money in my own name.

      But, even in the 15% bracket, that money saved and compounded over time is nothing to sneeze at…

      It also depends on your son’s total savings and investments. Funding his tax-advantaged accounts should come first.

      You are correct that Vanguard typically requires around 3k for most funds, and this includes their 529 plans. The easiest thing would be to build the money to that level and then open the accounts.

      For more:

      Hope that helps!

      • Sylvia says

        Thanks so much for answering my questions even though you implied they were out of your pay grade. We keep thinking we might need LTC insurance, but for some reason could never get around to buying it. Your answers were very helpful, and I passed your answer about college savings on to my son. We put three children through college without saving for college because we were funding our retirement account. I went back to work part-time when the oldest started college and that is how we paid for their college expenses. Wish we had known so much of this years ago, we probably could have retired at a much younger age, but we have always saved so we are in a better position than most people our age.

  29. Ralf Sköld says

    Hello there jlcollinsnh, i have a question for you.
    Its about how to invest in Vanguard from sweden. I do know of one way, but thought i could ask if you know a smarter way before i start investing it.

    I am a 29yr old swedish gentleman, with a pretty new found interest for saving up for an early retirement.
    Im very interested about investing thru the Vanguard Total Stock Market Index Fund
    But i am unsure about my options for doing it from sweden.

    I know i can buy them over the market as a stock traded fund (ETF). But im not sure if its the best way to get them for a person living in sweden. Or if i can buy the Admiral/Investor shares, and if so, if it is an option for me or not. Having a hard time understanding the info i see over the internet here, i did find a vanguard site for sweden, however, they have nothing like the Vanguard Total Stock Market Index Fund, the closest is a european index fund with about 450 different stocks. And thats not at all what im looking for.
    Found it at this link:

    From what i can se, the etf has an expense ratio of 0.05%/year just as the Admiral Share.
    However, id have to pay a brokerage fee every time i buy into it. (would probably be around every second month, to keep the brokerage fees at a decent level).
    Brokerage-fees for buying american stocks is at 13.95 USD, and buying every second month would be an investment of somewhere around 2000-2200 dollars worth, so a buying fee of 0.6% or so. Or would it possibly be better to buy every month, even though it bumps up the brokerage fee to 1.2%?

    also, i noted someone talking about a 20 dollar yearly fee for ppl with less then 50k invested, does this apply to ETFs too? Couldnt find any info about it.

    I do know where to invest it, we have something called Investersparkonto here in sweden.
    Basically you dont pay any taxes on dividends, nor for the valueincrease if you sell off any shares later on, it gives you a lower tax then the others if your investments grow at a pace of more then 3.8%/year on average or so. Instead you pay a small tax thats around 0.4% of your portfolio each year. Its gives around a 30% tax decrease compared to the other options currently aviable in sweden.

    Looking forward to see your take on the matter.
    Best regards

  30. Joe says

    Jim –

    I wanted to layout my personal situation for myself and my girlfriend and get some feedback from you re: any things you think we’re missing out on or areas of opportunity.

    Monthly Income
    * Salaried at $12,500/mo with quarterly bonuses based on profit. Given past profit numbers this should equate to about $3,300-4,200/mo. Total comp: $15,800-16,700/mo.

    Monthly Expenses
    * Housing (own) = $1,315/mo (House mortgage + property taxes + pmi)
    * Bills & Utiltiies = $423/mo (Gas, Water, Electric, Internet, Cable TV, Cell Phone for myself and GF)
    * Transport = $287/mo (Car Insurance, Gas, Maintenance, Parking, EZPass, Transit Pass, Bike Maintenance)
    * Food & Dining = $321/mo (Groceries, Restaurants, Bars)
    * Shopping = $330/mo (House goods, clothes, electronics, gifts)
    * Pet care = $59/mo (Dog food, annual vet visit, toys)

    Annual Expenses
    * Travel = ~$3.2k/year, $260/mo (g/f family is INT’L so we need to travel at least once per year)

    Monthly Investment Contributions
    * Roth 401k = $728/mo (pre-tax)
    * 401k = $728/mo (post-tax)
    ^^ Note: Company matches to the tune of about $200/mo
    * Principal Payment = $300/mo (Pay an extra $300 towards house)
    * Vanguard taxable = $4k/mo (55% VTSAX, 15% VGTSX, 15% VGSIX, 15% VBMFX)

    TOTAL INCOME: $16,250/mo
    TOTAL EXPENSES: $2,995/mo
    TOTAL INVESTMENTS: $5,028/mo

    In terms of what I’ve gotten so far:

    * House, Zillow = $255k
    * CASH = $53k
    * Car, KBB = $13k
    * Roth 401k = ~$18k (Principal Target 2045 Retirement Fund)
    * 401k = ~$18k (Principal Target 2045 Retirement Fund)
    * Old 401k = ~$28k (Assortment of funds available in Fidelity)
    * Vanguard Roth IRA = ~$21k (Target 2045 Retirement Fund VTIVX)
    * Vanguard Taxable = ~$20k (55% VTSAX, 15% VGTSX, 15% VGSIX, 15% VBMFX)

    * House Mortgage = $173k

    * Anything good to do with some of that cash to keep it mostly liquid / safe as an emergency fund + life fund (marriage, new car, etc)? It’s just sitting in Capital One 360 + Bank of America.
    * I just upped my investments, my plan is to up the contribution amount until I am breaking even every month and not growing my savings. Based on what my predicted income, taxes, spending, and current investment contributions are, I think that means I will likely push my monthly investments up another $3k/mo.
    * I can rent out my house for ~$1,700 and move closer to my work for a monthly rent of ~$1,800. I would save about an hour per day by being closer to work, and given the the fact that utilities would be cheaper and I would make money on top of mortgage, it seems like a good idea. Thoughts?
    * Should I consider saving some money and buying another house for myself as either an investment property or a house to live in (thus converting my current into an investment property)? Around me it is common to buy a house for between $250-350k that is pretty nice and it can rent out for $1500-2500.
    * Are the target retirement funds decent?
    * Am I missing out on any big opportunities in my portfolio?
    * Does it seem like I’m on a good track?

      • jlcollinsnh says

        thanks Joe…

        I might do this one as a post. A couple of questions:

        Is the income and/or expenses you describe just yours or is it in combination with your GF?

        If in combination are your money/expenses and hers merged?

        looking at:

        TOTAL INCOME: $16,250/mo
        TOTAL EXPENSES: $2,995/mo
        TOTAL INVESTMENTS: $5,028/mo (btw, totaling your figures I get $5756)

        Subtracting expenses and investments from income, I get $8227 left each month. Where is that going?

        • Joe says

          The income is mine and the expenses are ours. My g/f is in school for her masters and makes enough to pay for her school but nothing on top of it, really.

          Regarding the $7,499 difference (you are correct, it is $5,756 investment… I originally put my 401k contributions as half since I looked at the bi-weekly contribution not the monthly and forgot to update the total), I would calculate approximately $5,700 to fed + state + city taxes based on past paychecks. That leaves approximately $300 for miscellaneous smaller expenses that I didn’t outline above and $1,500 going to my savings each month. My goal is to increase my investments each month until the point that I get net-zero. OR save that money if I choose to go the house route.

          Let me know if you have any other clarifying questions!

    • Joe says

      Two more things:

      1) In my delirium I mixed up the pre and post tax notations for 401k contributions!
      2) On top of federal taxes, my state tax rate is ~3% and my city tax rate is ~4%. I get 100% covered health insurance, dental, etc. I have disability insurance through work.

  31. Julie K. says

    Well, you are One Good Writer and I am totally persuaded to take action on your investing advice but have hit a mental speedbump: My kids will be college age in about 5 years. I understand any financial aid package will be diminished if my Vanguard balance is too high. I was thinking of foregoing the VTSAX in favor of ramping up contributions to my 457 Plan and to our life insurance policy in addition to keeping on with the IRA contributons. Any opinions on this?

    • jlcollinsnh says

      Thank you, Julie!

      I work hard on crafting the writing part of this blog and it’s nice to have that noticed!

      If you haven’t already, you might read my conversation with Sylvia a couple of comments up.

      Threading the college aid conundrum is very tricky and ever changing. And I am no expert.

      My understanding is they use pretty sophisticated analytical tools when looking at income and assets. I seem to recall they give “retirement” assets a pass. So, if has you indicated, that is still the case your idea has merit. But you are closer to this and very likely are a better judge than I.

      Good luck!

      As you sort it out, and if you are willing, you might share what you learn with the readers here. Putting it as a comment in this post:
      will reach those most interested.


  32. Tom says

    Help a Hoarder Go Back to School!

    Hi! I’m a huge fan of your site. It’s nice to see your investing optimism amid all the doom and gloom of the mass media. Anyway, I’d love your advice on my current situation.

    I’m currently working in a high paying job. It’s as life sucking as can be but the pay is amazing. At the end of this year, my contract will end and I’ll have amassed $250k in a checking account. Foolish, I know. It was my dumb “let’s try to time the market phase,” but I’ve grown out of it. You’ve shown me the light!

    After this job ends, I plan to study in Latin America (I’m from the US) for five years. During these five years, I’ll have no income and expect to spend $16k a year, which is a firm, inflexible requirement. Once I graduate, I plan to permanently relocate and work in Latin America and start savings again, albeit at a much more modest rate than now. I’d then eventually like to retire early – perhaps around the age of 40.

    Here are some stats:
    Age: 28

    Liabilities: $0.

    Assets Upon Getting Laid Off and Going to School: $250k in checking, $17.5k in a Vanguard small cap 401k

    Cost of School (2014-2018): $16k/year x 5 years = $80k

    Savings Once Back in the Workforce (2019-2024?): $6k/year in savings (low salary but worthwhile profession)

    Retirement Goal: (2025/age 40-ish): $450k in investments (18k/year withdrawal rate)

    As I’m now an enlightened reader, I’m ready and excited to invest and have my money work for me. How would you suggest investing?

    Note: I can only invest in taxable accounts, since I’ve already maxed out my Vanguard small cap 401k for the year and I am not interested in a Roth IRA as I plan to be in a low tax bracket during early retirement.

    My current investment ideas include:

    1. Keep the 80k needed for school low risk and highly liquid (high-interest checking and CDs?) and invest the remaining funds (170k) in the VTSAX, which I wouldn’t touch for at least 10 years. I’ll stay strong!

    Pro: I’m guaranteed to not have to touch my VTSAX fund since I’ll have cold, hard cash to pay for school.

    Con: I stupidly have too much cash sitting around.

    2.. Take the entire 250k and invest in one of Vanguard’s conservative balanced funds, such as the Target Retirement Income Fund, or Lifegrowth Funds, or slightly more aggressive VBIAX and make monthly withdrawals as I go through school.

    Pro: An excessive amount of cash isn’t sitting around doing nothing

    Con: I risk having to make my aggressive 6.4% withdrawal rate during a possible down market during my time in school.

    What do you think? I’m dealing with two different time horizon heres, Short term 1-5 years for school and medium term 10-15 years for early retirement.

    Keep up the great work on the blog!!



    • jlcollinsnh says

      Hi Tom..

      Sounds like a grand adventure and a very intriguing scenario.

      I’m currently working on my reply which will appear as a case study shortly….

  33. Kevin L says

    Jim, thank you for all time, effort, and patience you put into helping us all. I really appreciate your advice.

    • jlcollinsnh says

      Hi Kevin…

      Glad you’ve found it useful and thanks for taking the time to say so.

      You made my day!

  34. Ron S. says

    Hi Jim,

    I have been reading your site for a few months now and was hoping to get some feedback. We have had a slow start with many mistakes in the past. We are making a lot of money now and have been playing catch up. Early in 2005 we were 60K in debt. Out net worth is now 500K. We have just started with VTSAX but still converting CDs from a 5 year CD ladder I started 2 or 3 years ago. We are ages 52 and 49. Our financial scorecard is as follows:

    Monthly Take Home Pay: $ 12,500 average (We are both self employed)
    Monthly Expenses: $6,500

    Home Value $400K
    Mortgage $155K (about 11 years remaining on 15 year fixed at 2.625%)

    Liquid Cash $ $70K (earning 2.5%-3.25% in reward checking accounts)

    Retirement $101K (made up of the following)
    20K (Socially Responsible Mutual Funds and Gold ETF) (TD Ameritrade)
    40K (Credit Union 5 year CDs earning 1.96%-2.83%)
    32K VTSAX (Vanguard)
    8K VMMXX (Vanguard)
    $1400 Company 401K

    35K Investments (made up of the following)
    10K (Credit Union 5 year CD)
    23K VTSAX (Vanguard)
    $2500 Lending Club (Currently 12.8% annual return)

    $7K HSA (Earning 1.16%)

    My biggest question is about dollar cost averaging. I have been converting $500 per week from VMMXX to VTSAX. I have been waiting to see what happens with all of the federal fiscal shutdown, debt ceiling, etc. before I accelerate into VTSAX. I also have been thinking that the market is due for some kind of adjustment. My TD Ameritrade investments will be fee free to cash in starting in November. I will be able to put more in VTSAX in the coming months. My biggest question is how quickly and when?

    Any feedback you can give would be greatly appreciated. We just want to get to a place of financial freedom before retirement age.

    Thanks so much,


    • jlcollinsnh says

      Hi Ron…

      First, congrats on a great turn-around from debt to wealth and growing.

      You say, “I have been waiting to see what happens with all of the federal fiscal shutdown, debt ceiling, etc.” Of course, once those are in the rear view some new set of worries will take their place in a never ending parade. What you are talking about is market-timing and that is a losers’ game.

      I go into this in some detail here:
      and that should answer your question. Take a look at the comments as well.

      As for dollar cost averaging, I am not a fan. Better to decide on the allocation that works for you. When you DCA you are basically holding an allocation heavy in cash when that’s not your goal. Sure, if the market goes down it might work in your favor. If it goes up it works against you. More of that pesky market timing stuffola!

      One last point. That’s a great mortgage! Don’t pay it off early. 😉

      • Ron S. says

        Thanks Jim,

        I guess my own fears about the market have been holding me back. I have read the whole stock series but some lessons are harder to remember than others. One more question: I will have the ability to contribute to a SEP IRA (possibly 30K-40K) at the end of the year. What are your thoughts on converting to a Roth?

        Thanks Again,


        • jlcollinsnh says

          Hi Ron…

          Maybe the most important lesson is that the the market will have crashes, bears and corrections going forward. These are going to happen and are completely normal, in-spite of the panic in the media, and best ignored.

          Everybody makes money when the market is rising. But what determines if it will create wealth for you is what you do when the bad stuff happens.

          Great that you have the SEP opportunity. Go for it.

          And definitely fund Roths for both of you each year your income is under the limit: 178k for 2013.

  35. Kevin says

    Hi Jim,

    Thanks for the great advice on this site and your rational and thoughtful approach to saving and investing. At this point, I have not only read all of the posts on your site…. Your site, along with that of MMM is one of only two blogs that I will recommend to friends. I am hesitant to ever give financial or budgeting advice to friends as it is a very personal topic, but I feel that the thoughts in these two blogs can make too big of a difference in people’s lives to pass up. I have one request… I usually refer people to your stocks series first, as I think people are less likely to shut down right away at reasons why index funds, Vanguard, very simple investments, and managing your own money are smart ideas than they are at starting with why saving 60-70% of your income is. However, with the way it is organized on the website, it is very difficult to read through the stock series one after another without digging through the archives. It would be nice to have a section for your stock series with a list of hyperlinks in order to these articles… or barring that, at least a hyperlink at the bottom of each stock series article that leads you to the next article in the series.

  36. Chris says

    Mr. Collins,

    I found my way to your blog through MMM and after reading through your various posts regarding investment techniques and strategies I’ve found myself in a somewhat unique situation. As a member of the U.S. military I have the TSP as an investment option. The recent addition of a ROTH TSP drew my attention as did the rock bottom expense ratio of the available funds. Military members are not eligible for any type of matching but I’m curious to know your opinion on which fund(s) I should place my money into moving forward. I currently hold a personal ROTH IRA through Vanguard investing in one of their target retirement accounts but would like to expand my retirement investment portfolio. Any advice/direction you could provide would be most appreciated.



    • jlcollinsnh says

      Welcome Chris…

      Glad you found your way over here.

      TSPs great! Basically a better version of 401k plans and available only to military and other government employees. They offer a nice, but not overwhelming, selection of low cost index funds: only .027% last year.

      Looking at the chart of ERs going back to 1999, their ER has ranged from a low of .015% in 2007 to a high of .102% in 2003. Seems the variation is due, to quote the TSP site, to:
      “The TSP expense ratio represents the amount that participants’ investment returns were reduced by TSP administrative expenses, net of forfeitures”

      Still, even at the worst these are very low ERs. And they seem to be coming down in the last five years or so. Good deal.

      Also a good deal is that the funds are index funds. The C-fund for instance replicates the S&P 500 index. The S-find is the small cap index. Own both in about a 75/25 balance and you’ve basically got a VTSAX-like Total Stock Market Index investment. That’s what I’d aim for.

      The F-fund is a bond index. If I’m correct in guessing you are a young guy planning to work a while longer, you don’t need that.

      As to the question of funding a TPS Roth, it mostly depends on your income. The more you make the more valuable the immediate deduction of the regular TSP. Roth = funded with after tax money but free of taxes after that.

      Either way, I’d suggest you max out your TPS accounts and then your Vanguard Roth, ideally in VTSAX.

      Hope this helps!

      Stay safe out there.

  37. Jian says

    Mr. Collins,

    Thanks for writing the stock series! Such thorough, yet easy to understand for the lay person writing on personal finance is very hard to come by. You are doing the public an immense service! The series should be required reading, if you ask me.

    I’m writing to ask for your advice on 401k rollover. I left my previous employer last year, and left my 401k untouched with Fidelity. After reading your blog, I decided to move everything to Vanguard, probably putting 100% into VTSAX as I won’t withdraw for 15 years at least.

    But I also suddenly remembered I should consider rolling over a portion of it to Roth. Plus I’m not working in 2013, so I’ve no income and should try to take advantage of low tax rate to do rollover to Roth this year. But I can’t decide if I should try to limit the rollover amount so my marginal tax rate doesn’t go over 15%?

    A bit of background info:
    – 44 years old, divorced, no kids
    – high-tech worker and was making just about $100k at previous job
    – with luck, hope to find similar job at similar pay level next year (I don’t code any more, thank God, so this might be a bit tricky to achieve)
    – total 401k saving at about $350k

    In addition, do you think that 350k is enough saving for retirement in 15-20 years, counting compound annual ROI at 5%? Provided I follow the 4% rule and keep annual expenses at below $40k? There’s also about $180k equity in a rental property, which can be extra cushion if stock market tanks and stays down for decades. Oh, and another $100k in Roth.

    Would really appreciate your thoughts. Thanks! (BTW, like many other commenters, I also found my way here via MMM site.)

    • jlcollinsnh says

      Hi Jian…

      Thanks for the kind words! Glad you’ve found such value here.

      You are on to something with rolling at least part of your 401k into a Roth. In fact, this is exactly what I am doing with our traditional IRAs each year: Rolling into our Roths consistent with staying within the 15% tax bracket.

      My thinking is paying 15% is getting off cheap and once in the Roth it is not only tax free for our lives but, it passes to our heirs tax free as well.

      Since you are not working in 2013 you have a window of opportunity to do the same. As a single tax payer the 15% bracket ends once you go over $36,250.

      But you also have:
      $6100 standard deduction
      $3900 personal exemption

      Add all those together and you have a total of $46,250 you can transfer to the Roth. Plus because of the the way the tax brackets are structured, not even all that will be taxed at 15%. Much of it will be lower.

      So of that 350k, I’d move this 46+k into your Roth and the balance into a traditional IRA.

      Next, to evaluate how your 350k might serve you 15-20 years out, let’s play this cool Compound Interest Calculator
      I cribbed from Johnny Moneyseed’s recent post

      350k @ 5% =

      728k after 15 years
      929k after 20 years

      But 5% is a very conservative guess for VTSAX over those kind of time periods. After all, the market historically has returned somewhere between 8-12%. Let’s look at the lower of the two:
      350k @ 8% =

      1.11 million after 15 years
      1.63 million after 20 years

      Of course, both these scenarios assume you don’t contribute another dime. And we haven’t considered the other 180k in RE equity and 100k in your Roth now. Just for kicks, let’s add them to your 350K:

      630k @ 8% =

      2 million after 15 years
      2.9 million after 20 years

      Again, not adding another dime.

      Those results are another reason to move money into your Roth whenever you can.

      You are in great shape and on a great path! Kudos on a job well done.

      • Jian says

        Thanks, Mr. Collins, for your detailed response and encouragement!

        The compound interest calculator is awesome! About using the 5% interest rate, I should have mentioned that it’s after taking into account of inflation at about 2-3% a year. I read this approach on MMM’s blog and liked it, because it keeps things simple and the lower projected future value keeps me grounded.

        Thanks for endorsing my plan to convert part of the 401k into Roth. Will do that before end of year. My recent binge on blog reading makes me want to start my own blog, then perhaps I won’t have to go back to the corporate world! Anyways, thanks again for answering my question. Keep up the great blog!

  38. Chris n says

    I would greatly appreciate your follow up on the republic wireless phone plan. I believe you were going to give your opinion once you were back from your travels. Thank you.

    • jlcollinsnh says

      Hi Chris…

      I’m still sorting thru my impressions using it here in the USA. But in short, I love what RW is trying to do and their approach. The phone itself, not so much.

      They have a new model out just now and I’d certainly go for that if I went for the RW service. But I haven’t actually tested it. They were planning to give me one to review, but I guess now they have only q few and more important people than I they want to have test them.

      Because my needs are light and RW is cheap, I’ll put up with the phone and stick with them. Were I a heavy user, I’d look elsewhere until I was sure the new phone cut it.

      Hope that helps!

  39. Eric says

    I love your blog and as such would like your opinion on something;

    I understand typical term vs. permanent life insurance debates while you’re growing your assets. Once you’re retired, enjoying those dividends, and your kids are all grown up, though, maybe there’s no need for it at all. Then along come the grandbabies, you enter old age and realize your assets have still been growing because you’ve been so damned good at investing your money.

    In your opinion does permanent life insurance make sense to pass these assets down to your kids/grandkids/charities/whatever? Is there any other way to avoid paying taxes (or, rather, having your heirs pay taxes) if you’ve built significant wealth?

    • Joshua Sheats says

      Hey Eric,

      I’m not Mr. JLCollinsNH, but I’ll take a crack at your question since it seems like an intelligent and sincere question that goes beyond the often flogged term vs. perm debate.

      Permanent life insurance can be a valuable tool in the toolbox of a good wealth transfer/estate planner. It’s probably going to be best used in conjunction with other tools and it’s not a cure-all, but it is useful.

      The answer to your question is going to depend on your specific situation; there’s a huge difference between planning a simple $1M estate consisting of a residence and an IRA and a $100M estate made up of private business stock in terms of how insurance could fit in. I suggest you talk your specific situation over with a qualified planner, but here are a few examples where permanent insurance can really be useful.

      First, here are the features of permanent life insurance that make it useful:
      -it has a permanent death benefit and can be counted on to deliver cash exactly at death, no matter when death occurs (unlike term insurance)
      -life insurance death benefits are received income-tax free by the beneficiary
      -the asset can be owned outside of the estate of the insured (useful when planning for estate taxes)
      -the asset can be owned by any person or non-person, including businesses and trusts
      -the death benefit can be purchased with a stream of annual premium payments which are heavily discounted in the beginning
      -any inside build up of cash values occurs without current income taxation
      -amounts can be very predictable (if general account based) or can have tremendous growth potential (if variable sub-account based)

      Here would be some scenarios ranging from simple to complex and from low net worth to high net worth where a policy could be useful. I’ll not try to be complete with any of these, just to paint some concepts.

      -A father owns a profitable private business worth $1M and has two sons. One son works in the business but the other son does not. He desires to leave an equal inheritance to each son, but doesn’t want the sons to be in business together. He could will the business to the first son who is working in the business and purchase a $1M life insurance policy with the second son as beneficiary to equalize his estate. This could also work with other estates where the decedent has not-easily-divided assets such as real estate.

      -Older business owner has a younger partner. Older owner wants to sell business to younger partner but younger partner doesn’t have the full amount needed. Business can support older owner’s retirement salary or older owner has other assets. Children/older owner’s spouse don’t want business but want the value of it. Younger partner buys an insurance policy on older owner’s life. Younger partner is beneficiary. Younger partner uses insurance proceeds (received income tax free) to buy business interest at older partner’s death (gets stepped-up tax basis)…everyone’s happy. Younger partner got business for discounted price/steady payments (for the amount of sum total of life insurance premiums) and family got the value of the business.

      -Client has $20M in assets and wants to pass assets to children but doesn’t want them to pay any estate tax. Client is charitably inclined. Client establishes a trust with the children as beneficiaries of the trust. Client gifts premium payments to the trust and the trust buys a$20M life insurance policy on the client. Assets are willed to charity. When the client dies, the charities receive $20M (and because all the assets went to charity no estate tax is paid) and the children receive the $20M from the life insurance policy held in the trust (and receive it free of income tax/estate tax/gift tax/generation skipping transfer tax/etc.)

      There are literally dozens and dozens of examples that could be created. The key thing is that usually good planning involves a host of tools and is very individual. What assets someone owns make a big difference–if someone’s primary assets are marketable securities, it’s a lot easier/simpler planning than if someone owns a private business/artwork/etc.

      The key thing to remember is that estate tax and generation skipping transfer taxes are largely optional taxes. The only people who really wind up paying them are the ones who didn’t put together a very good plan soon enough.

      I’m happy to comment further if you have a more specific question, but hopefully this is interesting to you.

    • jlcollinsnh says

      Thanks Joshua!

      Hi Eric…

      Joshua is a friend of mine and I asked him to weigh in on this. He works in the insurance business and, as you can likely tell, has an in depth knowledge of how these tools work and how they might be used.

      One of the things you’ll notice in reading his reply, is that PLI is useful mostly for very high net worth people dealing with fairly complex issues of estate planning, such as passing a business or farm down to multiple heirs.

      It is important to realize that the estate tax doesn’t kick in until an individual is leaving more than 5.25M in assets, 10.5M for a couple. So it takes very significant wealth before you need to consider this tool. Or a complex estate.

      Personally, I’ve never owned any life insurance other than that employers have chosen to provide. But then, I didn’t take on the responsibility of children until after I was FI.

      For those interested, a similar path might look like this:

      Hope all this helps!

  40. Rebekah says

    Dear jlcollinsnh,

    My name is Rebekah, and I was wondering if you could review my savings plan?

    Before I delve into the details, though, let me just say: this website is by far and away the best site on the Internet today! You are intelligent, thoughtful, clever, and articulate. You write with brevity and wit. And you reply to every.single.comment. That is incredible! I don’t mean to be flower-y, but damn! The content you publish and the culture you’ve created are to be commended.

    I’ve been taking notes on your stock series (no joke) and have been making changes accordingly. As such, I was wondering if you’d take a look at my situation to see if I’m on the right track.

    Basic Biography:
    Age: 28
    Salary: $66,941/year
    Employer: Federal government (*volunteering at the moment: I am required to be at work but am not being paid)
    Debt: None
    jlcollinsnh Reader: One month and twelve days! I had never heard of FI or F-you money or even considered investing in the stock market until a month ago!

    Current Asessts:
    Roth IRA – $10,000 (VSTAX)
    TSP – $38,500 (100% C-fund)
    Regular Savings Account – $7,500 (earmarked for Vanguard, but I am holding the money until the furlough ends)
    Checking Account, for emergencies – $2,000

    Where I want to be in life:
    – Retire from present employment in 7-9 years.
    – Find part-time work in field I love (animals!).
    – Continue to simplify life, reduce expenses, live minimally, love exponentially.

    To make the above goals a reality, this is my plan:

    $66,941 (gross salary)
    – $10,041 (10% TSP — the gov’t matches 5%)
    – $14,225 (estimated taxes; no state tax – I live in NH, too!)
    – $5,000 (ROTH contribution, VSTAX)
    – $24,000 (living expenses — this is a high estimate, but I am still working on reducing my monthly expenses)
    – $13,675 (VSTAX contributions)

    My questions to you:
    1. Is the above savings plan too weighted toward tax advantaged buckets, given that I want to leave full-time employment in less than 10 years?
    2. Do I need to add investments in bonds/REITs right now?
    3. Am I on the right track for FI/f-you money?

    Thank you SO much for any help you’d be willing to provide!

    All the best,

    • jlcollinsnh says

      Welcome Rebekah!

      Always nice to have someone from here in NH check in.

      Wow! Flower-y or not, please do go on… 😉

      You missed “clean, thrifty, brave.” 🙂

      But damn, yours is still one of the nicest compliments ever. If you find yourself in Manchester, coffee is on me!

      As the blog continues to grow I am finding it difficult to keep up with and respond to all the comments. Accordingly, I especially appreciate ones as well organized as yours: Easy to read details and specific questions.

      So let’s take a look at yours:

      1. Nope.

      With your $13,675 VSTAX contributions each month you should have plenty of money to draw on between ages 38 and 59.5. Plus there are ways to access tax-advantaged accounts penalty free if needed.

      Since the laws can change between now and when you might need to do so, I’d not worry to much about the details just now. As you read thru my blog and the comments you’ll see some ideas mentioned.

      My pal the Mad Fientist has also published some cool ideas on this and this post is a good place to start:

      2. Nope.

      Right now you want to go for maximum growth. Even once you move on to your more rewarding part-time work you’ll still be in a position to leave your portfolio mostly untouched when the market drops for a while. Add REITS and bonds when you are fully retired and really need the protection.

      3. Yep!

      As we did in my reply to Jian above, let’s play with this cool Compound Interest Calculator 
I cribbed from Johnny Moneyseed’s recent post

      Adding up your Roth, TSP and savings (we’ll leave the 2k emergency fund to the side) you are starting with 56k. From this you are investing $28,116 a year across your TSP, Roth and VTSAX.

      So using that calculator, here are some potential results across conservative to aggressive return projections and looking at your 7 or 9 year working time frame, plus a 10 year.

      returns 5% 8% 10% 12%
      7 years 319k 367k 403k 442k
      9 years 412k 491k 552k 621k
      10 years 463k 561k 638k 727k

      Using the 4% withdrawal guidelines ( to support 24k in annual spending you’d need 600k.

      A quick look shows that only three of these scenarios get you there and, worse, all three depend on returns at the upper range. But the good news is that you don’t need your investments to fully support you. You’ll be working part-time. Plus it sounds like you’re still pulling your expenses down below that 24k mark.

      If that part time work pays say 10k, that is the equivalent of 250k invested. (4% of 250k = 10%) Your investments need then only provide 14k and that only takes 350k.

      The ideal situation, of course, would be to have enough part-time income and enough invested that it takes something less that 4% of your stash to fill the gap.

      The lower the percentage you need to draw, the more breathing room your investments have to grow, ideally to the point where you no longer need to work at all. All but one of these examples does that.

      Of course, no one can guarantee the future for the next ten years. But investing is about playing the odds and I’d say you are well on your way to stacking them in your favor.

      You might also want to check out this Case Study:

      Good luck!

  41. Brian says

    Hello Sir
    Great posts I can’t tell you how many hours I have spent enjoying your blog.
    Do you have any ideas for me I would like to be free in 10-15 yrs
    I am 35 yrs old with a gross income of 100k and 15% paid to taxes because of my real estate and 401k deductions
    180k in vanguard investments 401k
    100k cash
    900k in rental properties with mortgage of 760k 5% rate can’t refi bad fico score
    Monthly rental mortgage + expenses 6k
    Rental income 5k per month
    I have a free car and live in one of my rental units so my living costs are low I save 50% of my take home pay
    My current plan is to continue to invest in my company 401k up to match 600 +300 matched month And pay down my mortgages by paying extra 2700 per month.
    Question should I pay down my mortgage or invest all in the market?
    Any thoughts would be greatly welcome

  42. Chris says

    love your blog. My request is a simple one; you had states that you would give yoir feedback on the Republic Wireless phone once you were back from your trip. So, what is the verdict?

    Thank you, Chris

    • jlcollinsnh says

      Hi Chris….

      You asked and I answered back on Oct 6th. Check in the comments here.



  43. Joe says

    Hi there, great blog. Been following a year now, looking for life advice. Want to retire early, or at least take a year off starting next summer. Have great job, and 2 cash-flowing rentals.. looking at $2400/mo cashflow by spring once finished with last SFR rehab. Hoping this is good enough security blanket for extended time away…

    I have vanguard 401k at $200k, took $50K loan to buy investment property, invested cash savings into rental purchases. Have $350K in mortgages. Questions should I work to payoff one of the mortgages at $150K@4.3% which would add 6% ROI to rental cashflow, or keep investing in dividend stocks at this time? With stock prices high, thinking it might be best to sell ROTH(50K), sharebuilder(20K), lending club (10K) and 70K cash to pay off one of the mortgages, yielding guaranteed ROI of 6%.

    Looking for recommendations for investing with 2013 money: dividend stocks, VTSAX, payoff mortgage, or buy another rental?? (Additional rental requires more time however).


    • jlcollinsnh says

      Thanks Joe..

      and welcome.

      OK, two things first:

      1. I am not a fan of dividend stock investing, or really any sector specific investing strategy. For more:

      2. When you say “With stock prices high…” you are making an assumption that may or may not be true. Here’s more on that:

      Personally, I would focus on building my stake in VTSAX…
      —@4.3% your mortgage is attractively low.
      —Leverage is one of the key things that gives RE its wealth building power. (as long as your cash flow covers your costs, if not you’ve a bad investment in place)
      —it will balance your portfolio a bit and, over time, should give you a better return. Although, not as “guaranteed”

      You certainly don’t want to sell the Roth. Over time this will become more and more valuable both in the growth of the investment and the tax advantage. I’d keep VTSAX in in as it should be your longest held investment.

      As you point out, rentals take time and adding another is inconsistant with wanting to spend “extended time away.”

      Good luck! Where are you headed?

      • Joe says

        Thanks JL,

        Not sure where headed, wife and I want to do big trip before maybe having kids.. Possibly extended van/RV travel through North America, or slow travel another continent.. Just wishing I was leaving soon as winter in New England is coming. 😉

        Good points about dividends, I just feel nervous dumping my paycheck savings each month in the stock market with it near highs, and the fragile banking system, US debt, QE3, etc.. I know there are strong companies with good financial sheets, but I think maybe I should put savings in land or things I can touch and feel instead of wall st. at this time..

        • jlcollinsnh says

          sounds like great fun and living in NH I hear you about winter.

          as for the market, don’t invest until you are absolutely sure you can and will ride out the inevitable plunges. everybody makes money when it goes up, but whether it makes you wealthy or not depends on your ability to resist panic when it drops. until you KNOW you can, stay away.

          That said, there will always be crises going on. When those you listed are resolved new ones will take their place. These should not be what drives your investing.

          Good luck!

  44. kobelco says

    Hi Mr. Collins,

    Let me begin by saying how great of a job you’ve been doing, and how much of a help you have been to a lot of people. Thank you! I don’t think we can thank you enough.

    My background:
    I’m an immigrant to the US. I came here on a work assignment when I was just about to turn 26. I’m 32 now, married to an American and have a kid. For all purposes, I’m here for the long haul. I didn’t actively start saving for retirement until 2010. That’s when I made the decision to live permanently in the US.

    Saving details:
    – Have ~$70K in company 401(k), mostly Vanguard Index Funds; and increasing
    – Have ~$10K in Roth IRA; and increasing
    – Have ~20K in various checking and savings accounts; and increasing
    – Have ~5K in 529 account for my 1-year old child; and increasing
    – My wife has very similar accumulation in her 401(k), Roth IRA and savings & checking accounts

    My situation:
    – For the past 3 years, I’ve been maximizing contributions to my 401(k) – not just the 4% employer match, but putting in maximum dollar amount, and on course to put in $17.5K for this year.
    – For the past 2 years I’ve been maximizing contributions to my Roth IRA, and on course to put in $5.5K for this year.
    – Neither my wife nor I invest anywhere else.

    My dilemma:
    After going through your stock series, the writing on the wall is quite clear: I have to invest in regular (non tax exempt) investment vehicle, namely, Vanguard index funds.
    Now the $17.5K that I put in the 401(k) is tax free (yes, I will pay tax on it when I take out money). To me, that’s a ridiculous amount of tax free money! Which brings down our AGI, and consequently our marginal income tax bracket.
    I can’t help but think that this is something I should take every opportunity of. But if I’m putting in $17.5K in my 401(k) and $5.5K in my Roth IRA, that doesn’t leave me with a lot (read zero) to invest elsewhere.

    One more thing: the money in the checking and savings accounts will be used in the very near future for the down payment of a house. So investing that stash is not currently an option.

    Should I really put in less in my 401(k) and Roth IRA, and start investing in non-tax exempt vehicles?

    • jlcollinsnh says

      Welcome kobelco…

      thanks for the kind words.

      First, congrats! Looks to me like you and your wife are off to a fine start.

      once you reach 59.5 you can access your tax advantaged accounts without penalty. (taxes due on withdrawals of course) so unless you plan to retire early, no worries.

      But even if you do retire early there are strategies to work around this. My pal the Mad Fientist has done some great work in this area. In fact, I’ve asked him for a guest post on this subject and that should be up sometime next month. Meanwhile, check out this post of his and some of the links:

      Bottom line? Keep funding your tax advantaged accounts to the max and before moving on to taxable accounts. If you can free up some extra savings beyond that for taxable accounts, that’s great too!

      Also, please read my posts on homeownership here:

      Houses are poor investments and expensive indulgences. Nothing wrong with expensive indulgences as long as you can easily afford them and buy with your eyes wide open.

      Good luck!

      • kobelco says

        Mr. Collins,

        Thanks for reinforcing that we’re on the right track. In a few years, our modified AGI will reach a point where we’ll be unable to contribute to Roth IRA. That’s when I’ll shift my focus to non-tax exempt investments.

        I’ve already read both of your posts on home ownership. We also currently have a house. Or rather, have a mortgage on the home we live. The mortgage rate is a measly 3.25%. We took a decision to rent it out, and move into a smaller house closer to both our work.

        This arrangement would serve 4 purposes:
        1. The rental will generate passive income – After covering the entire mortgage payments, the rent will leave me with about $400 cash every month. I’m under no illusion that maintaining a rental isn’t hard work, but I want to experience being a landlord. I’m not entirely sure that I’ll enjoy being one, but I’ll never know if I don’t try! In a few months, or years, I can sell it off and pocket a neat profit. (Have about $30K equity)
        2. We will be closer to our work places. Less time spent commuting, less mileage on car, less money on gas.
        3. Smaller house = less energy costs, less time spent cleaning
        4. The new place is in one of the best school districts in the state – better for our child

        • jlcollinsnh says

          Looks like a solid plan to me!

          I especially like point #4. That’s exactly why we bought the house we just sold back in 2000.

          Our daughter is now in her last year of university and credits our town schools with great prep that has helped her enormously.

          If you are going to buy an expensive indulgence like a house, there are few better reasons! 🙂

  45. Joe AJ says

    Hello Jim,
    Let me start by thanking you for the valuable advice you provide through this blog. It is humbling, to say the least, that you are taking valuable time to assist other fellow investors.

    I’m a non-US citizen living outside the US. I currently have a considerable amount of savings ($400k+) in bank savings accounts that pay a very low interest. I would like to move this money into 3 index funds (Total US Market Index, Total US Bond Index, & total International Market Index) for a long term investment.

    With the current indexes hovering around all-time highs, would you recommend that I invest the whole amount in one shot (with subsequent additional monthly or quarterly installments) or better spread the $400K over 12 months to leverage dollar cost averaging & potentially a lower market over the next period.

    As I’m targeting a long term investment, I realize that the above choice might not be as crucial as it might sound.

    Looking forward to your advice
    Cheers, Joe

    • jlcollinsnh says

      Hi Andrew…

      That’s a tough question. I gather you think I should?

      I’m still trying to wrap my head around it myself and I’m frankly concerned that it makes me look like a wacko. Plus UraniumC himself points out nobody is going to believe it anyway, so why bother? Indeed, this is the reason he’s so willing to share the story.

      Add to that, I don’t have the time just now. But once my investing book is done and published, maybe I’ll turn my attention to it.

      All that said, I am contiuning the converstaions with UC, if only because I’m hooked.

      If you are interested, please subscribe to that blog. That’s where I’ll post more if and when the time comes.

      Thanks for your interest!

  46. J. D. Smith says

    My 4 boys are 20 to 24 years old, still in school, working on the side and saving and discovering your site and wise council and life plan ideas. My boys have first savings goals of $2000-$ 4000 which is held in the bank. They are always looking to buy, sell and trade to make a few bucks on stuff, but they are now asking me for reasonable investment ideas for $250-500 at a time in the market and I have no good advise. What do you suggest for their first minimum investments?

    • jlcollinsnh says

      Hi JD…

      VTSMX has a minimum starting investment of $3000. Sounds like your boys are very close to that.

      Once they cross over the 10k threshold for the Admiral Shares version, VTSAX, Vanguard will automatically roll them into it.

      I would also suggest your boys open these account as Roth IRAs so they can enjoy tax free growth and, when the time comes, withdrawals forever. Of course this limits the amount they can invest each year to their total earned income or $5500, whichever is smaller. So at $500 a month they’d be at $6000 and slightly over the limit.

      No worries. Just save the excess in the bank until they hit 3k and have them open a second, regular, account in VTSMX.

      This is exactly what our daughter has done.

      But, before doing anything, be sure you and they take the time to read my stock series. The market can make you rich, but it is a wild ride most don’t expect. And that’s why most lose money. Be sure you and they won’t panic and sell during the drops.

  47. John says

    Dear Mr. Collins,

    I was watching a financial show, Truth About Money, on PBS yesterday, and it seemed to me they gave some very bad advice to a teenage investor. The teen had saved $1000 and put it into a target date fund. Ric Edelmen told him that the bond portion inherent in a target date fund was inappropriate and he recommended the teen find a mixture of large, small, growth, and international funds (maybe some more, I couldn’t find the episode online). He didn’t even mention costs, but that sounds like a recipe for ending up paying a lot of money for a very small chance at improved results. Though maybe I’m biased, so was wondering if you might have some opinion on investing for minors. I have a 14 year old son who has been pretty good at saving his allowance and gifts and had amassed a similar $1000 savings. It was just sitting in a checking account and I felt I either needed to tell him to start spending it or get it invested in something that should keep pace with inflation. My little research indicated there is not much option for low cost investing of $1000 and went with the same as the teenaged caller on the show. My son is invested in a Vanguard 2060 target date fund. Vanguard pretty much only allows target date funds for starting amounts less than $3k. Can you think of any reason to make it more complicated? There is very little bond exposure in a 2060 TD fund, so why would one want to work so hard to avoid a 10% or less bond hedge? And even if one would want to, is there a way for a teenager of modest means to do so?

    I’m predisposed towards Vanguard, but the process to open an account was a bit frustrating. Since my son has no earned income, IRAs were out. He is also already pretty well funded for college, so was not looking to force him into a college savings account. UGMA also didn’t seem appropriate as the money was his, though some was gifts, it would be him who would be deciding how much and when to add money. I had seen hints online that it was possible to open a Vanguard custodial account that did not come under any of these umbrellas, but after submitting the application, and talking with a few representatives, I finally just consented to the use of a UGMA account, as they could not come up with any other option. He does seem content at this point to just let the money alone and see what happens with it, but I just worry about whether he might change his mind at some point and really want to spend the money on something. Luckily he’s already saved another $300, so it seems like the risk is small. Anyway, are you aware of better options for minors who have some money to invest, and parents who want to let them do it, that lets the minor keep their money. I understand the need for a custodian as a legal matter, but it doesn’t seem like the minor should have to completely give up the ability to get the money before they are 18, or maybe I’m misunderstanding a UGMA.

    Really enjoy your blog. Maybe this is a little too outside your interest, but if not I’d like to hear your take on it.

    • jlcollinsnh says

      Welcome John…
      Glad you are enjoying the blog.

      Sounds like Mr. Edelmen has gotten caught up in the details and lost track of the actual situation: a 14-year-old with $1000.
      The short answer to your question: “Can you think of any reason to make it more complicated?” Is: “No.”

      Technically, Mr. Edelman might be correct. But practically speaking the young investor would be hard pressed to find low cost funds in those categories that could be opened for around $250 each. Certainly not at Vanguard. Any performance advantage in avoiding the 10% bonds in the mix would be devoured by fees.

      More importantly, he has missed one of the key tenants of this blog: Simplicity. And simplicity is something TRFs do exceedingly well:

      My advice for that caller, and for you and your son, would be to go ahead with the Vanguard 2060 TRF (VTTSX).
      Truth is, if you are both so inclined, your son could stick with that one fund for the long haul and it will serve him well. In fact, that is the advice I would expect you to get most often.

      Since I am a bit more aggressive and value the lowest possible costs, I’d:
      —Start with VTTSX, .18% ER.
      —Once the account reached the $3000 required for entry, switch to the total stock market index fund, first in VTSMX, .17 ER. This will be a taxable event, however the amounts are so low this should be a non-issue.
      —Once the account hits 10k Vanguard will automatically roll it into VTSAX with an .05% ER. This is not a taxable event.

      As for UGMA, technically these are accounts opened with money that is a gift to the minor. The account is in the minor’s name, with an adult custodian. But once in the account, the money is legally the minor’s.

      What you probably wanted was:
      “Custodial account for a minor. Establish an account in a minor’s name, administered by an adult custodian, where the investment amount is provided by the minor.”

      While I’m not certain of all the legal technicalities, I believe a minor must have an adult custodian for all investment accounts. It is just a matter of choosing which one.

      Personally, now that you have the UGMA set up I wouldn’t worry about it. But if you want to, it should be easy to change.

      My bigger concern is that your son might decide to spend this money. By definition, only long-term money should be in the market. This means, at least five years out. Should he decide to spend it during a market drop, he’ll suffer a loss. More importantly, this could well turn him away from the wealth building power the market offers over decades.

      You might have him hold some of his cash until he is sure he won’t be spending it. Like all of us investors, he needs to understand this is long ball and his fund will go down at times. But now is the best time to learn these critical investing truths.

      Good luck and congrats to your son on the fine start!

  48. FI-but-undecided says

    Hi Jim.

    Big fan here. I’ve read all your posts at least twice, and re-read them on sleepless nights. They’re an inspiration!

    I’m 39, single, with relatively good savings (compared to my expenses), and a good flexible job that I don’t hate, but wouldn’t mind stepping aside from for a bit. I don’t know whether to rebalance into something more conservative or continue saving into my currently Vanguard index heavy portfolio. Here are my details…

    I’m unsure about my expenses, as I’m recently single, but I’ve always been relatively frugal (though not extreme :)). A good estimate would be $2500/month.

    I make about 160k/year, though 25k of that is company stock vesting at 25% a year over the course of 4 years. I try not to count company stock vesting in more than 3 years in my portfolio, since I may or may not be around by then. Company stock is so small compared to the rest of my portfolio (7%) that I tend to lump it in the same boat as my Vanguard funds.

    My portfolio is approximately as follows:

    $ 60,000: Vanguard Limited Term Tax Exempt (I’m in a high tax bracket)
    $ 74,000: Vanguard Total Bond (401k)
    $676,000: Vanguard Total Stock Index

    It’s actually a bit more complex than the above, since I have an old Vanguard S&P 500 index fund, company stock, and some of the $676k is in my 401k (but thanks to the 72t exemption, I’m not really worried about cashing in on my 401k before 59.5). Over 500k of everything is in a taxable account with Vanguard, so there’s enough to withdraw upon when the time comes.

    The above adds to $810k, which would yield about $2,700/month given a 4% withdrawal rate, and is definitely under my monthly expenses.

    I have no plans for retiring in the next 2 years, but I may (or may not) seriously consider it after 2 years, possibly 3. At 83% I’m quite stock heavy, but I figured that with $134,000 in short and medium term bonds, I have a good 4 years of expenses covered should a bad turn in the market come about. Heck, even with my short term bonds, I have almost 2 years of expenses covered (should my medium term bonds take a dive when interest rates rise again).

    My question is the following… if I *may* retire in 3 years, should I start thinking of rebalancing into your 50/25/25 allocation strategy, or do I do this in the last year? Or is a 3-4 year somewhat cash “insurance” portfolio good enough?

    I have a relatively good tolerance for volatility. The bulk of my savings came from 2008-2011, so I am no stranger to buying stock while everyone is cashing out their 401ks. However, back then, losing half was not something I’d cry about. Having progressed so much (thanks to the upswing), I can’t say I am battle hardened in the ways of losing half after having achieved FI (if I chose to take it).

    It may be relevant to the discussion to say that part of the reason I still consider working is (a) I actually enjoy my job, though I could use a break for a bit (b) it’s very good money for something that gives me pleasure and structure (c) I may or may not start a relationship in the years to come and I’d probably like a bigger stash should expenses rise a bit.

    I look forward to hearing your advice, and thanks so much for your posts.

    • jlcollinsnh says

      Welcome FI-b-u….

      and thanks for the very kind words.

      What I read into your comment is that you are young and enjoying your job. You might leave it in a few years, but you might also stay. And if Mr. Market were to move against you and you had to stay, it would be OK.

      This gives you tremendous flexibility and power. I’d use it to maximize your returns for an even bigger cushion when you do decide to hang it up.

      The 50/25/25 allocation can wait until you actually retire. Your “3-4 year somewhat cash ‘insurance’ portfolio,” along with the job should have you nicely protected during a crash.

      You say, “I can’t say I am battle hardened in the ways of losing half after having achieved FI.” This shows a lot of solid self-awareness.

      All market investors have made money this year and since 2009. But what determines whether the stock market will make and keep you wealthy is what you do in times like 1987, 1999, 2007-09.

      Hint: Nothing.

      You need to burn into your brain that corrections, bear markets and crashes are all normal parts of the process. No one can predict them. But we can predict with certainty they pass and the market moves ever higher.

      Not understanding this in your gut, as well as your head, is as far as I can see the only real risk you face.

      You’ve put yourself in a great position. Well done!

      • FI-but-undecided says

        Thank you so much for taking the time to respond to my inquiries. I can’t really ask these sensitive questions to my friends because none of them understand having FU money and the lifestyle that goes along with it.

        I am definitely taking your advice and continue building up my stash in the total stock index fund. You have read me well. If the market were to take a turn against me, I wouldn’t mind working a year or two more. And if I have decided to step aside for a year or two while the market takes a down turn, my cash insurance gives me enough time to continue my adventures and return and get a job before having to draw upon my stock in a down market.

        Thanks again.

        • jlcollinsnh says

          My pleasure!

          It is interesting that you say these are not subjects your personal circle can relate to.

          At the Chautauqua without exception everybody had a wonderful time, most describing it as one of, if not the, best weeks of their lives.

          They loved the place we stayed, seeing Ecuador, meeting and hanging out with us four bloggers. But the thing that they all said, to a person, really made it special was the chance to let their FU lifestyle hang out too.

      • FI-but-undecided says

        Oh, one more thing.

        It has always been a mystery to me if the 50/25/25 rebalancing should be done right on the verge of retirement, or gradually on the years leading up to retirement.

        Was your advice to rebalance right at retirement because I personally like my job and have a good cash fund, or would it be the same for everyone? I’ve scanned through your previous posts, and I can’t find a definite answer.

        Thanks again.

        • jlcollinsnh says

          Not surprised that you haven’t found a definitive answer, I don’t remember writing one. 🙂

          Personally, I did our 50/25/25 rebalancing about a year after retiring.

          As I think about it, for most people I’d say do it when you retire.

          But, for those who are retiring with the bare minimum they need, moving gradually into it over a few years is the less risky approach.

          For somebody like you, with as well as you’ve covered your risks and with your flexibility, when you finally make the move should be fine.

  49. EmJay says

    Hi Jim,
    Let me begin by expressing my appreciation for all the time and energy you have devoted to providing the content on this website. I discovered both the MMM and your website just a few weeks ago and there has been a bit of an obsession consuming all the valuable information provided. Great stuff!

    Let me fill you in on my situation and I’ll pose a few questions where I would greatly value your thoughts and input. If you don’t have the opportunity to respond, I totally understand as I’m sure you receive quite a few of these messages. If nothing else, my questions may provide some ideas for some future articles.

    My wife and I are in our late 40’s and we have two early teen year children. My current take home income after taxes and 401K deductions (max) is approximately $120K. Already a big fan of Vanguard, this is where we have all our savings/investments. However, our investments are spread over many mutual funds (combo of indexed and managed funds) as well as we own several stock purchases. I know what I need to do as far as re-allocation goes based on your series. I believe we have achieved Financial Independence based on the 4% Rule (but this is the source for some of my questions that follow) and I’m ready to step away from my current job into semi-retirement as I explore possible 2nd career opportunities and other valuable ways to spend my time doing things that I enjoy.

    Current State:
    Annual Spend: $70K
    We’re actually closer to $65K but through a combination of cost cuts that I know we can make while also accounting for an increase in our health insurance costs as we move off employer provided coverage, I want to cautiously plan assuming an annual spend of $70K.

    Non-Retirement/Taxable Vanguard Accounts: $1.1 million
    Retirement Vanguard Accounts: $900k
    Total Savings: $2 million
    Current Allocation is roughly 80% Stocks, 15% bonds, 5% cash

    Additional Assets:
    529 College Savings Plan for the kids – $250K (Note: Our State’s plan is run by Vanguard and has the lowest fees of any 529 Plan in the country)
    Home Equity – $350K (still have about $150K left on our mortgage with 13 yrs remaining on our 15 yr loan @ 3.5%; $1400 monthly mortgage)

    1. Am I able to include our Retirement Savings as part of the overall Financial Independence (4 % Rule) calculation? Or should I only be taking into account my assets in the Non-Retirement/Taxable accounts? I have seen some conflicting views on this point. I’m 48 so I won’t be able to access my retirement accounts for another 11+ years. My thinking is that the Retirement funds continue to grow untouched while we live off the dividends and capital gains in the non-retirement/taxable account to cover our expenses in the interim. Make sense?
    2. Should one typically include their Home Equity as part of the 4% equation? I haven’t been and view it more as a surplus for the future if/when required.
    3. With our home equity, does it still make sense to also invest in the Vanguard REIT index if for no other reason than diversification of Real-Estate ownership?
    4. In doing the re-allocation of my many mutual funds to the select few index funds in my non-retirement account, will the capital gains on those funds that are moved to another fund be subject to Taxes? My understanding is yes which could have some bearing on when and how swiftly I do the re-allocation as I believe I could end up paying dearly in taxes.
    5. Should I go with the suggested 50/25/25 allocations in both the Taxable and Retirement accounts or would you suggest that I place my investments in the Vanguard REIT Index and Vanguard Total Bond Index in the Retirement Accounts only? (I seem to recall you making this suggestion elsewhere)

    I’m close to being ready to pull the trigger on semi-retirement and financial freedom but need to have my ducks in a row to help get my wife totally on board and comfortable with some aspects. I know more pay-checks will be in my future. I don’t know when, I don’t know what I’ll be doing and how much I’ll be doing it (full time vs. part time) but I want it to be on my terms. I haven’t experienced much work joy in my 25+ years of employment to date. Thanks again for sharing your experiences and wisdom and for considering my questions.

  50. Kenneth says

    Jim, I’m getting close to retirement. I’ve been thinking about the 4% safe withdrawal rate, and how to implement it. This is what I have come up with:

    Start of program – withdraw 4 percent of total investments to Current Checking. From the remaining investments, move 12% of my money to a Current Savings account, and leave 88% invested using Betterment. Keeping 12% of my portfolio in Cash Savings will allow for up to 3 losing investment years before I have to make withdrawals from investments.

    Each year going forward, move 4% from investments to my Current Savings account, unless investments have had a net losing year. Then move one years portion from Current Savings to Current Checking (this may be 1/3, 1/2 or all of Current Savings depending on whether it contains 3, 2, or 1 years worth of 4% withdrawals from investments).

    If Current Savings is down a year or two or three, replenish in even year increments depending on the current year investment gains:
    Gains 0.00 to 7.99 percent – no replenishment.
    Gains 8.00 to 11.99 percent – can replenish one year (4% of investments)
    Gains 12.00 to 15.99 percent – can replenish two years (8% of investments)
    Gains 16+ percent – can replenish 3 missing years (12% of investments)

    Investments will be at Betterment, using a ratio of 75% stocks, 25% bonds.I’ll have two accounts, an IRA and a Cash investments account. Until I reach 70 1/2, make withdrawals from the Cash investments account to avoid taxes. After 70 1/2, make the RMD required minimum distribution from the IRA account, and if that’s less than the 4 percent needed, take the rest from the Cash investment account. If the RMD is more than the 4 percent needed, move 4 percent to Current Savings, set aside an amount for taxes in a cash taxes account, and move the rest to the Cash investment account.

    • Kenneth says

      Edit the above third paragraph to read

      Each year going forward, move 4% from investments to my Current Savings account, unless investments have had a net losing year, then move nothing. Then move one years portion from Current Savings to Current Checking (this may be 1/4, 1/3, 1/2 or all of Current Savings depending on whether it contains 4, 3, 2, or 1 years worth of 4% withdrawals from investments). Exception – if Current Savings is zero, and investments have had another losing year, move 4 percent from investments to Current Checking.

    • jlcollinsnh says

      Hi Kenneth…

      Very interesting and much like what I propose at the end of this post:

      What I haven’t been able to work out is the replenishment after down years and I don’t quite understand your strategy.

      Looking at the 2007-8 crash you would have 3 down years and will have depleted your 12% cash reserve using 4% each year.

      Now the market begins to turn up again, but your 88% stash is at a low point. Plus now you have to draw both the 4% for living and something to begin rebuilding the 12%. Seems a lot to ask of a diminished stash before it has a chance to recover.

      What am I missing?

      Also, I’m very interested in hearing more about why you plan to use Betterment. As you may have noticed I’ve accepted them as an advertiser and I am in the process of evaluating them for a future post.

      I’d be especially interested in why/how you feel secure in turning your money over to them.

      Don’t read this as a criticism or a warning. I simply just don’t yet understand what prevents them from becoming a “Madoff” and am trying to learn.

  51. Charlie says

    I have tried other sites but no one wants to give me an answer….

    I teach….have a 403b through FTJ Fundchoice. About $21,000 dollars invested in
    –Vanguard Total Bond
    –Fidelity Int. Discovery
    –Vanguard Small Cap Growth
    –Fidelity Spartan 500

    I put about $200 dollars a month in these 30% in three and 10% in VTB.

    Anyhow the company charges a Administrative fee of $25.00 dollars a year and I am getting charged a management fee monthly of about $30.00 (depends on how much I have in my 403b).

    Is it just me or does that management fee seem outrageous. I have a representative but he doesn’t do anything since I am the one picking and choosing the funds. Can I move this 403B over to Vanguard without getting hammered?? Or is the $30.00 management fee justified and I should just sit pretty.

    Love the website…stock series is simple to understand.

    Thanks in advance

    • jlcollinsnh says

      Welcome Charlie…

      …glad you like the site.

      401k and 403b plans have indeed become a cesspool of excessive fees. In fact I’ve devoted an entire post to this:

      The bottom line is that as aggravating as these fees are, the tax advantages still make the plans a worthwhile choice. For what it is worth, the fees you describe are not the worst I’ve seen. Plus it looks like your plan offers and you have chosen some fine funds.

      As long as you have the job, your money needs to remain in the plan. Once you leave you can, and should, roll it into Vanguard.

      Hope this helps!

  52. Mbali says

    Hi Mr Collins, I’m a 26 year old from South Africa and complete investing newbie.

    Basically, I’ve had extra money throughout university which I’ve been investing for the past two years. SA has no index funds from what I can tell (unless I’m searching incorrectly).

    So I’ve been putting a monthly amount into an actively managed equity fund and two different ETFs. ETFs work out cheaper than actively managed funds in SA. I know past performance doesn’t gaurentee future performance etc.

    Some actively managed funds in SA (incl my equity fund) outperform some ETFs including both of mine. However, you emphasis expenses are a lot so I’m thinking of switching things around.

    I know it’s only been two years but should I still keep my actively managed fund? What about switching to a better performing ETF from the ones I currently hold?

    Is two years too soon/long to be switching things up? Would I be correct in making the switch based on lower expenses despite better performance?

    Hope this makes sense. Thank you for your time

    • jlcollinsnh says

      Welcome Mbali…

      …always nice to have another “flower” here.

      Congratulations on beginning your financial journey.

      While I am unfamiliar with investing in SA, I would be surprised if index funds have not reached the investing world there. Perhaps they are the ETFs you hold?

      Your question is a very insightful one.

      Jack Bogle, the guy who created index funds, once said: “performance comes and goes, expenses are forever.”

      It is not uncommon for actively managed funds to outperform the index in any given year or two. But to make them superior to the index, these managers have to perform this trick for decades. Almost none do. Plus, there is simply no way to tell which one will beat the odds until the race is run.

      Add to this then fact that even if you were able to find this rare person, they might will move on, change jobs, retire, cash out or otherwise step away from the game. You’d then have to try to find another and incur the tax hit of selling out.

      Meanwhile, the higher expenses are always there to put a drag on your returns. And the power of compounding makes this drag huge even with seemingly small expense percentages.

      It is hard for me to say move to the ETFs as I don’t know what they are. If they are simply other actively managed funds there’d be no point.

      But I can say you want to move to low cost funds. And the lowest cost funds are index funds.

      There is an international investing community in the comments of this post:

      Perhaps you should post a comment there asking if there are any other SA readers who might point you to index funds where you are.

      Good luck!

  53. John says

    Hi Jim,

    I feel like I’m standing on third base and ready to come home. I’d appreciate any feedback you may have on my situation.

    First, let me say thanks for all you do here on the site. I enjoy your perspective and the generosity you extend to your readers and commenters. I’ve had a chance to read many of your posts and I found them to provide a “wealth” of valuable information.

    My first visit here was sometime in the spring. At the time I was worried about losing my job, and that fear was (literally) keeping me up through the night. Looking to get a handle on my finances, I came across your blog, among others, and I learned that I wasn’t in such bad shape after all. I had thought I would work another six or eight years, but then I decided I’d get out in four — i.e., work till the mortgage is paid, then go. That’s been my plan until this past week.

    My company just announced a pension buyout, an offer I find hard to refuse. I plan to make (or confirm, really) my decision over Thanksgiving. Meanwhile, if you have any helpful guidance, I’d love to hear it.

    Let me give you our numbers. Btw, there are three of us: me (just turned 56), my wife (48), and my son (about to be 8).

    My retirement and savings accounts come to $897,000.
    401(k): $743,000
    Roth IRA: $7,000
    Investment account: $121,000
    Savings accounts: $26,000

    My wife’s retirement accounts are a shade over $300,000, plus one annuity with $50,000.

    Other than that, we have one 529 account with a balance of $18,000.

    The pension buyout is a lump sum offer of $524,000 for leaving the payroll by the end of the year. I’d give up any future pension annuity. (If I were to do a regular retirement right now, I’d be getting a lump sum of $175,000 plus $1,452 per month. If I were to stick to my four-year plan, I’d retire right after turning 60 with a lump sum of $175,000 plus $2,480 per month.)

    Here’s the real estate rundown:
    House (residence): $625,000 (Zillow) – $137,000 (mortgage balance) = $488,000 (equity)
    Condo (rental): $400,000 (Z) – $16,000 (m) = $384,000 (equity)

    Our expenses the past twelve months round up to $65,000. That covers everything except the house mortgage (additional $3200 per month, or $38,400 per year) and all condo expenses, which are covered by rental income out of a separate account. (We get all our health and dental through my wife’s coverage at work.)

    If I leave, I say goodbye to my paycheck. I grossed an average of $139,000 the past five years (much going to savings: $23,000 to 401k, ~$6,000 company match, and $18,000 to other accounts).

    Income we’ll still have includes my wife’s pay, about $70,000 gross, with $17,500 going to her 403(b), leaving about $45,000 after taxes. Once the condo mortgage is paid, we’ll clear at least $12,000 per year rental income after expenses and taxes.

    So the gap we’ll have for the short term is about $8,000 per year, plus mortgage payments. We also plan to have some work done on the house in 2014, perhaps another $10,000 to $15,000.

    Future income includes my Social Security and my wife’s pension (she expects to work another 12 to 15 years, though that could change).

    Biggest longer-term expense will be my son’s college education, starting in 11 years.

    If I may, let me ask a few questions:

    1. Is there any good reason not to go? I am so done with the job but I don’t want to leave unless I’m pretty sure I’ll never have to go back to corporate work, or really to any job where I’m doing it for the pay. I have things I want to do, things I’ve put aside for many years, though I don’t know if I’ll ever make a dime from any of it. I want to give it some time knowing it’s okay if I do it and I don’t make money.

    2. What to do with the mortgage on the house? That had been my goal — get it paid off before leaving. Soon I could be able to pay it off at once, but my default position right now is to continue to pay over four years. Some options: pay $3200 per month until Nov 2017 (interest: $14,140), or pay minimum of $1970 per month until Nov 2020 (interest: $25,600). Rate is 5.125%. Faster payoff may mean additional taxes on drawdown, and some lost opportunity cost. On the other hand, I can eliminate the interest expense and gain the satisfaction of being done with it earlier.

    3. When to start Social Security? Last I had checked, estimates were: Age 62: $1800 per month ($21,600 per year); Age 66.5: $2579 per month ($30,948 per year); Age 70: $3316 month ($39,792 per year). I realize there’s an advantage to waiting, except in my case my under-18 son will be eligible for 4 years of benefits through his high school years (~50% of my benefit, as far as I know). I don’t know if there’s a way for him to get that if I delay my benefits, but I wouldn’t want to leave about $40,000 on the table (a nice addition to the college fund).

    4. Life insurance? My company covers about $180K on each of us right now, and I could extend that or bump it up for my wife, if needed. But is there any need for it?
    I could go on with questions about roll-overs, investment options, etc., but I feel that I’ve asked plenty already. And I imagine your recommendations include Vanguard and staying away from annuities.

    One note before I go, for anyone curious. The usual advice for retirement planning is to start early. Which I did. But I had some setbacks in my thirties, went through all my savings and went into the hole. At age 40 I was single, living in a one-bedroom apartment, and just getting back to zero net worth. Everything else has come since. The lesson, I guess, is that if you’re young and do it right, you can reach FI much earlier than I have, or if you’re older and haven’t started yet, it’s not too late.

    Thanks very much for listening!


    • jlcollinsnh says

      Hi John…

      Glad you found your way here and thanks for the kind words. As for your situation let start by saying: Welcome Home!

      Before we begin, let me say this would have made a great Case Study post (, and it may yet be one. But I’ve already done two back-to-back and have another in the queue, so it would be a couple of months out. Since you have decisions to make over Thanksgiving, let’s look at your questions here and now.

      As you already know, you’ve put yourself in a very strong position to consider some attractive options. All the more impressive in that 16 years ago you were broke and on the ropes.

      What I see here is:
      –1.2 million in investments
      –872k in home and condo equity
      –524 pension buyout
      –Total of ~2.6 million. At 4% withdrawal that’s ~104k in annual income.

      Add to this whatever income the annuity pays out and your wife’s 70k in annual earnings. Plus you and she both, based on your incomes, should have 40-60k+ in annual Social Security when the time comes and depending on when you take it.

      Against this you have 65k in annual expenses, plus 38k in mortgage payments = 103k.
      You have only good choices here. 🙂

      Ok, Let’s look at your questions:

      1. Is there any good reason not to go? I am so done with the job but I don’t want to leave unless I’m pretty sure I’ll never have to go back to corporate work, or really to any job where I’m doing it for the pay. I have things I want to do, things I’ve put aside for many years, though I don’t know if I’ll ever make a dime from any of it. I want to give it some time knowing it’s okay if I do it and I don’t make money.

      jlc: Nope. You can go when ever you please, and it sounds like the time has come. Of course, you will be leaving money on the table.

      At the end of four more years you’d get the 175k plus an annual pension of $29,760. It would take about 744k at 4% to provide that. Plus research does indicate that people with pensions feel happier and more secure than those retired on their own investments. Take that for what it is worth.

      In addition you’d have four more years of income at 139k.

      Clearly, you’d be money ahead waiting. But against that you have to balance the one irreplaceable asset you have: Your time.

      And, of course, if you were worried about losing this job in the Spring it might pay to be cautious in assuming it will last the four years.

      Only you can decide, but I can tell you: You can afford to go with your heart.

      2. What to do with the mortgage on the house? That had been my goal — get it paid off before leaving. Soon I could be able to pay it off at once, but my default position right now is to continue to pay over four years. Some options: pay $3200 per month until Nov 2017 (interest: $14,140), or pay minimum of $1970 per month until Nov 2020 (interest: $25,600). Rate is 5.125%. Faster payoff may mean additional taxes on drawdown, and some lost opportunity cost. On the other hand, I can eliminate the interest expense and gain the satisfaction of being done with it earlier.

      jlc: Here again you can afford to go with your heart.

      I tend to recommend keeping mortgages with rate 5% or less and yours is right on that line. My sense is that you’d like to be just done with it. If so, go ahead.

      That’s what I did a few years back and my rate was lower than yours. Financially, I should have kept it. But the satisfaction of being rid of it and the increased simplicity in my life made dumping it worth it to me.

      3. When to start Social Security? Last I had checked, estimates were: Age 62: $1800 per month ($21,600 per year); Age 66.5: $2579 per month ($30,948 per year); Age 70: $3316 month ($39,792 per year). I realize there’s an advantage to waiting, except in my case my under-18 son will be eligible for 4 years of benefits through his high school years (~50% of my benefit, as far as I know). I don’t know if there’s a way for him to get that if I delay my benefits, but I wouldn’t want to leave about $40,000 on the table (a nice addition to the college fund).

      jlc: Deciding when to take SS is a matter of figuring out when you and your wife are going to die. The longer you live the better off delaying you are.

      The other consideration is that since your income has been larger, your benefit will be larger than your wife’s.

      Since she is also younger than you, and since women tend to live longer than men, (unless there are individual health issues) the odds are you’ll go first. When that happens she’ll be able to step up to your larger benefit.

      Finally, you have plenty to cover your expenses and can easily afford to delay.

      Your situation is very similar to our own. Our plan is for my wife to take hers at 66 and I’ll wait till 70. Not only is that what I’d suggest for you, it’s my very own plan. 🙂

      As for your son, I’m not sure I quite understand the question. But if you are referring to survivor benefits to him if you die while he is still a minor, you don’t have to be taking SS at the time for him to get them.

      4. Life insurance? My company covers about $180K on each of us right now, and I could extend that or bump it up for my wife, if needed. But is there any need for it?

      jlc: Skip it. Life insurance is an awful product that should only be bought as a last resort.

      Unfortunately this usually means by someone with big lifestyle they can barely support and with no assets to carry the load if they die. That is, those who can also least afford it.

      This is not you, and kudos for it.

I could go on with questions about roll-overs, investment options, etc., but I feel that I’ve asked plenty already. And I imagine your recommendations include Vanguard and staying away from annuities.

      jlc: Yep, and the blog is filled with info on those!

      Last, thanks for your words of encouragement to others. There is a lot of talk about the advantages of starting investing early and the power of compound interest that drives impressive results for those that do. That is certainly true and the sooner one starts the easier this all becomes.

      But as your story shows, amazing things can be pulled together in short time frames with a bit of discipline and work.

      Well done!

      • John says


        It was great to read your reply. Thanks for your insights and taking the time to answer my questions.

        I’ll skip the life insurance, and I’ll probably pay the mortgage over a few years.

        I may not have been clear about the Social Security question in regard to my son. Family benefits are available to unmarried children under 18 (or 19, if still in high school) if a parent is retired and eligible for SS. More info here (pdf):

        The same month I turn 62, my son will turn 14. That leaves 4.5 years (thru h.s. graduation) for him to be eligible for his own SS benefit. He’ll get 50% of the benefit I’ll get ($21,600). That’s $10,800 per year X 4.5 years = $48,600.

        I was hoping that I might be able to delay my benefit while he would receive his. But I spoke to the SSA today and that’s not the way it works. I will need to begin receiving my benefits for him to get anything. Once he graduates h.s., he’ll stop getting benefits and I’ll continue receiving mine at the level I began at age 62.

        Though I’ll be locked into a lower rate — and my wife, assuming she survives me — over our lifetimes we’ll likely get a better SS payout by starting when I turn 62 and getting the child benefit for my son. And that ~$48K will help a lot with college expenses. Not a decision I need to make for another 6 years, but that’s how it looks now.

        Regarding the job: even though I will be leaving money on the table, as you said, it’s likely I will take the offer. I probably could survive another four years, but why try? It’s more and more a battle to get my work done, and the more I have to fight to keep the job, the less it becomes a job worth fighting for. For my health, my happiness, and my family, I’m ready to go.

        My dad worked till his mid-60s. The last few years were a grind and they weren’t worth it: 13 months after he retired he got cancer. At some point it sinks in that we only have so much time. Better to live it as best we can. If he were around now, I know what he’d recommend I do.

        Thanks again, Jim. This has been very helpful.

        • jlcollinsnh says

          My pleasure John…

          and I learned something new as well.

          I had no idea children under 18 could receive benefits just because one parent is retired. Amazing, and in your case it certainly tips the plan toward taking your benefit at 62.

          As for slogging away at the job for a few more years, as you said, in your financial position: “Why try? …we only have so much time. Better to live it as best we can.” 🙂


  54. Benjamin says

    I hope this question hasn’t been asked before; I’ve tried to find the answer but have had no luck. It is just hard to sift through the wealth of information available on this site!

    I’m new to the Vanguard game this year (thanks for pointing me in the right direction) but have some old investments in mutual funds with high expense ratios.

    My question is this:

    Would it be worthwhile to move my old investments over to VTSAX immediately, and thus pay taxes on the capital gains, or should I leave them there and just buy VTSAX going forward?

    Or to be really terse,

    What should I do with my old investments?

    If this cannot be answered generically, here are some specifics:

    + I have around $60,000 I want to move over, which have around $15,000 in long term capital gains.
    + I’m in the 15% tax bracket right now, and these gains won’t move me into the next tax bracket.
    + I don’t quite understand it, but my tax person says I’d probably have to pay $3,000 dollars in tax on these gains.

    So should I spend $3,000 dollars to have all my investments in VTSAX? This is what I’d prefer (and what my gut says to do), but I don’t want to be making a dumb mistake as I switch to this new investment strategy.

    Thank you for taking the time to answer so many questions and to write so much useful and life changing stuff (at least you’ve helped completely change my attitude towards money–well, you and YNAB)! No worries if you can’t answer, this site is becoming quite popular, I’d understand!

    • jlcollinsnh says

      Hi Benjamin…

      Welcome and thanks for the attaboys!

      Tough question.

      It is always bad to see $3000 disappear. You lose not only that money, but everything it would have earned for you over the decades. But then again, high fees are a killer over time.

      The answer depends on just how ugly those old investment are.

      If you are in..

      1. some high cost actively managed fund that will likely underperform and will definitely drain your account with fees, I’d bite the bullet and move it. Sounds like this might be the case?

      2. a broad based, low cost index fund that happens to be with another firm, definitely leave it alone.

      The closer to #1 the more worthwhile it is to sell.
      The closer to #2 the more worthwhile it is to hold.

      Remember, too, that over time that 60k will become a smaller part of your portfolio.

      Hope this helps and let us know what you decide!

      • Benjamin says

        Hmmm… well, I’ll guess I’ll have to think about it some more.

        They are actively managed mutual funds, and have an average expense ratio that is .81% higher than Vanguard’s. By my calculations (using the compounding interest calculator you mentioned above), that means my portfolio with these actively managed funds has to outperform Vanguard (VTSAX) by at least .6% on average over the next 30 years to make keeping my money there worthwhile.

        Now, according to MorningStar, my portfolio over the last 15 years has been in the same ballpark as Vanguard (VTSAX), with a few of the funds even beating Vanguard by around .6%.

        So, I guess I have to decide if I think these funds can keep doing that for another 30 years. At the very least, that seems like a difficult task for this other portfolio!

        Thanks for the help!

      • Jian says

        Hi Mr. Collins,

        I’m wondering if Benjamin can use ROTH IRA to help. He didn’t mention if he already had a ROTH account, but let’s assume he does (since he’s in the 15% tax bracket and seems very smart with his finances).

        Then, he should be able to move $5500 worth of those high-fee funds over into the ROTH every year he’s qualified for ROTH. Once the funds are in ROTH, he can exchange them into other funds, and capital gains in ROTH are tax-free. His $60k would take roughly 10 years to convert into ROTH, but that still beats paying $3000 in taxes.

        The only other thing I can think of is if he has any money-losing stocks or funds in non-retirement accounts. If so, he can use capital loss harvesting written so well by Mad Fientist.

        I’d love to hear what you and other readers think. Thanks!

        • jlcollinsnh says

          Brilliant idea, Jian!


          The way you’d do this is simply use these funds as the source for your $5500 annual Roth contributions.

          Simply have the existing fund convert $5500 worth of shares into a Roth. It will still be the same fund so you haven’t sold anything so, no taxable event.

          Once in the Roth you can easily switch to VTSAX and, since in the Roth there is no capital gains tax to pay, you are home free.

          As Jian points out, this will take a while with 60k, but it gets you there and it is what I’d do.

          He is also correct that if you have any investments that are showing a loss you can sell those to offset the gains from selling the high fee funds.

          However, when harvesting tax losses this way remember that the first $3000 in losses you can use to offset ordinary income.

          So, if you have 15k in gains you’d want 18k in losses to fully offset.

          I also second Jian’s recommendation of the Mad Fientist. MF has really posted some great stuff and his is one of my two favorite blogs. Check it out if you haven’t already. This one is a good place to start:

        • Benjamin says

          That’s a great idea! And since I’m married, we’d have $11,000 we can convert over each year I assume. That will help speed things up considerably. Then the money I was putting in my Roth will now go directly towards maxing out my SEP IRA. Then hopefully at some point in the next 5 or so years, the market will tank and I can sell all of them for a loss, wash my hands of these other funds, and buy VTSAX at a sharply discounted rate! 😉

          • Jian says

            Mr. Collins,
            Thanks so much for seconding my comments earlier. You just made my day 😀 !

            You got me on the 15% tax bracket and perhaps not having to pay long-term capital gain thought! In fact I’m personally interested in the answer to this one, as I plan to be in the same bracket this year, and if it’s true we won’t need to pay capital gains taxes, I want to sell some stocks myself!

            I’ll call IRS hotline and ask them. You can do the same. Then we’ll compare notes.

            I know IRS hotline is excellent source of information due to unfortunate personal mishap! With too much time on hand recently, I made the mistake of contributing to ROTH; mistake because I have no “earned income” this year thus do not qualify for ROTH contribution. So there’s some hoops to jump through to remove the contribution. But I called IRS and their rep was excellent!! After all’s done, I might have come out better, because I was able to swap out some lame stocks from my ROTH, and will be able to sell them for capital loss harvesting next year when I will make “earned income”! That’s how we turn minor catastrophes into little triumphs here at Mr. Collins’ blog. 🙂

          • Benjamin says

            I may have figured out the answer.

            (and for those reading along on the website, I asked the question that Jian is referring to in my last comment, but then found the answer almost immediately in an article I was in the process of linking to, so I removed the question so as not to look dumb. I should have just left it! sorry!

            I was confused about why I was having to pay any taxes at all. Since my tax bracket is 15%, my long term capital gains tax rate is 0%. So why would I have to pay any taxes on these gains?)

            But, in reading about it on the Motley Fool website here, and then more on the Tax Foundation website here, it looks like the reason I’d have to pay taxes even though my long term capital gains tax rate is zero, is because that tax rate is for federal taxes. I’d still have to pay tax on the gains on a state level. And unfortunately, my state is one of the states with a higher Long-term State Capital Gains Rate.

            Maybe I’ll move to one of the states with a 0% long term capital gains tax rate next year!

          • Jian says

            Oh no! So sorry I was wrong about that. I called Vanguard and they confirmed your findings:
            1. New contributions to ROTH have to be in cash.
            2. Only exception is with IRA rollovers (regular IRAs to ROTH or another ROTH account to ROTH), when we are allowed to move investment holdings into ROTH.

            Again, my bad! Thanks for doing diligent research and sharing your findings.

  55. Joe K says

    What do you think about a Dividend retirement strategy?

    Where you hold dividend stocks, and live off dividends only?
    If you never sell your capital, the stocks, then you can’t run out of money.
    The problem would be in stock selection, how do you diversify enough against a sector meltdown in finance or energy, and choose reliable stocks. I like the Morningstar Dividend newsletter, it focuses on boring stocks with wide moats of economic protection.

    I think you would have to accept that you are not trying to beat the S&P 500, but are just investing in real companies that give you a certain income. And that you don’t care of what Wall Street values them at, you care about what income they are producing. It’s like if you own a rental house that pays $2000/month, you don’t care if real estate valuations plummet, as long as you continue to get paid $2000/month.
    For someone who is concerned about the market dropping, investing in these well known stocks could reduce their worry. Who wouldn’t feel better about investing in Proctor & Gamble vs Tesla?
    And if you can weather the valuation fluctuations by focusing on income, then you could put more of your money to work and eliminate your bond holdings. Many of these dividend stocks are called bond substitutes for a reason!
    They may grow slower than the market as a whole, but if they even out your growth, it will make you feel safer to retire early, and give you a specific income to spend.

      • jlcollinsnh says

        Welcome Joe…

        Ha! That’s exactly where I was going to point you.

        In short, fans of the Dividend Stock approach like the idea of not having to sell any shares and living on the dividends. They liken it to owning fruit trees and enjoying the harvest.

        And that certainly has some psychological appeal. But it also carries many short coming as I outline in that post.

        Using that same tree analogy, the approach I prefer and describe on this blog is also like owning trees that bear fruit. But they grow vigorously enough that I can harvest some of the timber as well.

  56. David M says

    I really have enjoyed your blog. I have recently gobbled it up. I have a couple of questions that I would greatly appreciate your knowledge. Overall what is your opinion about using an S&P 500 low cost index funds?
    When you rollover a 401k isn’t there an advantage of buying VTI vs VTSMX (if you have less than 10,000 than VTSAX is out of the question) as far as expense ratios and fees? I would not be trading the VTI (just holding) so I don’t believe any other fees would be charged. Am I missing something?


    • jlcollinsnh says

      Thanks David…

      glad you are enjoying it!

      S&P 500 Index funds are just fine. I prefer Total Stock Market Index Funds for the broader coverage in mid and small cap companies. Over time, this helps it outperform but the difference is slight and there are years when the S&P 500 does better.

      As long as you aren’t paying fees to buy and sell the shares in VTI, your thinking is sound. The ER is the same as VTSAX as is the portfolio.

  57. Jian says

    Mr. Collins,
    Thanks so much for seconding my comments earlier. You just made my day :D!

    You got me on the 15% tax bracket and perhaps not having to pay long-term capital gain thought! In fact I’m personally interested in the answer to this one, as I plan to be in the same bracket this year, and if it’s true we won’t need to pay capital gains taxes, I want to sell some stocks myself!

    I’ll call IRS hotline and ask them. You can do the same. Then we’ll compare notes.

    I know IRS hotline is excellent source of information due to unfortunate personal mishap! With too much time on hand recently, I made the mistake of contributing to ROTH; mistake because I have no “earned income” this year thus do not qualify for ROTH contribution. So there’s some hoops to jump through to remove the contribution. But I called IRS and their rep was excellent!! After all’s done, I might have come out better, because I was able to swap out some lame stocks from my ROTH, and will be able to sell them for capital loss harvesting next year when I will make “earned income”! That’s how we turn minor catastrophes into little triumphs here at Mr. Collins’ blog. 🙂

  58. Adam says

    Hey Jim,

    Love the site. I have been a long time MMM reader and came over on his post of your stock series.

    I have just a quick question. I’m lucky enough to have a few Vanguard options in my employer 401k, VINIX, VSGIX, and VBTIX. I have read most of your posts on stocks and was debating an allocation utilizing VINIX (very similar to VTSAX) and VSGIX, a small cap fund. Since I’m young, 24, I figured I could utilize the higher growth potential that are in small caps. I was playing around with a 70/30, Large/Small allocation.

    What do you think? Is the extra potential growth in small cap worth it? I have quite a few years to ride out the volatility.

    Thanks in advance for the input and keep up the good work here!

    • Mark A. says

      Jim, I was going to send you the following link just out of interest but, as it happens, it might also be a partial answer for Adam’s question. I wanted to learn more about the CRSP US Equity index, which VTSAX now tracks. This is the third index Vanguard has tracked for this fund since I started investing in it and I was a bit nervous that they keep changing it. After reading page 8 of the following I feel better because it doesn’t seem that much has changed from the original weighting of the Wiltshire 5,000:.
      Large caps make up 70% of the index, mid caps 15%, small caps 13% and micro caps 2%. So that’s a pretty healthy helping of small and medium companies and I see no reason for Adam (or me) to add more, i.e. the index is already essentially based on the 70/30 ratio Adam suggested.

    • jlcollinsnh says

      Hi Adam…

      As Mark A outlined for you, with a total stock market fund like VTSAX you are already getting mid and small caps stocks. This is the reason I prefer it over an S&P 500 index fund that focuses on the large caps.

      Over long periods of time, small caps tend to out perform their larger brothers. But, as your comment indicates you know, they provide an even wilder ride.

      If you add small cap VSGIX to total stock VINIX it has the effect of doubling up on your small cap allocation. This is a more aggressive allocation.

      As long as you understand all this and have the stomach for the risk and ride when the next bear comes, I have no problem with it.

      Good luck!

  59. David says

    Hi Jim,
    I’m wondering what your opinion is on how to pay back student loans.

    I’m 32, and I work as a contract attorney (freelance), so my yearly income varies. Last year it was about $85k, but it’ll probably be about $75k this year.

    When I graduated from law school in 2008, I had a hard time making my student loan payments, because work was hard to come by, so the bank allowed me to do the income-contingent payment plan for the big loan. The deal is that I make the minimum payment each month and in 25 years the loan is forgiven. So I’ve been making the minimum payments for the past couple of years, while trying to save money as well. Now that I have a bit of money saved, I’m wondering whether I should start paying the loan down more aggressively or keep making the minimum loan payments while investing.

    Here are the details:
    – The big income-contingent loan is $167k, at 7.25% interest. The minimum payment on it is like $500/month, but I’ve been paying about $1k/month to cover all the interest. Otherwise the total grows, and I’m worried that in 25 years (if it takes that long) when the loan is forgiven, that amount would be taxable income, and I’d have a huge tax bill on way more than $167k.
    – There’s also another student loan that’s $27k at 3.62% interest, with minimum payments of $180/month.

    – Cash (savings and checking accounts): $35k
    – Roth IRA (Vanguard 20xx fund): $12k
    – Brokerage (ETFs): $2k

    – $2900/mth (including $1200 in student loan payments)

    After expenses, I have about $2k extra each month to either invest or pay more towards my loans. I have no other debts.

    Obviously, $35k is too much to have sitting in checking/savings accounts for how much my total assets are, so I was thinking of putting maybe $10k into ETF total market funds or just a normal IRA. But maybe it’s better to put that into my big loan. The math is tricky to me, because no matter what I pay into the big loan, it would all be forgiven in like 2036. Do you think just making the minimum payments each month until the loans are paid/forgiven is the way to go, or should I pay them down more aggressively, instead of investing my extra money each month?

    Interested to hear your thoughts.


    • Jian says

      I heard on NPR that lots of jobs in government and non-profit organizations can get student loans forgiven, if people work there for a number of years. I don’t remember any details, but you might want to check that out. Good luck!

    • jlcollinsnh says

      Hi David…

      Wow! That is an interesting scenario and it introduces a subject about which I know very little (student loans) and something I’ve never heard of: The loan forgiveness after 25 years.

      Hopefully one of the readers here will weigh in with some insights and suggestions.

      $167k, at 7.25% interest is a huge debt at a huge interest rate. At the $500 per month minimum at the end of 25 years you will have paid $150,000 and your balance will be still higher then than now.

      If you are right that you will owe tax on the forgiven balance, and that makes sense, it will be a large bill. But since taxes are some fraction of the total, perhaps not as bad as you fear.

      Still, if you remain unable to pay it, you now are in debt to the IRS. So, not an ideal situation by any stretch.

      Then there is the ethical issue of paying back money you borrow.

      Were it me, I’d:

      1. Keep paying the $180 minimum on the $27k at 3.62% interest.
      2. Delay my investing.
      3. Go ahead and keep the investments you have, but
      4. Take 30k of your cash and put it toward that debt.
      5. Keep 5k as an emergency fund
      6. Cut my expenses to the bone.
      7 . Put every spare dime into grinding down that 167k ASAP
      8. Once the 167k is gone I shift that monthly loan payment money to investments. At that pace they’ll grow as fast as the debt goes away.

      It sounds like your expenses are $1700 per month ($2900 – $1200) or $20400 per year.

      That leaves you almost 55k. Figure after the standard deduction and your personal exemption you will pay ~5k in income taxes, an admittedly very rough estimate, and you have 50k left to service the debt.

      You should be done with it in less than 4 years. You’ll be 36, have a great minimum lifestyle/investing habit and be on the verge of explosively increasing your net worth.

      For an example of what can be accomplished, check out my conversation with John in the comments above. He started flat broke at 40.

      Good luck and keep us posted!

  60. Andrew says

    Help…I don’t want my parents moving in with me because of their investment ignorance!

    My parents began investing during the last few years of their working careers and now that my father, the bread-winner of the family, took the first opportunity at early retirement to claim his reduced pension, they find that they need to withdraw $1k/mo of their measly $82k nest egg. As I am beginning to pry further into their situation, I have discovered this financial situation:

    Current Age of Parents: 57
    Nest Egg Sum: ~$82k
    Investments: HBLAX (Hartford Balanced Income Fund CL A) ~$30k; MACFX (MFS Conservative Allocation A) ~$27.5k; Roth IRA: MAMAX (MFS Moderate Allocation A) ~$24k combined (all purchased on the advice of their Edward Jones advisor)
    Monthly Expenses: $2500 (They need a punch in the face from Mr. Money Mustache, especially since they don’t have a mortgage and their property taxes are extremely low.)
    Monthly Pension: $1500
    Add’l Income currently taken from Investments: $1000/mo
    Social Security Benefits once they come of age: unknown

    Needless to say, I have my doubts about their financial future. Instincts tell me that this model certainly isn’t sustainable, at least not likely to last them through another 30-40 years of retirement. Is this an accurate assumption? Second, how do they get away from their current advisor? Every fund they own was front-end loaded with 5.5-5.75% “sales charge,” not to mention Vanguard funds have a much lower expense ratio! Their advisor obviously has HER best interest in mind, not theirs. Lastly, what recommendations can you offer for someone in their situation who needs their investments to provide needed income without harshly diminishing the principal? I’ve been looking into Vanguard funds, but am unsure of which one/ones are best for them considering their needs are both short and long-term.

    Thank you,

    • jlcollinsnh says

      Hi Andrew…

      Well my daughter doesn’t want me moving in with her either. Seems a lot of that is going around. 😉

      Looking at the numbers I think I have good news for you, and them.

      With monthly expenses of $2500 and a $1500 pension, they have only a $1000 gap to fill. Between the two of them Social Security should easily cover this and likely much more.

      Have them go to to register. Once they have their accounts, the SSA will tell them exactly what their benefit will be, depending on what age they choose to take it.

      The earliest is 62 and the longer they delay, the bigger their checks will be.

      So the 82k they have needs only to last for five years when they hit 62. If they can stretch it for nine years, they can start collecting at 66 and should be in even better shape.

      Even if they stuck the 82k in a bank account with less than 1% interest, at $1000 a month it lasts 82 months: 6.833 years. That takes them to age 64, well into SSA range.

      Because this is money they need to live on they want to be very conservative with it, but even conservatively invested it should last them to age 66 and full SSA benefits. Maybe with a bit of luck, even more.

      Click on the ad for Betterment on the sidebar here. This is a very cool new investment company I’ll be writing about, and recommending, shortly. For your parents’ needs it is a better fit than even my beloved Vanguard.

      Plug in their goals and Betterment will produce a stock/bond mix to meet them using index funds, from Vanguard and iShares. It can more easily give you a more conservative mix than the Vanguard funds I’ll suggest below. With the short time horizon, that might not be a bad idea. And it will maintain that mix automatically while it doles out the $1000 each month, something that I’m guessing will be very useful to your folks.

      If you prefer to stick with Vanguard, and nothing wrong with that, I’d look at the 2015 TRF: VTXVX. It holds 53.5/46.5 stock/bonds with a nice mix of funds and an ER of .16% —

      Slightly more aggressive at 60/40 and with a slightly lower ER of .10% is VBIAX.

      Set either of these up and have $1000 automatically transferred into your parents’ checking account and it should last them well into their 60s.

      To get the max SSA payment, I have them wait until this money is fully depleted or they hit age 70, which ever comes first.

      But first you have to pry the money away from their current advisor. If you read the comments in the post:
      You’ll see advisors tend to cling to their gravy train long and hard.

      There is no predicting how the advisor your parents are using will handle herself. Hope that it is smooth and professional. But if it is not, remember that it is your parents money!

      Vanguard and/or Betterment can help in this process if you give them a call.

      Those huge 5.5-5.75% load/“sales charges” are gone forever, but at least your folks can escape the outsized ERs.

      Good luck to them, and you!

      • Andrew says

        Hi Jim,

        This does sound like good news for all parties involved. Thank you for your prompt and insightful response!

        Do you have any additional advice on what kind of account (taxable, Roth, etc.) to open and roll over/transfer the funds into? Minus the Roth funds they currently have, all other investments were funded with post-tax money. I would hate for these to be taxed again, but I know there are limits on how much can be stashed into a Roth in a given year. Lastly, should they expect fees when leaving their current investments?

        Thanks again for sharing your expertise!


        • jlcollinsnh says

          Anything that is in a Roth or other tax advantaged account they want to hold until they are at least 59.5 to avoid penalties.

          So when they roll into Vanguard or Betterment, they should roll Roth into Roth, IRA into IRA.

          There are limits as to how much one can contribute each year to a Roth, but no limit on the size of account you can transfer from one Roth to another.

          The money it the Roth should also be the last they should spend and, in fact, if the non-Roth money lasts them to 66+ I’s suggest they hold on to the Roth when they switch to SS. It is a great vehicle to use to pass money to heirs.

          You don’t mention what percent of their money is in Roths, but if this is going to be held for the long term, VTSAX is where I’d put it. This means more bonds in the taxable account to maintain the conservative allocation.

          As for the exit fees, there shouldn’t be any. Some funds have redemption fees, but this is pretty rare especially if they charged a front end load.

          If the advisor tries to charge some of her own, I’d protest long and loud. 😉

          • Andrew says

            Thanks Jim. The more I research on your blog and the Mad Fientist’s, the more questions I have about investing as it relates to this situation. For example, I’m very much intrigued by both the tax-gain and tax-loss harvesting, as well as Roth IRA conversions.

            If the Roth is the better investment vehicle, should my parents be converting their other non-Roth funds into the Roth? There seems to be a lot of tax law surrounding this and quite frankly, it all seems extremely complicated at this point!

            Can they get away with gradually converting their other funds into the Roth without paying tax or penalties? Is it even worth it to them in their situation?

            I’m informed enough to be dangerous (maybe more to myself and others), but clearly not competent!

            Thanks for your continued support.


          • jlcollinsnh says

            Hi Andrew…

            Sounds like you are reading the right stuff here and on MF to decide. You might also check out:

            But this advice is more for younger people setting up decades of retirement on their investments.

            You parents have a different situation:
            Making 82k last them well into their SS years, remembering the longer they can wait to take SS the bigger the checks. Of course this assumes they are in good health and looking at many years of retirement.

            By all means, gradually convert to a Roth. But only if they can without penalty or paying taxes.

            Otherwise just have them draw down the funds as needed from where they are, leaving the Roths till last.

            If the non-Roth funds get them to 66 and they want to leave something to their heirs, the Roths are the best tools for that.

  61. Matt says

    Hi Jim,
    My wife and I have been saving for the VTSAX and we have the $10,000 minimum now. I went to sign up at Vanguard choosing a Roth IRA and found myself caught between Vanguard’s minimum of $10,000 and the IRS’s maximum contribution amount of $5,500.

    I take it that it is impossible to have VTSAX in a Roth IRA. So my question is what is my next best option? If I choose a joint savings account then I will be taxed, correct? Should I stay with a Roth IRA but downgrade to the VTSMX, putting $5,500 in now and the $4,500 in January?

    Financial details:
    I’m a 32 year old web developer salaried at $70,700. My wife is 34 and is self-employed teaching piano and voice out of our home and earns around $18,000 a year before taxes. The only debt we have is our mortgage. We also have a 9 month old daughter.

    Thanks for your insights,

    • jlcollinsnh says

      You have exactly the right idea, Matt.

      Put $5500 in VTSMX in the Roth and $4500 in VTSMX in a taxable account. Come January, move the $4500 to the Roth as part of your 2014 contribution. Vanguard will automatically convert it to VTSAX.

      Remember, VTSMX and VTSAX hold exactly the same portfolio. The only difference is that VTSAX has slightly lower expenses. Definitely worth having for the long term but not a big enough difference to worry about for a few months.

      • Matt says

        Thanks for your prompt reply! I didn’t realize Vangaurd would convert up to the admiral class once the minimum was reached.

        Thank you again for your time and knowledge,

  62. guest052237 says


    We just had our first child and we would like to start an account for her college/post-high school plans.

    I was wondering what you would recommend? I haven’t done a lot of research, but would a 529 limit her to using the funds strictly for college? Obviously don’t know if she will attend college or not and don’t want to be forced to use the savings strictly for college.

    If this is the case, would we just set up a taxable account in her name so she can use the money for a wider array of options?

    Thanks for your help!

    • jlcollinsnh says

      Hi there…

      Several things you need to consider with 529 plans.

      The advantages are, of course, tax savings both at the federal and state level. So if your state has high taxes you’ll want to start there. But you don’t have to buy the plan tied to your state, and it maybe that better, cheaper plans are available in other states.

      Vanguard has an easy review on how to choose the plan that is the best fit for you:

      But before you do consider the disadvantages:

      1. any money your 529 earns that is not used for eligible college expenses not only gets taxed, there is a 10% tax penalty from the Feds. Depending on your state you might have to contend with them too.

      2. a nice fat 529 account will factor into the calculations for any need-based financial aid.

      So the irony with these things is that the more you earn the more valuable the tax advantaged feature is and the more having one will hurt your child’s chances for financial aid when the time comes. 😉

      • guest052237 says

        Wow! I’m still amazed at how quickly you respond to things, very much appreciated!

        I will look into it. I’m certainly leaning towards not doing one based off of my own observations.

        My next question is then, would you just set up a taxable account in her name?


        • jlcollinsnh says

          All depends on if I’m sitting at the computer when the question rolls in. 🙂

          Depends on your tax bracket. Hers is likely to be lower. But remember, once she’s of age the money is hers and while you hope she’ll spend it on college, they are sure to still be selling red sports cars 18 years from now….

  63. Nicholas Mills says

    Happy Holidays,

    My name is Nicholas and I am a 21 year old senior in college. I study business administration with a focus in entrepreneurship.

    I recently came into $1,200 and thought that VTSMX would be a good option because my dad would provide the $1,800 to meet the $3,000 minimum. The problem I am having is justifying sending $3,000 for 20-30 years. Being a student I don’t have a full time job, and $1,200 can go a long way for a 21 year old student like myself.

    I was hoping to get some advice on VTSMX if that is a good strategy, or a Vanguard account that can accommodate a 3-5 year plan.

    Greatly enjoy the blog.

    Nick –

    • jlcollinsnh says

      Welcome Nick…

      First, please tell your dad that I also have $1200 and…. 😉

      Assuming his extraordinarily generous offer is conditioned on you having to invest the whole 3k to get his $1800 surely as a bright guy studying business administration with a focus in entrepreneurship you don’t need me to tell you that when offered an instant 150% return on your money the answer is: Take it!!

      You are young, smart and energetic. If you want another $1200 for spending go and hustle it up.

      My daughter was just home for the holidays. She returned to the restaurant where she works summers for one 12 hour shift and two dinner shifts. They were thrilled to have her, she worked like a galley slave and she walked away with over $700. In three days.

      Second, don’t think about it in terms of being invested for 2-5 years. Think 3-5 decades. Put it in VTSMX and let it ride. Once it hits 10k, Vanguard will automatically roll it into VTSAX for you.

      There is a range of historical returns people use for stocks. Jack Bogle, inventor of the index fund and founder of Vanguard, says 9.6% since the start of the last century. Let’s go with that.

      Over on this post
      you’ll find a really cool calculator. Using it….

      At 9.6% after 3 decades your 3k has become 47k. After 5 decades it is 294k. Without adding another dime.

      At the moment I’m reading “Thinking Fast and Slow” by Daniel Kahnman.

      Early on he describes research that asked students whether they’d prefer to get $3400 this month or $3800 next month. As he says, “This simple test has emerged as one of the better predictors of lazy thinking.” Those that choose the smaller amount immediately “tend to be impulsive, impatient and keen to receive immediate gratification.”

      It’s not hard to guess which group will enjoy more success in life.

      So, in a very real sense, your decision will not only determine what happens to your $1200, it might very well be a prediction of your future.

      Good luck!

  64. Andrew says

    Hi Jim! My wife and I want to thank you for all the great work you are doing with this blog, along with the encouragement and inspiration it provides to us. We have been soaking up tons of research on financial independence (your blog, the Mad FIentist, MMM, and GoCurryCracker!) and want to consider every angle when planning for our post-work phase of life; from Roth conversions, tax harvesting, HSAs, etc. It’s been a lot to absorb and we want to make the most out of every opportunity available.

    Retire in 10-12 years in our mid-40s, the time when the wife’s defined-benefit pension will cover annual expenses. Invest all other savings.

    Our $115k mortgage at 3.625% is our only debt.

    Current annual gross salary is $71200 for 10 years of teaching experience. Our annual expenses are $27000.

    We have been saving $1400/month towards a six-month emergency fund. It will be fully funded in a few months.

    We both have stagnant 403(b) variable annuity accounts, mine is Roth and hers is pre-tax, which total $18k. We stopped contributions to them several years ago.

    We have a 20-month-old daughter; I’m in my second year of staying at home with her; three years of teaching pays significantly less than my wife’s 10! I will go back to work once she enters school. My salary will be around $45k-$50k.

    My wife will be eligible to receive Ohio STRS defined-benefit pension in 9 years (20 years of teaching service). In 2013, a teacher in her district with 20 years of experience and the highest education level earns an annual salary of $93585. The same salary scenario for the 2014-15 school year pays $94052. Her salary will steadily increase over time. The schedule maxes out at 25 years and is currently paying $97479. The pension is based on the average salary of your last five years of teaching (Final Average Salary, or FAS). Pension disbursements at 20 years of service pay 29% of the FAS, 33% at 21 years of service, 37%/22 yrs, 41%/23 yrs, etc, up to 60%/29+ yrs of service. Wife will work until pension covers annual expenses. Investments, therefore, will be more of a safeguard.

    We are seeking advice on where to invest our excess income after expenses are paid. When I return to work in 4-5 years we will be able to save 100% of my annual income ($45000-$50000 gross), in addition to my wife’s surplus income after expenses are covered. This should be a net total somewhere near $50k/year. Where do we put this money? Traditional IRA, Roth IRA, pay off the mortgage, something else, all of the above? Since our savings rate will exceed the contribution limits to either IRA, what is the progression of investment vehicles we should follow? Also, what do we do with the 403(b) variable annuity accounts? Both have a $30 annual fee in addition to their 1.29% expense ratio. We knew nothing of Vanguard when these accounts were opened. My wife and I would really like to move them into something else, but what and how?

    We are excited for our financially independent future selves and want to make sure we are making wise decisions to get there. If we’ve inadvertently omitted any information, please don’t hesitate to ask.

    Thank you for your analysis!



    • Andrew says

      So, I’ve been digging into the STRS system and have realized that it will not be as simple as originally planned. They do not make it easy for a person to retire early. Sure, one can claim a pension with 20 years of service, but the income begins once a minimum age is met, in this case it appers to be 65. Therefore, my wife could quit her job in her mid 40s with 20 years of service, not withdraw her contributions, and a benefit is payable when she attains the qualifying age; she would also be eligible for health care coverage. This route requires us to have a large enough savings to cover the 20 year gap. The other option is to withdraw her contributions plus interest and 50% of the employer’s matching funds, but forfeit all other benefits, including health care. Won’t know which is the better option until learning the monetary value of her benefit and potential healthcare premiums under these circumstances.

      Any advice, thoughts, or opinions are welcome. Also, we would still like your recommendation on investment options for our savings. This info may guide your answer: with one income we are in the 15% tax bracket, but when I return to work that will increase to 25%.

      Thanks again, and apologies for the pension confusion!


    • jlcollinsnh says

      Hi Andrew…
      Thanks for the kind words and glad you are finding value here and in the other blogs you mention. Those are some of my favorites too.

      If you haven’t already, check out today’s guest post from MF:

      It addresses some of the concerns you’ve raised.

      Thanks for the clarification on your wife’s pension. Pensions are a dying breed and very valuable. Since your time frame is still 10-12 years out it is hard, and unproductive, to give specific advice about it just now. Too much can change. Just keep track of it and you can decide what to do when the time is closer and you have a clear view of the options.

      In the mean time, you’ll want to concentrate on building your taxable and tax advantaged investments. As you’ll see from that guest post, there is really no concern about having too much in the tax-advantaged account.

      So Step 1 is to fully fund them all: 403b, IRA and Roth.

      With the investable money you have left over, and with your saving rate you should have a nice chuck, open a taxable account.

      Because you are in the wealth accumulation phase, I would use VTSAX for the IRA, Roth and Taxable accounts. The 403b too, if they happen to offer it. But they probably don’t. Since I don’t know what is offered, here are some guidelines as to what you are looking for:

      1. If you can do business with Vanguard, do so as they are the only investment company out there that puts the interests of their customers first.
      2. Buy broad-based low-cost index funds.
      3. If index funds are not offered, look for the fund with the lowest cost and the broadest base of stocks.
      4. Costs matter hugely.
      5. Keep it simple. One fund in your 403b should be enough.

      As for your mortgage, you have a nice low rate. Just keep it.

      Your emergency fund target is $8400. My understanding is that teaching is a very secure field. If I’m right about this, then you don’t need so much and the extra would be working harder in your VTSAX fund. As to the exact amount, that is as much about your comfort level and knowledge of what kind of expenses might occur as any financial formula.

      Those fees on the annuities are truly ugly. And even small fees are a huge drain over time. I’d dump them and move the money into the better option you are going to find in your 403b plan. Be prepared. They will probably hit you up with a “surrender fee.” Bite the bullet, lick your wounds and move on.

      One last thought on that 25% tax bracket when you return to work. It is likely not as bad as you think. Your three exemptions and deductions will pull you closer back to the 15% bracket than you might think. And remember, it is only the money over the 15% bracket that gets taxed at 25%.

      You have some great factors in play here: No debt other than your mortgage, high savings rate, low living costs, your return to work in a few years and the fact you are starting young. This is a wonderful beginning and if you stay the course you’ll be stunned at the progress you will have made over the next decade or so.

      Good luck and keep us posted!

      • Andrew says

        Thanks Jim.

        Neither of our employers offer Vanguard as an option for our 403(b) accounts. The funds are currently invested through AXA Equitable’s Moderate-Plus Allocation and their EQ/Franklin Templeton Allocation. Pretty lame performance with high ERs, but I have looked into other investment options within the account. Here is what I found: although they don’t offer a total stock index, such as Vanguard’s, they do have an Equity 500 Index Portfolio that fits with the large blend style of VTSAX and I can reduce the ER down to 0.63%. At this cost, do you still recommend dumping them, paying the surrender fees, and going with a different company? I notice that Vanguard’s Variable Annuity Total Stock Market Portfolio has an ER of 0.48%.

        Are variable annuities the only option in a 403(b) account? Should my reason for dumping it have anything to do with it being a variable annuity, or only the high ER? Hypothetically, if our 403(b) was with Vanguard, should we have access to mutual funds like VTSAX, or would we have to choose some allocation within an annuity? I guess I don’t understand my options within a 403(b) account.

        Lastly, I feel like I saw a comment you, or maybe one of your contemporaries, wrote on creating a VTSAX-like portfolio based on a mix of 75% Large Blend (like the Equity 500 Index mentioned above) and 25% Small Cap Index. Is this correct, or was I dreaming?!? Ha!

        As always, thanks for the advice!


        P.S. My wife’s 403(b) VA is out of contract and shouldn’t have surrender fees, but mine still has a couple more years to get to that point. What’s your thought on cashing them out and opening up a Roth or Traditional IRA at Vanguard? We did find out that my wife’s school district can add Vanguard if they get 10 people to signup for their 403(b). Sounds doable, especially if it will lower their cost.

        • jlcollinsnh says

          Annuities are unique products with many variables, and there are many considerations beyond just the high fees and ERs.

          Most basically, you are giving the insurance company your money in exchange for monthly checks until you die. Once you are gone, they keep your money.

          You can decide when to start taking the checks, provide your spouse with continuing checks until her death and any number of other variables. All of which will affect the size of those monthly checks.

          I haven’t written a post on this yet and am unwilling to do so in this reply. 😉 But you can find more info here:

          If you decide that annuities work for your needs shifting yours to the Equity 500 Index Portfolio with the ER down of 0.63% is a reasonable idea.

          Every 403b plan has different options, but most offer more than just annuities.

          Yep. VTSAX is about 70-75% larger cap S&P 500 stocks with the balance in mid & small caps.

          You cannot roll your 403b investments into an IRA until you leave your employer. So if you can get your plan to add Vanguard, that’s your best bet.

  65. Tracey says

    Thank you so much for sharing such great info! I love the site.

    Hope you can help me. I already have an account with Vanguard and ironically enough I also choose VTSMX many years ago even before reading your site.

    My question is this: The VTSMX account i have is set up as a Roth account so I can only contribute the Roth limit amounts which right now are at 5,500 a year. I also can’t touch it till retirement.

    Any suggestions for other funds at Vanguard that I can set up in taxable accounts now? I am looking to invest for income.

    I already have an emergency fund and a large TSP account so I have those covered.

    I was thinking of venturing into purchasing high quality, solid company dividend stocks that would provide income.

    Your thoughts on is it better to purchase individual stocks for dividend income or put it into another index fund at vanguard would be very much appreciated!


  66. Tracey says

    Thanks for the reply!

    I should clarify that I am 47 years old and I do have the VTSAX which is the admiral shares index for my Roth.

    I read thru the links you provided, very helpful. I have been considering the Vanguard Dividend Appreciation Index as an alternative to investing in individual dividend paying stock.

    I like the idea of index investing because it is so much easier than managing individual stocks and picking them etc.

    But when I read other blogs that continue to extoll the benefits of high quality dividend paying stocks I feel like I am missing the boat. I am still undecided. With the market so high now I am hesitant to buy into any of the companies because the prices for the stock are mostly overvalued right now.

    I do have one clarification….are you sugessting that I could open another VTSMX as a taxable account? So then I would have two VTSMX accounts one as a roth and one as a regular taxable account? I wasn’t sure if you were saying that but that may be a good idea.

    • jlcollinsnh says

      My pleasure.

      I like index investing not only because it is easier and simpler, but mostly because it provides the best results.

      The fear of “missing the boat” has cost many an investor a fortune.
      Trying to pick individual stocks, dividend or other wise, has lost investors even more.

      Please, before you do such a thing do this first:

      1. Read all my posts here:

      2. If that doesn’t convince you, read a couple of Jack Bogle’s books.

      3. If you are still unconvinced, go ahead a pick your individual stock portfolio. But do it on paper, not with real money. Track your results for a year and then compare how you did against VTSAX.

      If after all that you still want to pick individual stocks, be my guest. You will still in all likelihood underperform your VTSAX account over time, but at least will will have learned enough to understand what you are doing.

      Yes, that is exactly what I am suggesting. I personally hold VTSAX in my Roth, IRA and taxable account.

      Good luck!

      • Tracey says

        So you have 3 seperate VTSAX accounts?

        I am also interested in the RIET index at vanguard that you suggested as a means of diversification. However, I read that is the one you should have in either an IRA or Roth because it occurs more tax issues. Maybe I should switch the Roth account to that one and make the VTSMX my taxable account. Not sure right now but I am getting a bit confused.

        Thank you for the link and I agree with you however tempting it is to pick stocks I think I am going to stick with the Index funds. I do have a few stocks that i invested in for fun but I think I will just leave it at that.

        • jlcollinsnh says

          Yep. 5 if you include the two in my wife’s name.

          REIT and Bonds I like to keep in tax advantaged funds because they throw off dividends and interest.

          VTSAX I keep in my taxable account because it is tax efficient and in the tax advantaged accounts just because it is a great investment.

          • Tracey says

            Wow, five. You really are a true believer in VTSAX. 🙂

            Thanks again for all your suggestions. I like that you keep things clear and simple: You invest in just a few index funds and then repeat.


  67. Colin Smith says

    I recently started reading your blog and I really enjoy all the great articles and advice. I’m fairly confident when it comes to my own current investments, but I’d like to help my mother get her affairs in order and although I have ideas I’m a bit overwhelmed. I currently live in Germany so I’m somewhat limited with some of the help I can offer when I’m not in the US. I’m currently back in the US through the first week of January.

    She was recently diagnosed with two types of cancer. One is a slow moving lymphoma and the other is squamous cell lung cancer which is large cell and less lethal than small cell lung cancer. She thought she was going to have surgery this week to remove a lobe of her lung but the date was moved to February. I came home with the intention to help her with her recovery but now that
    we have more time and energy I decided with her consent to help her get her home and finances in order.

    My mother will be 65 in March and is retired. She receives $1,200 a month from social security. She has $40,000 in investments with Edward Jones of which $30,000 are in a taxable account and $10,000 are in an IRA. I was fairly shocked when I looked at what the taxable account is comprised of;
    Freeport-McMoran Copper & Gold – FCX $13,876
    Dawson Geophysical Co – DWSN $6,464
    Broadcom Corp – BRCM $720
    Patriot Coal Corp – PCXCQ $42
    Hartford Balanced Income Fund C – HBLCX $11,071
    The individual stocks are all holdover investments from a previous advisor at a different company my mother used. I asked why no one at Edward Jones had sold the stocks as it is obviously very risky to have so much of ones money invested so narrowly especially at her age. She said that her current advisor wants to sell them but is waiting for the right time. That statement is a red flag to me. My mother did ask the advisor to take a small amount of her money and invest it aggressively.

    I’d like to sell all of these stocks and the mutual fund and move most the money into Vanguard Total Bond Market with a small amount in Vanguard Total Stock Market and either a savings account, money market, or cd. I know bonds are generally placed in tax deferred accounts but her income is so low I think her taxes would be minimal. Patriot Coal Corp is in the process of declaring bankruptcy and I was thinking it may be possible to use some of the capital losses to offset any capital gains. I’m not sure how bankruptcy affects selling stock. I realize that the stock may just be a total loss. I think my mother would possibly like to stay with Edward Jones as they offer face to face advice (although I’m skeptical of the quality of it). I’m not sure if it would be possible to buy the Vanguard funds through EJ. Would it be better to wait until the new year to put off paying taxes on the sale of the investments until the next tax year? I believe the Hartford Balanced Income Fund has a deferred load of 1% so I should probably read more about possible costs of selling it. If I transfer the investments to Vanguard from what I’ve read it would be better to transfer them in kind but I’m not sure all that implies.

    Her IRA consists of;
    Franklin Income Fund A – FKINX $4,240
    Income Fund of American Fund A – AMECX $3,700
    Lord Abbett Short Duration Income Fund A – LALDX $2,467
    I’m slightly less concerned with these investments, but I’m nervous about how heavily they are invested in junk bonds. I didn’t know that mutual funds existed that would invest in dividend paying large cap stocks along with junk bonds. It is an interesting idea but seems overly complicated and risky. I would probably like to move these investments to Vanguard and place them all in Total Bond Market.

    She owns her home with no mortgage in West Virginia on 60 acres in a rural area. Overall the house is in good shape but could use some repairs to plumbing and eventually will need a new roof. I’m sure other expenses will come up as often happens in life. The value is in the range of 80 to 100k. She has no desire or plans to move.

    I think a possible asset allocation would be 70% Total Bond Market, 20% Total Stock Market, and 10% mix of savings account, cds, and money market. I like the Total International Stock fund as well (I own some in my AA) but it seems more volatile than is necessary. She has a life expectancy as little as one year but possibly ten or more. It is really hard to tell at the moment. Besides the cancer she is very healthy and active. She will probably know more after her surgery in February but even then it is very uncertain. I think it makes sense to have her assets as stable as possible so she can access the money as needed to make larger purchases for car and home repair.

    My mother has a will and living will already. My sister and I are her only heirs and we are close and generally agree on how to proceed with all of these issues. My mother seems hesitant to spend the money to go to an estate lawyer but I think it would be good to go to see her options to protect her remaining assets and especially her home from medical debt. I’m not concerned with inheriting the house or money but I also don’t want her to have to sign it over to the bank or hospital (she doesn’t either). She has been receiving a very generous amount of charity aid from the two hospitals she has been going to but the she has to reapply every six months. Currently she receives a 75% discount from one and a 100% from another. This won’t cover certain doctor’s fees though. She will have Medicaid until Medicare starts the month before she turns 65. In your opinion does my mother have enough assets to warrant going to an estate lawyer?

    It isn’t easy for me to make decisions with someone else’s money, but I don’t feel that my mother’s money is being handled appropriately. I’ve read quite a few investment books at this point, but I have limited knowledge about issues she is facing. I’d hate to have someone from Edward Jones sell her another front load mutual fund with high fees and costs. I also don’t want her to lose her house. I know the decisions I make are ultimately my own and my responsibility but any advice would be greatly appreciated.

    Thank you for your time,

    Colin Smith

    • jlcollinsnh says

      Hi Colin…

      I am very sorry to hear of the challenges your mother is facing with her health and finances. She is fortunate to have you there to help sort thru it all. And it is very fortunate she is open to your help and that you and your sister are on the same page.

      You don’t mention what her annual expenses are, but I’m guessing she gets by on the $1200 from Social Security. I’m also going to assume you and your sister are willing and able to kick in to help support her if needed.

      I am concerned that your mother asked the advisor to take a portion of her money to “invest aggressively.” This is the last thing someone her age and with her limited resources should be doing. Hopefully the advisor was honest enough not to take advantage of that request, but in any event make sure it is off the table.

      You are right to be concerned about her assets being in individual stocks and the advisor wanting to wait to “sell at the right time.” My guess is that this means some are trading at a loss.

      I agree with your plan to sell them all and redeploy the money at Vanguard in the Total Stock and Total Bond Funds. It is also a good idea to hold some in cash for the house repairs you can foresee. You are correct in that at her income level taxes are not much of a concern.

      You should be able to sell the shares in the bankrupt company, but of course not for much.

      It might be possible to buy the Vanguard funds thru EJ, but why? You want to take all this and the IRA money out of EJ. Looking at what they have her in, the last thing your mother needs is free advice from them. Clearly, these investment were made to benefit the broker, not your mother.

      Likewise, with the IRA roll it into Vanguard. You can call Vanguard and they can help with the process. Don’t be surprised if EJ drags their feet and otherwise makes this difficult.

      Since your mother has minimal tax concerns, with the taxable account the easiest thing to do is have EJ sell everything and send her a check. You could also do this with the IRA but you’d have to be sure to reinvest it in the Vanguard IRA within 60 days to avoid any taxes. But again, not a big deal for her.

      Since we are near year end and just to spread the tax liabilities a bit, assuming there are capital gains in those stocks (and if not, no tax worries at all), you can sell the taxable stuff this year.

      Then in January move the IRA to Vanguard and convert it to a Roth. Theoretically this will be taxable, but again in your mother’s situation a non-event. Plus the Roth is much more advantageous to you and your sister should you inherit it.

      Be sure she lists you as beneficiaries on all these accounts. This avoids probate and insures it passes seamlessly to you. Same with the taxable stuff.

      And no, your mother doesn’t have enough assets to need an estate lawyer, but be sure her will is up to date.

      As for the house, it sounds like that is where she is most comfortable and since she’s been there awhile and it is mortgage free I see no reason she shouldn’t stay as long as she is physically able.

      My guess is that you might get some push back from her on leaving EJ. Sounds like she enjoys the interaction. But she is paying too steep a price.

      If you look at the right hand column here on the blog you’ll see an ad for Betterment. In the next few days I should have a post up recommending these guys. Not quite as cheap as DIY with Vanguard, they do provide an exceedingly simple way to invest in a portfolio of index funds. Rather than choosing the funds yourself, you open an account and tell them your goals. The software then suggests the asset allocations to reach those goals. Very simple and effective, and maybe just the level of involvement that your mother will enjoy with out the risk of expensive mistake.

      You mention a concern about losing it to medical debt, but it is unclear in your comment whether she has that now or is concerned she might in the future. Regardless, she might want to consider moving some of her assets to you and your sister.

      The IRS allows your mother to gift you and your sister each $14,000 with no tax consequences to you or her. If she can get comfortable with the idea, it would effectively take her taxable account from 30K to 6k. Less worry for her and possibly helpful in insuring the charitable benefits she now enjoys. Of course, if the time comes when she needs the money, you and your sister must be prepared to channel it back to her.

      Hope this helps. Good luck to you and all the best to your mom!

      • Colin Smith says

        Thanks for your thorough and prompt response. I just wanted to clarify a few questions you had from my post. The $1,200 from SS is enough to cover my mother’s annual expenses but not enough to cover replacing a roof or other major expenses. The cost of living is very low in rural WV and one of the cheapest places to live in the US. My mother is frugal overall and lives comfortably. My sister and I are willing to kick in to and help financially, but my mother is unwilling to accept any money from us. She has been trying to give me money for my plane tickets even though she knows I’m not willing to take it and don’t need it. She just feels that a parent can help their offspring financially but not the other way around.

        We were looking into a lawyer who specializes in elder law more than estate planning. We are hoping to lower or eliminate any contribution my mother might have to make to Medicare part B or D by her still receiving Medicaid. We were hoping a lawyer might be able to help us navigate some of the paper work. We were thinking a few hundred dollar investment in a few hours with a lawyer could possibly save thousands of dollars over the course of a few years in Medicare contributions. This is an area despite researching recently I feel very confused about. My mother currently has minimal medical debt and it may be retroactively paid for by Medicaid. We are worried about future medical expenses. We have a free consultation with an elder law lawyer next week.

        I will take a look into the services offered by Betterment.

        If you have any other questions or would like me to clarify anything else let me know.

        Thanks again,


  68. Paris Parsa says

    Thank you again. Wow. What an interesting article about HSA. So it means, it does not matter when and which year the medical expenses are from? One can request a refund any time?
    Nice. I will research that farther.

    I also wanted to agree with you that depression is not fun at all. i am so sorry to hear about your experience with It. I wish you feel better soon. I have been researching a lot and found a great book about depression.
    Here is the link to the book on Amazon.

    It has been a huge help for me and only few over the counter Amino Acid supplements helped me a lot. I am feeling much better.
    I hope it helps you as well.

    Thank you again for your help. I am going to check on the financial advisor you recommended.
    With your help, I feel more confident about our investments for future already.


  69. Kim says

    Hi Jim!

    Hubby and I are going round and round about something I hope you can clarify for me. I seem to be hung up on expense ratios and he is on net returns.

    Hypothetically if you were going to invest $100,000 would you do it with:

    Company A whose mutual fund has an ER of .5% and a historical net return of 8% or
    Company B whose mutual fund has an ER of 2% and a historical net return of 11%?

    Would you always choose whichever one gives you the higher net return? Since bottom line that is the $ in your pocket?

    I can’t seem to get past the difference in ER’s because to me that seems like you’d have an additional 1.5% to reinvest.

    I hesitate to ask this on the blog because I think it must be a stupid question and that I’m not seeing an obvious answer.

    Have a very Merry Christmas Jim!

    • jlcollinsnh says

      Hi Kim….

      Always go for the lowest cost.

      This might seem counterintuitive, but the reason is simple. Every fund prospectus carries these words: “Past results are not a guarantee of future performance.” They are the most important and the most ignored in the entire document.

      Research has shown repeatedly that historical returns have no predictive value or likelihood to continue. Indeed, if anything, the data shows strong performance is more likely to be followed by weak. This is the reason buying “hot” funds is such a losing strategy.

      Jack Bogle says it best: “Performance comes and goes. Expenses are forever.”

      Not a stupid question at all, Kim, and in fact not understanding the answer is likely the source of the rookie investor’s biggest mistake: Chasing past performance.

      Indeed, I made it myself.

      Merry Christmas to you as well!

  70. Karen says

    Thank you so much for all you do. You have really helped my husband and I get our retirement planning in order (a little too late for FI for us, but that’s ok. I love my job, and he’s retiring in 2 years.)

    The reason I’m writing is not for me but for my sister and brother-in-law. I haven’t seen a post on your website yet for this situation, and I think you can help them.

    My BIL is one of the lucky few who literally has a fortune coming to him from a rich granduncle. This gentleman set up a trust in the early 1940’s for his children, nieces, and nephews which gave them a stipend of $100/mo until their death – a lot of money back then.

    Let’s call that Generation #1 (G1 for short). If/when someone in G1 died, their $100/mo was divided among their heirs. My BIL’s mother was part of G1 and died a few years ago. He is now collecting $33/mo for his portion of his mother’s stipend.

    They were surprised in December of the year she died with a note from the trustees of the trust giving him an accounting of the money in the trust and to let him know that 2 people are still alive in G1. They also told him that, once those 2 remaining people in G1 passed on, the remaining money in the trust would be distributed to the people in his generation.

    Let’s call them Generation #2 (G2). There are currently 33 people in G2 ranging in ages from their late 40’s into well into their 60’s.
    My BIL fits in the middle somewhere, and my sister is in her late 40’s.

    Anyway, the trustee also showed how the money was currently invested and then tallied the current balance of the remaining trust money at the bottom. As of December 2012, there was $26 million in the account.

    Based upon what my sister told me, they are invested in individual stocks, all big name companies. She knows very little about investing, and they both want to make sure that money lasts them the rest of their lives and leaves a nice inheritance for their 2 girls who are in their early 20’s. Their biggest concern is handling the money when the trustee is ready to pass out the inheritance money.

    I’m not concerned that they will go on a big spending spree. Once the initial shock wore off, they started planning for the few things they always wanted – a small house on several acres in the northern part of their (very cold) state, and a 5th wheel to travel the (very warm) southern states in the winter.

    I got my copy of Jack Bogle’s book, The Little Book of Common Sense Investing, and started reading the section about receiving a large inheritance. I told her what I read and also told her to start interviewing accountants without getting too heavy into numbers.

    I will definitely be sharing your website and giving her my limited knowledge about investing, and I think she will be off and running once she’s taken the time to really dig into it all.

    I just wanted to know what you would suggest when the final 2 people from G1 pass on and that big check is waiting somewhere for them.

    • jlcollinsnh says

      Hi Karen….

      and welcome. Thanks for the kind words, I’m glad you’ve found this place useful.

      What a delightful dilemma your BIL is going to face! It’s a smart move to begin thinking about it now.

      When this money is passed on to the G2 people, the cost basis of the the stocks held will be stepped up to the price at the death of the last G1 member. This is one of the few cases that where taxes are actually avoided rather than just delayed.

      It will be interesting to see how the trustee handles the stocks in the portfolio and the distribution. My guess is the stocks will be sold and the resulting cash will be distibued the to heirs. 26m/33 heirs = $787,879. A very nice chuck of change.

      But not enough to start buying houses, 5th wheels, last the rest of their lives and and leave a nice inheritance to their girls. Before this windfall comes into their hands, they need to learn how to think about money. Start here:

      Basically, tell them not to think about it as 788k in spendable money, but as a well from which they can draw about 4%. If they do that, it should last the rest of their lives and grow into a very nice inherence for the kids.

      So, what they really are inheriting is an extra income of ~ $31,500 a year, $2626 per month. That’s what they can spend on vacation homes and 5th wheels.

      If your BIL really sees this as multiple generational money, as did his wise Grand Uncle, this is the right approach. Spending more is taking it from the pockets of those yet to come.

      This may come as a bit of a shock if he and his family have $$$ dancing in their heads. But then again, $2626 a month is a pretty nice step up from $33. 🙂

      As for investing the 788k, that’s what the Stock Series is all about.

      Hope this helps!

      PS: I’ve also asked my pal and estate expert Prob8 to take a look at this and comment. Stay tuned!

      • Karen says

        Thank you so much for the quick response! You ROCK! I already sent the link to my sister for the stock series. I’ll make sure they read your link above twice. As far as the little house up north and the 5th wheel, I see their current house paying for most of that once it is sold. They aren’t counting the money yet, as G1 may live another 10-15 years. They still contribute to their 401k, but it has been a real godsend to know their retirement is covered, regardless of when the money actually arrives. That is, unless G1 decides to live to be 110.

        I can’t wait to hear from Prob8.

        • Prob8 says

          Hi, Karen. Taxes are probably going to be the biggest concern. I don’t know how this trust was set up so it is difficult to comment on basis issues.

          It may also be that the trust is not set up to pay to all next generation members equally. For example a common method is to say that each G1 member has share created for them and at death their share goes to their descendants. So if someone has multiple descendants that share will be diluted a bit. The trustees should be able to provide your BIL with a copy of the trust and tell him how how his share will be allocated.

          As to basis, my first thought is that I am not sure there will be a basis step up at the death of the G1 members. There was probably a step up in basis to what the stock/trust assets were worth at the death of the trust creator. It seems to me that there would only be a another step up if the value of the shares were included in the estates of the G1 members. Basis issues are going to be a big deal so your BIL should inquire as to whether the trustees know how this will work. How the trust is set up plays a role and the trustees may need to get their attorney or tax professional to advise on this issue.

          It’s also possible that generation skipping transfer taxes are at play here. Again, the trust attorneys will be able to comment.

          Sorry I can’t provide more detail but hopefully your BIL has enough information to at least ask a few questions.

          Good luck!

          • jlcollinsnh says

            Thanks Prob8!

            I stand corrected on the tax basis step-up issue and learned something new in the process.

          • Karen says

            James and Prob8,

            Thank you both so much for the information. The tax issue was everyone’s main concern to start, and it is clear that the sooner they start on this, the better. It’s easy to see how, what looks like a huge windfall can just become a really nice addition to a current retirement portfolio.

            Again, thank you, and Merry Christmas to you both.


  71. EMB says

    I found your blog through Mr. Money Mustache, and I just finished reading your stock series.

    I am in a very similar situation to your very first case study.

    I have recently received a windfall of about 40k, a 50k income and I currently save 50% of my income. (Hoping to get 60-70% at some point) and I have no debt.

    5% goes into a 403b (2.5 VTSMX and 2.5 vanguard explorer) with an undetermined matching that will start in 2015. I’m thinking about reallocating to all VTSMX to keep things simpler though.

    The rest is in a horribly low interest savings account while I try to decide the best thing to do with my money.

    Here’s the difference between me and your first case study; there’s a possibility of me attending grad school in the next 3-5 years. I’m 24 so I’m in the wealth building stage of my life, but I’m wondering is it to risky to keep everything in VSTAX with grad school on the horizon. Should I have a bucket of grad school money? Should I follow your more conservative wealth stage advice? Should I just go to grad school when the stock market is doing well? ANy thoughts would be greatly appreciated.

    Thank You

    • jlcollinsnh says

      Hi EMB…

      and welcome. Always nice to see another MMM reader here.

      I would suggest you think of your money in terms of long-term and short-term.

      Long-term I would consolidate into VTSMX. Once you hit 10k Vanguard will automatically convert it to the lower cost – same portfolio – VTSAX.

      The money you need for grad school is short-term. Ordinarily, I’d suggest that belongs in cash, a pretty horrible choice with interest rates on savings near zero.

      Recently I wrote about Betterment:

      In that post I explain how to use them for short-term goals.

      Good luck!

      What are you planning to study?

      • EMB says

        Thanks so much for responding. I’m pretty new to investing so your blog has been very helpful to me.

        The jury is still out on what I want to study but most likely it will be in the engineering field. I currently work in clinical lab science and it’s a good job, but I quickly found out that health care is not for me.

        I will give Betterment a shot and let you know how it goes.

        • jlcollinsnh says

          My pleasure, and good luck in your new career!

          I’ll be very interested in your review of Betterment. Please post it in the comment on that post when you are ready.

          Have a wonderful 2014!

  72. Kristi says

    Hi, Mr. Collins. Happy New Year! I was wondering if I could get your thoughts on the best investment vehicles regarding college saving. I read the post you wrote on college and all the comments but I am looking for the specific investment advise instead of whether or not college is of value and I was wondering how you went about saving for your daughter’s college?

    My husband and I currently have a 9 year old son, we max out our Roth’s, put up to the company match in my husbands 401K, and then put some in a taxable Vanguard Total Stock Index Fund for retirement. We save about 34% of our take home pay for retirement. We are also currently putting $400 a month aside in a 529 plan through the state of Iowa who uses Vanguard Index Funds. We live in a state without a state income tax so there is no immediate tax advantage that way. We currently have $12,000 put aside for his college.

    Here’s the thing…we are happily expecting our 2nd child in May but are torn with funding another 529 plan so heavily. For all the reasons in your article about college, we also wonder what will college look like when both kids go, what if they don’t want to go, or a number of other scenarios. Anyway, we feel so confident in our retirement plan but we have always felt kind of queasy about tying up so much money into something that is so limited in what you can use it for with so many unknowns. However, it seems like all the advice you read about is to save in a 529. I would really appreciate your thoughts on this. Thanks so much!


    • jlcollinsnh says

      Hi Kristi…

      Truth is I don’t really know much about 529 plans and never used one myself.

      Instead, I maxed out our tax-advantaged accounts and invested the rest in taxable accounts. I’ve been paying college out of these.

      In your case, I’d open a new 526 for the new arrival and split whatever I could comfortable afford between the two. But I’d also be prepared to fund the balance from other sources and I would make my own retirement the priority.

      Maybe some of our astute readers might have more to offer?

      • Johnny Moneyseed says

        Kristi — Jim invited me to read this comment to help out a little bit.

        I was in pretty much the same predicament that you’re in now a couple years ago. I had one daughter, and one college savings fund that we were keeping in an T Rowe Price investment account. We were contemplating moving it into a 529 for the tax benefits. Shortly after, we found out we were pregnant with our second daughter.

        Then, one day, it hit me like a Mack truck driving down the freeway. What happens if I’m putting all of my money into a 529 plan, then my kids don’t end up going to college? Similarly, what happens if they go to college on a full ride? Or, what if they join the military and are covered by the GI Bill?

        That’s when we made the plan to focus on our own retirement. In your case, that would be taking the $400 and investing into your own Index Mutual Funds. Let them grow. Let yourself find freedom. You may find out that it ends up being easier to pay for their education when you have all of your own financial ducks in a row.

        What’s the reason that you want to pay for their college? Just remember that you have no obligation to. I wrote an article about that here:

        I hope this helps 🙂

        • Kristi says

          Thanks so much for both of you taking the time to reply. I think the reason I have such a strong desire to pay for my children’s college is that my parents paid completely for my undergrad degree as did all my extended family as well. So I guess I feel a sense of responsibility to “pay it forward” to my kids. However, what I am realizing is the same college I went to just 12 years ago costs double now what my parents paid and who knows what it will cost when they go to college.

          However, now I just feel like there is so much uncertainty about what college is going to look like 10 year from now for my oldest and 18 years from now for my youngest that tying money up in such a confining investment doesn’t feel right to me.

          I clicked over to your post and really enjoyed your thoughts on the topic…as well as some of your other articles I just happened to click on. 🙂 It’s nice to hear different perspectives and acknowledgement that it is okay to fill up your own cup first and then help others with the overflow.

          Have a nice evening!

  73. Woodreaux says

    Hi there jlcollinsnh,

    Thanks for all you do here. Between you and MMM the wife and I are recommitted to FI. We became debt free except for our house around March 2013 and have been slightly clueless with our excess money until now.
    We are expecting our third child in March 2014 and then the wife will be leaving the workforce.

    The Plan: For me to leave the workforce as soon as its financially feasible to be able to enjoy the rearing of my 3 wonderful kids. I am 37 and wife is 36. Kids are 5,3, and not yet here. 😉

    The 411: Income – Me – ~120k/yr Gross Wife – ~35k/yr Gross

    Expenses/Debts – 156k @ 3.5% with 11 years left on Mortgage – $1689/mth and I add $2oo/mth to principal for $1889/mth (The house was appraised at last refi for $245k)
    Other Monthly expenses add up to roughly $1600.
    Our IRA and 529 plans get drafted out monthly as well for another $1175 ($450 each in the IRAs and $275 for 2 separate accounts for 2 kids.)

    Investments – My 401k ~128k (VINIX 31%, SVF-N 18.5%, PTTRX 14.4%, FLMVX 14.4%, ICEIX 7.8%, VSMIX 7.1%, FSCRX 7.1%) After reading your Stock Series I feel you would recommend moving everything into VINIX with its .04% ER. But being a tax-advantaged is this still your recommendation?

    My Roth IRA ~25k (SVSPX, TRREX, LEXCX, TWTIX, DIISX among other Individual Dividend stocks and Very High Risk Micro Caps) I have an Auto Investing setup with Etrade that allows me to invest in the Funds without fees. This is the reason I am not in Vanguard funds as they are not offered in this Auto plan.

    Wife’s IRA ~6k (Similar allocation to my Roth)

    I also have a 1.2% ownership in a Rehab Hospital which has to date paid out quarterly distributions of ~2k. We are hoping to sell this entity and i will profit ~ 40k at the current asking price.

    Savings Account ~ 55k cash. Ive been accumulating this cash without really having a purpose for it except that I am currently looking to purchase a rental property that would likely require about 20k for a down payment. The rest I have decided to use to open up a taxable Vanguard account and invest in VTSAX.

    Within my expenses above is Life Insurance (3 UL policies and ROP for wife) at about $290/mth. My UL policy is $200 of this and I believe it is a waste of that capital. My friend is the agent and he sold me this when he first started his practice. The policy guarantees 4% and it appears that the fees are around 5%. The surrender charge for this policy is $1386 and the current value is $8600.

    1) Would you recommend cancelling this UL policy for me immediately and taking the $1300 loss and using the remaining $7200 to throw into Vanguard account? The surrender charge starts decreasing after another 4 years and becomes $0 in another 13 yrs.

    2) Should I continue paying extra to my mortgage principal? Our expenses look so nice without the extra $1900/mth. I am debating using the $55k in savings to pay down a considerable chunk to get this thing done but after crunching the numbers it seems foolish to do this. I know it would feel so great to be done with all of our debt. I just don’t see us being FI with the mortgage hanging over our head.

    3) What is your opinion of rental property? I’m not sure I can get ROI such as MMM gets in his area but I know many in my area that have success with rentals. We currently share one with my parents and know the pitfalls of being a landlord and am not afraid of the maintenance aspect and occasional headaches that come along with it.

    4) And lastly, I’m sure I know your answer and please don’t be annoyed with the question but what do you think about my AA in my 401k and Roth? The 401k has VINIX which is cheap and follows the S&P 500. Should I funnel 100% into this? With the ROTHs, should I go with the Vanguard funds even though they aren’t offered in the Automatic Investing program?

    Thanks in advance for you help.
    I really feel as though I am fortunate to have found sites like yours and MMM’s as I have been in need of “mentors” in the area of FI.
    There are not many people in my region who share these beliefs.


    • Woodreaux says

      Forgot to add that I max out my 401k, both Roths, and the 529s get a bit for a total of $31,800 budgeted for upcoming years savings not counting what I will be throwing towards Vanguard account.

      Hope that helps.

    • jlcollinsnh says

      Welcome Woodreaux….

      …glad you’re here. Not many in any region share these beliefs. That’s OK. While they’re busy buying stuff, we’ll just go ahead and buy our freedom first. 😉

      If my addition serves, you currently have an invested net worth of ~254k and ~89k in home equity. Good start, but you’ve work ahead to be FI.

      Looking at your questions:

      1. While I hate life insurance, and especially that other than term, I think I might keep the UL policy. But you don’t mention the death benefit amount and I’m not sure I follow this: “(3 UL policies and ROP for wife)”

      My thinking is the surrender charge is huge and if the payout is high enough, it might just be the best course.

      You don’t have a large enough net worth to self insure and with three little ones you need some coverage.

      You’ll have to run some numbers, but the life insurance you need should be on your life. Yours is the income that will need to be replaced if you die. If something should happen to your wife it would be tough, but financially you’d get thru it. Were you gone her road would be far, far tougher. Your kids DON”T need life insurance on them.

      If you decide to dump the UL, pick up term insurance but just enough and just on you.

      2. I’d be in no hurry to pay off a nice low 3.5% mortgage like yours. Better to channel the extra money into investments. Over time they should handily outperform 3.5%

      3. Rental property can be a great investment but too often folks writing about it make it sound like a slam-dunk. It is not and it can be exceedingly easy to lose money:

      Keep in mind:

      –It is not just an investment, it is a part-time job. You need to figure your time into your returns.

      –Leverage is a key driver in its returns and leverage cuts both ways.

      –You need to take the time to learn the business.

      That said, if the experience with the one you share with your parents has worked out, and you understand the hows and whys it did, you’ve got a head start.

      4. As you indicated, you already know the answer to this. 🙂

      For me your current allocations are needlessly complex. I’d go with 100% in VINIX in the 401ks and 100% VTSAX in the Roths, IRAs and taxable accounts. With these you’ll be invested in virtually every publicly traded company in the USA.

      BTW, you can easily set it up with Vanguard to have money automatically transferred from your checking account if you like. You can do this on their site or give them a call and one of their reps can walk you thru it.

      Now for a couple of things you didn’t ask about but that jumped out at me:

      1. Your Rehab Hospital ownership. If this has a value of 40k and is paying out 8k per year, that’s 20%. Of course, I don’t know anything about this investment. But that is a hell of a return. So unless it is very risky and/or unstable, I might just hang on to it.

      2. If you want to retire ASAP your savings rate of ~32k against an annual income of 155k too low. I’d aim to double this.

      The lifestyle adjustments needed are beyond my scope, but MMM does a great job of discussing these. You might also send your expenses to Johnny Moneyseed for a review like this one:

      Good luck and keep us posted!

      • Woodreaux says

        Thanks for the detailed reply Jim!

        Sorry I was a bit vague with the details regarding my Life Ins situation but I already have a Term policy as well as coverage through work totaling ~500k without the UL policy.
        I believe I have decided to cancel the UL policy on myself (which is a $200k policy) and get another 20-30 yr Term policy on myself.
        I am also canceling the UL policies on the boys which will save me about$250/mth overall. The policies were started due to a good friend starting his insurance agency and in hindsight of course it seems like a really bad deal.
        Although I will probably have a hard time dealing with the mortgage hanging over our head i know the math says to invest the extra cash rather than pay down principal.
        I will be calling Vanguard in the morning to set up a taxable account and move enough over to qualify for VTSAX. I asked around today on MMM forum to see if there were any referrals for guys like you and MMM but to no avail. I will also start simplifying the AA throughout the other investment vehicles. Expenses never change right?

        The hospital ownership is a Win/Win deal for me due to having recovered initial investment long ago and receiving distribution payments on a nearly quarterly basis. As far as the option to sell the hospital is not mine and the ~$40k will come only after the sale of the property. I’m happy with the arrangement since it’s all just “mailbox” money for me.

        I guess I wasn’t as clear on our savings rate as I should have been either. We managed to save/invest roughly 60% in 2013 and are making strides to improve on this in the new year.

        Our time frame is roughly 7 years to get me out of my current work environment and home more with my family. With help from sites like this we believe we can do it and it gives us a great goal to strive for.

        Thanks again for the help and I will surely be around here and places like MMM and JohnnyMoneyseed going forward.


        • jlcollinsnh says

          My pleasure, W…

          Sounds like you have the life insurance thing well covered so I agree, dump the UL. Your friend did you a real disservice here but, being charitable, perhaps he just parked his critical thinking and fully drank the koolade in his insurance train classes.

          And congrats on the 60% savings rate. You don’t need lessons from me or anyone else on that! 🙂

          Still, MMM and JM are fine reads, and here’s another:

          That hospital ownership deal still intrigues me. I gather they are buying you and presumably other investors out? Sounds like it was a great run. How did you find it?

          • Woodreaux says

            Thanks for the encouragement. Yeah the hospital deal was from a contact that I’ve made from past work history.
            I was approached about buying out one of the previous partners. I purchased just a couple “shares” for cash in two different hospitals.
            Both were failing hospitals at the time and this company goes in and manages them until they become profitable again. Then they try to sell the hospital for profit and all the “owners” receive their share of the profits.
            Similar to flipping houses but on a more complicated scale.
            Some of the deals work out. Some dont. It’s risky but can be profitable as well.
            My ROI will be quite large if and when we sell the property.
            I worked for 7 years in this specific healthcare field and still have many contacts there.
            Hope that helps.
            Happy New Year.
            Yes I have been reading The Madfientist. Especially enjoyed his guest post here on 401k and his Travel hacking series.
            He has the wife and I excited about a future celebratory trip after FI.


  74. Mgraha says

    Hi Jim,
    I discovered your blog a couple weeks ago and since then I have ravenously read through most of the content on your site. 🙂 Love it!

    I have two questions for which I would value your relevant personal insight.

    #1. >>Is it a good idea to sell losing investments at the end of the calendar year for the purpose of taking a tax deduction on the losses?
    You could then buy back the investments after January 1st and be right back where you were before, except having benefited a bit from your losses over the year. Is there any reason not to do this? (assuming transaction costs are minimal compared to the overall value of the investment)

    #2. I’ve read that a home is not necessarily a good investment, due in part to the high opportunity cost of locking up all that capital. Well lets say I already have on hand the exact amount I would need to purchase a specific house.
    >>From a financial perspective, would I be better off buying the house outright, OR paying 20% down (to avoid mortgage insurance) and taking out a 15 to 30 year fixed rate mortgage (I have excellent credit) and investing the rest in my favorite index fund? Perhaps that 80% would be better invested in a REIT fund to ensure that the money is linked to real estate and so would maintain a minimum of 80% of the home value, should the need to pay off the mortgage suddenly arise…

    I appreciate any feedback you can provide, thanks!

    • jlcollinsnh says

      HI Mgraha…

      and welcome! Glad to hear you’ve be captivated by the site!

      1. Yep, it is a great idea. The loses can offset any gains you have and up to $3000 in earned income. Any loses that exceed this you can carry forward and use in future years.

      You do need to be aware of the “wash rule” that says you can’t buy back an investment sold for a loss for 30 days. The easy way around this is just to buy a very similar investment instead. VTSAX for VFIAX as an example.

      BTW, you might also consider harvesting your gains in a similar fashion. For more:

      2. Depends on the mortgage rate. A REIT fund like VGSLX pays a dividend of about 3.5% plus the opportunity for capital appreciation. So if I could get a mortgage for 3.5% or less, I’d go for it. Between 3.5-6% depends. Over 6% I’d likely pay cash for the guaranteed return. But that just me.

      The idea is to balance the mortgage rate against the potential returns.

      Hope that helps!

  75. Susan says

    Hi Jim,

    Like many of your readers, I found my way here from the Mr. Money Mustache blog.

    I’ve spent some time reading through the Stock Series, and was struck by reader Wendy’s question and your reply in “Investing in a Raging Bull”.

    It has taken my husband and me five years to recover from near total financial disaster triggered by the 2008 meltdown and our own imprudence – having put way too much money into real estate at exactly the wrong time.

    We recently sold the last of the investment real estate properties (all at big losses). Took some of the resulting cash and paid off a small house here in Florida where we live. For the first time in our lives we are 100% debt free and it feels wonderful.

    Now to the dilemma. We have $300,000 in cash just sitting in a bank account leftover from the various real estate sales. I am paralyzed by fear of making the wrong decision yet again — that we will have (barely) survived the real estate bubble just in time to experience the latest stock bubble!

    We are middle aged – my husband is 45 and I’m 51. He’s in a good place in his career, but I’m burned out and ready for a long sabbatical if not outright retirement. So we don’t have the long time horizon of some of your younger readers.

    Let’s say I can finally get past the fear, and do something with the money. (Your blog is helping!) We already max out 401K and IRA accounts, so the $300K would be held in a taxable account. We have enough additional cash for 6 months’ expenses, and now live well below our means, so we don’t foresee having to dip into this money under normal circumstances.

    Reading Bogleheads and other websites, it looks like Vanguard Tax Managed Balanced (VTMFX) might be a good conservative choice. What do you think? Other suggestions? I know Total Stock (VTSAX) is likely to be your recommendation and it is tax efficient, but if there was ever someone in need of a “smoother ride” it’s me, at least right now.

    Thank you,

    • jlcollinsnh says

      Hi Susan…

      Your fears are perfectly understandable and since very scary things are bound to happen in the stock market you need to come to terms with them before investing.

      At 45/51 you guys are still very young and have 30-40+ investing years ahead of you. That’s long-term in my book and were it my money it would go into VTSAX.

      But over the next 40 years I can guarantee at least one 2008-type event and many more bears and corrections as the market’s relentless march up proceeds. You absolutely have to be able to ride out these tough times if you hope to succeed.

      VTMFX gives you a 50/50 stock/bond mix and is indeed the more conservative choice. It can be expected to give a smoother ride, but with less return over time. And remember, when those bad things happen it will go down. Just not as much. But you’ll still need the same discipline to stay the course.

      Remember too that your cash, especially with the micro-low interest rates of today is slowly being eroded by inflation.

      So, my recommendation:

      1. Read the Stock Series here along with the related posts listed a couple of times. Relax and let the info sink in until you are completely comfortable with how this stuff works.

      2. Once you have that comfort level, you’ll be prepared to decide for yourself what level of risk you can live with: VTSAX or VTMFX. Of course you can also create something in between using VTSAX and VBTLX

      The key is that it be something you can be comfortable with long-term no matter what the market does.

      Basically, the same advice I offered Wendy. 😉

      • Susan says

        Thank you Jim for answering my question. I will follow your advice and spend some more time reading the Stock Series and getting more comfortable with the decision to invest the funds. Just reading your reply has been helpful. We did open the Vanguard account this week and moved the money into it – one step closer!

        Regarding holding Total Bond in this account – which will be taxable (28% fed income tax rate, no State of FL income tax), I’ve been reading that bond and REIT funds should go into the tax advantaged retirement accounts, and not the taxable accounts if possible. If we decide to hold VTSAX and a bond fund instead of VTMFX, should we be looking for a Vanguard tax managed or tax exempt bond fund instead of VBTLX?

        Thanks again,

        • jlcollinsnh says

          Yep, generally speaking you want your bond and REIT funds in tax advantaged accounts. You’ll want to look at all your accounts together as a whole when figuring your allocations.

          tax exempt bond funds invest in muni bonds and these gererally only make sense if you are in the higher tax brackets.

          tax managed funds help, but also carry higher ERs.

          • Susan says

            Thank you. Will continue to do my homework, including reviewing our entire portfolio.

            I am enjoying reading through your blog. In the one year since I started reading Mr. Money Mustache, we have saved thousands of dollars by making changes in our spending habits. I can see that your blog will be equally helpful on the income/investing side of the equation. To echo many readers – I only wish I had found both blogs sooner. You and MMM do a tremendous amount of good for people.

            Thank you again,


          • jlcollinsnh says

            Thanks for the very kind words, Susan.

            Feels good to know this stuff is helpful and I’m always honored to be mentioned in the same breath as Mr. MM!

  76. Mark W says

    Asking about the blog post about not benchmarking your investments. Think I finally found it, was it on Dividend Mantra’s blog?

  77. Tom says

    Hi Jim,

    I am a young guy, relatively new to the world of investing, after reading many of your articles, I have been convinced that VTSAX is a good place to put my growing F-U fund (low expenses, high long term returns).

    I currently have an individual taxable account with Betterment that I opened 1 year ago. My goal was to transfer the funds from 100% Stock fund at Betterment to 100% VTSAX individual taxable account at Vanguard (mainly to slightly decrease fees), but I am being told by Betterment there are two options to accomplish this: (1) Direct transfer to Vanguard for a fee of $1000! or (2) cash out and pay taxes on gains (I am guessing that would be about 25% of ~$2000 of capital gains). Both seem like unfortunate options.. Any thoughts?

    Otherwise, I am maxing out a 403b and 457b at work, planning on doing a Backdoor Roth IRA contribution as well this year..

    Thanks for all the work you’ve put into the blog! I am sure I will have many additional work-free years of my life thanks to you…


    • jlcollinsnh says

      Welcome Tom…

      ..nice to have you here. Sounds like you are off to a great start.

      No matter how you move your taxable account from Betterment to Vanguard it will trigger a taxable event. You’ll be selling one investment to buy another and you’ll owe capital gains taxes on any gains from the one sold.

      How big a hit this will be depends on your income and filing status. But my guess is, since you mention you are a young guy, it won’t be too bad.

      I’m shocked to hear that Betterment is charging a $1000 fee and my guess is that you are misunderstanding what they’ve said. My guess is they are talking about withholding that money for tax purposes. This would be accounted for when you get the 1099 form from them and any money not going to taxes would be refunded to you.

      Just in case, I’ve also asked a friend of mine at Betterment to offer her comments and clarifications.

      As it happens, I’ve become a new fan of Betterment: although VTSAX remains my favorite wealth building tool for those that understand it and the wide ride it will deliver.

      If when you run the numbers your capital gains hit proves to be small, you can go ahead and move from Betterment to VTSAX.

      But should the tax be large, there is no harm at all in sticking with Betterment. If you do, I’d go with a 90/10 stock/bond split. With their rebalancing this should allow you to take advantage of market drops and maybe even outperform VTSAX over time.

      You can also just leave your current investment at Betterment and start building your VTSAX account with new money. This is probably what I’d do.

      Hope this helps!

    • Katherine says

      Hi Tom,

      Katherine from Betterment here. Thanks for bringing up your issue — I do apologize for any inconvenience.

      A direct transfer would prevent realizing gains only if you maintain the same securities (i.e. our stock ETFs), but in a different brokerage account. To move to a mutual fund (VTSAX), you need to sell the ETFs you hold through Betterment in any case and realize the gains. The best solution, if you want to convert your Betterment portfolio to VTSAX, is to withdraw from Betterment and buy the mutual fund at Vanguard. Directly transferring ETFs to Vanguard would mean you would have to sell them inside the Vanguard account and realize the gains anyway.

      Thank you again and let me know if you’d like to discuss further. You can reach me at

      Take care,

  78. smausy says

    Hi Jim,

    Quick question: I am weighing paying of my grad school loans vs. investing the money in VTSAX. I thinking I’ve done the math right, here, but I just wanted to be sure.

    My loans are about $14k at 6.8% with a fixed payment of ~$200/mo. I’ve got 9 or so years left on them.

    We have cash available to pay them off in full, with enough left over to handle any cash flow problems in our life for the time being. But would it be better to invest the $14k in VTSAX, if the rate would reliably be >8%?

    As far as I can tell, I’d pay about $5k in interest on the loans by the end of 9 years. The same amount invested would yield about $14k (total $28k). Even if that income is taxed later (for what, a couple grand?), it seems like a no-brainer… $14k-$5k-$2k = $7k profit.

    Am I missing something?

    Thanks, your posts have been heavensent.


    • jlcollinsnh says

      Hi Matt…

      and welcome! Heaven sent, eh? Nice! 😉

      In many ways your question is similar to Mgraha’s above regarding mortgages.

      6.8% is a very stiff interest rate and paying off that loan is the same as pocketing 6.8% guaranteed. Sweet! I’d grab it by paying off the debt.

      VTSAX will likely outperform over 20+ years, but it will be a wild ride.

      Were it me, I’d take the sure thing, be done with my debt and then pour all the money I’d been paying towards that debt, and my saving above it, into VTSAX and watch it grow like crazy.

  79. Mike says

    Hi Jim, I’m not sure if this question has ever been asked, but I am curious if you ever considered investing in environmentally responsible indexes or an equivalent. I am starting to invest beyond my 401k (which doesn’t give me that option) and I am worried that investing in a broad index is just contributing to global warming. I know a green index contributes to depletion of resources but it would be better than VTSMX that invests in everything from Halliburton to Exon. What is the point in having money when i’m older if the planet is gone to hell.

    • jlcollinsnh says

      Hi Mike and welcome.

      Seems to me it has, but I don’t recall when or where and I’ve not written a post on it.

      If you are so inclined there are many socially responsible funds from which to chose. And since socially responsible means something different to different folks, you should be able to find one that fits your preferences. But be aware of the drawbacks:

      1. These funds are by definition actively managed, and that means higher fees. High fees are a huge drag on performance.
      2. It also means the managers are stock pickers, and that is a loser’s game.
      3. They are frequently “load” funds, meaning they charge a sales commission, typically 4-6% when you buy.
      4. Some even charge redemption fees that can tack on another 1-2% or more.

      So, in all likelihood you will pay a stiff financial penalty for your beliefs. Select very carefully.

      What some choose to do is to invest in the index and enjoy the extra wealth that creates. They can then deploy that wealth to help the causes they support.

      Good luck with whatever option you choose!

        • Jian says

          I don’t know how socially conscious the fund can possibly be. Just look at its current top holdings (copied from Vanguard site). I almost thought it’s a joke!

          Month-end ten largest holdings
          (22.0% of total net assets) as of 12/31/2013
          1 Google Inc.
          2 Johnson & Johnson
          3 Wells Fargo & Co.
          4 JPMorgan Chase & Co.
          5 Procter & Gamble Co.
          6 Pfizer Inc.
          7 Bank of America Corp.
          8 Citigroup Inc.
          9 Merck & Co. Inc.
          10 Walt Disney Co.

          • jlcollinsnh says

            Well, costs and performance are reasonable. That’s what I look at.

            Socially conscious, like beauty, is in the eye of the beholder.

  80. Mike says

    Hey Jim, I have two other questions. Completely unrelated.

    1. Do you ever wonder if the trend of investing in index funds really takes off and everyone does it, it will somehow make index fund investing no longer the best way to go?

    2. Have you ever heard of the solar investment company Solar Mosaic? Just wondering what you thought of them. You basically can invest with them, no minimum, which they in turn give out loans to schools and such for loans for solar projects. You make the interest in payments for 10 years. So from 4.5-7%. I’m thinking of using this as a more profitable allocation than bonds?

    • jlcollinsnh says

      1. Nope
      2. Nope


      1. Human nature being what it is, large numbers of folks will always convince themselves that they can outsmart the market. Large numbers of other folks will always exist to encourage this belief and to prey upon — opps, I mean serve — them.

      2. I’ve never heard of these guys, but from your brief description SM sounds like a mixing of goals and overly complex for the simple investing strategy I discuss here.

      Some say that it is OK to set aside a small portion of your money to “play with” in alternative investments like this. I used to agree and still don’t have a strenuous objection if that’s what you want to do.

      But as for me, at this point in my life, I no longer see any value, nor do I have any interest, in “playing” with my money. I like to keep it working as hard as possible, while I do the playing myself. 🙂

  81. Daira says

    I just stumbled across your blog which I found fascinating…lots to read LOL.
    I noticed your link about investing in Vanguard if one resides outside the US. Tell me that I didn’t misunderstand Vanguard’s info. I clicked for Germany and then UK. If you’re an individual investor, you must have a whopping 100k of Euros or pounds to open an account and invest in Vanguard. Is it true or did I misunderstand something?

  82. CK says

    Good morning!

    I am a recent reader of your blog and have a few questions.
    The Data:
    41 yrs old, married, 2 kids (6 & 8)
    no mortgage
    no debt
    self employed /income avg. over last 4 yrs = $110,000/yr (no employees)
    current total in bank account = $90,000 (after reading your blog we are eager to do something to get our money working for us)
    we sold our last residence and owner financed $17,000 @ 4.5%
    other assets in livestock and equipment totaling $105,000

    In recent years taxes have been roughly $20,000/yr.
    1- Can tax liability be reduced with appropriate IRA?
    2- Which IRA (Roth, SEP, etc.) is the best choice for us?
    3-What are the contribution limits?
    4-Can VTSAX, VBTLX, VGSLX be allocated to this IRA in the percentages you recommend?

    Any other helpful suggestions would be greatly appreciated. Thanks so much for providing such a wealth of information!

  83. Sylvia says

    I didn’t think a spouse had to have income to fund a Roth as long as the working spouse makes enough to fund both Roths. Am I wrong?

    • jlcollinsnh says


      Nope. You are absolutely right.

      Not only do I know this, I have taken advantage of it myself. 🙂

      Thanks! Comment is now corrected.

  84. Michael says

    Hello Jim,

    I’m a huge fan of your blog and feel we have many shared life experiences. My wife and I are in our late fifties and I’m struggling with something that I haven’t seen addressed here directly. I imagine there are other baby-boomers out there facing this same dilemma and I’m certain you will have some invaluable input.

    Financially, my wife and I come from nothing (paid our own way through college on welfare and food stamps!). We’ve made plenty of missteps over the years, but with much hard work and some luck have managed to put together a net worth of about $1mil. My goal has been to get to $2mil and then retire. My wife’s mother is deceased and her 81-yr-old father has given us power of attorney and has had us manage his portfolio of about $400k. He uses the required minimum distributions from this to augment his pension and social security. This provides a very comfortable living for him. He has excellent health and long-term care insurance. My wife is the sole heir, so we feel quite comfortable in planning on this $400k inheritance. So, this would get us to $1.4mil…not too far off my $2mil goal.

    The latest wrinkle is a real corker. My 81-yr-old father-in-law just got married! Not quite as crazy as it sounds as the new bride is a long-time family friend that my wife and I have known for 30+ years. His new bride has no direct heirs and informed us that they signed a pre-nup to protect all my father-in-laws assets as-is. In addition, she has set up a trust fund for my wife that, upon the death of the 74-yr-old bride, will leave my wife an inheritance with a current value of $800k…a miraculous windfall!

    My question now is this: How should my wife and I view these inheritances in relation to our target goal of $2mil? It’s hard to imagine a scenario where we would not take full possession of these funds at some point (as I mentioned, we already manage the $400k for my father-in-law and my wife is the sole heir). I would desperately like to stop the 50 hour a week rat-race and at least semi-retire. We want to travel and enjoy ourselves after 35 years of working hard and raising three kids. We are in great health now, but if we wait five, ten years or more before we retire to start this next chapter, who knows? I hate the idea of slaving away the next five or ten years trying to reach my $2mil mark when we essentially have that and more if we count the inheritances.

    I’m sure there are other boomers out there who have sizable inheritances in their futures as well. I understand this is a great problem to have, but a problem none the less. I would greatly appreciate your opinion on this…thanks!

    • Michael says

      Hi Jim, I didn’t realize my full name would be posted…any way you can delete my last name? Thanks!

    • jlcollinsnh says

      Thanks Michael…

      Glad you like it and glad you are here.

      Thanks for the very interesting scenario! Wow! Great story. I just read it aloud to my wife, who BTW has no such relatives. 🙂

      First question I’d ask is just how much income do you want/need in retirement? 1m gets you about 40k and 2m – 80k. If you absolutely need 80k, that’s one thing. But if 2m is needed but only to provide a certain comfort level, that’s another.

      While you tentatively have two very nice inheritances coming your way, as they say, it ain’t over till it’s over.

      ~Wills, circumstances and minds can change.
      ~The money can be spent down in unexpected ways.
      ~Even at 81 & 74 it still could be 15-20+ years before the money arrives.
      ~You don’t want to put yourself in a situation where your financial needs have you rooting for someone to die.
      ~Your father-in-law could die and his new wife move on, changing her will in the process.

      Considering all that and more I haven’t thought of, my inclination is to say forget about it until and if the money actually comes your way.

      But then you say, “I would desperately like to stop the 50 hour a week rat-race…”

      If that’s the case, I would adjust your spending to make the 1m you have work without counting on the inheritance.

      Then if the inheritance happens you can adjust your lifestyle accordingly.

      Hope this helps!

      • Michael says


        As expected, your sage advice sounds prudent and well-thought-out. I think that often those of us writing you for help are just too close to their own situations to see the forest through the trees. After sitting on this for a day, I feel much clearer about things now and have revised my strategy as follows:

        I’m going to adjust my target goal to $1.2m for full retirement. I should be able to accomplish this in about 3 years (or one more year of stock market performance like 2013!). This would generate about $48k annually. Additionally, we will be 62 in 2017 and SS will add another $25k (PLEASE tell me it’s acceptable to count on social security!). This should be adequate for the retirement lifestyle we desire. We will treat the inheritances as a bonus if/when they come and use them primarily to create a financial legacy for our children, and someday, grandchildren.

        I would appreciate your comments on my new plan.

        Thank you for helping me gain clarity on this!

        • jlcollinsnh says

          Hi Michael…

          I think you are right. Many folks here have mostly figured it out and are just seek confirmation — a second opinion or peer review, so to say.

          Never hurts to have a second pair of eyes take a look, I do it myself on important issues!

          Sounds like you’ve come up with a great plan and, yes, you can expect SS to be there:

          When you hit 62, take a moment to consider your options as described in that post before you take early SS benefits.

          If the opportunity presents itself, you might also share with your in-laws your plan to make the inheritances a legacy for the next generations. Would be nice for them to know and might help keep their plans in place. 😉

  85. Jonathan says

    Hi Jim,

    Thanks for all of the great information and perspective. I have a few questions about Vanguard funds, asset allocation, and how to distribute stocks and bonds among three pots of money as described below.

    First, my situation: 43 years old, fairly late to investing but now maxing out a 403(b) and a Roth IRA every year. My employer also contributes 5% of my salary to a supplemental “Plan B” account. I don’t plan to touch any of this money for 20+ years. I may only stay in my job for several more years, but I should be able to save enough that it will compound nicely over the next two or three decades (knock on wood) even if I don’t add a lot more to it after I leave my job (for more interesting and probably lower-paying work).

    Unfortunately, Vanguard recently informed me that the LifeStrategy fund I hold through my 403b and Supplemental Plan B is being discontinued and replaced with a target retirement fund. If I don’t manage the transition myself, they automatically put me in whatever target fund they deem appropriate–based on my age, I suppose, or whatever is closest to the LifeStrategy fund I currently have.

    I like the simplicity of the LifeStrategy Growth fund (80/20), and I don’t want the target retirement fund, which has higher fees and does its own automatic rebalancing and other things behind the scenes. I’d rather invest in something simple and rebalance myself.

    My employer doesn’t provide too many options for the 403(b) and Plan B, but I do have access to VITPX and VBMPX. These, as you probably know, are the institutional versions of the Total US Stock and Total US Bond indices, and the expense ratios are near zero. So, what I’ve done is move my money out of LifeStrategy Growth and into 80% VITPX and 20% VBMPX. (I took your advice that one can live without international exposure.)

    I’m comfortable with the 80/20 AA, though I would consider going 100% stocks. Would that be foolish for a 43 year old? In any case, given my long-term plans for the money, would you suggest that I stay at 80/20 for a long while? Or should I smooth the ride as I go by increasing my bond percentage annually?

    I read one of your posts about the bond market and your preference for intermediate-term bonds at this time. I only have access to the Total Bond index, but I do have access to the Stable Income Fund. Is there any reason I would want to consider the SIF at this point for my hedge against stocks?

    One last question. I mentioned I have a Roth IRA. My current AA method is to have the Roth IRA 100% in VITPX, and to adjust my 403(b) money and supplemental “Plan B” to achieve the overall portfolio AA of 80/20. I read somewhere (Bogleheads?) that it makes sense to dedicate the Roth to equities, since they’ll have higher returns over time and will never be taxed. What do you say?

    Thanks! And sorry for the length.

    • jlcollinsnh says

      Hi Jonathan…

      …and welcome. You are a great example of the kind of reader Michael talks about in his comment above. 😉

      That is, you’ve really got this figured out and are checking in for a peer review. Happy to do it, and I like your plan.

      Your replacement of Life Strategy Growth with an 80/20 mix of VITPX and VBMPX gives you an even lower cost, with matched performance, as long as you are willing to do a bit a rebalancing once a year or so. Which clearly you are.

      The bonds will give you a bit of “dry powder” to take advantage of stock market drops. That will not only smooth the ride a bit, but might well equal or even slightly improve upon a 100% stock allocation. Just be sure you actually do reallocate when the time comes. It can be very, very hard to actually sell your current winner to buy your loser. 🙂

      Don’t worry about my current preference for intermediate-term bonds. It is a short-term play and a slight preference at that. The Total Bond Fund is better for your purposes.

      I wouldn’t worry about increasing your bond position as you go. As long as you are earning and accumulating more wealth thru your job and savings 80/20 is fine. Once you retire and/or move to a lower paying career you can consider changing it.

      You might have read that stocks-in-Roths idea right here. (I’m not on Bogleheads, but it could be there too.) In any event, I like it and it is what I personally do.

      My thinking is that our Roth accounts are our longest term money, in fact we don’t ever plan to spend ours. It is destined to be part of our estate and from there it can continue as a Roth for our heirs. Assuming they (hopefully!) so chose.

      Since stocks provide the best long-term returns, our Roths hold the Total Stock Market index fund VTSAX.

      But some people plan to draw on their Roths for tax free income in their retirements. For those folks, holding stocks in them is less important.

      Basically, keep as much of your investments as you can in tax advantaged funds, starting with bonds and REITS. From there also keep your stock funds in tax advantaged, and I’d start with your Roth for those.

      Investments in taxable accounts are best held in stock funds as these are the most tax efficient of the three. Make sense?

      Anyway, great job! You sound like you are well on your way!

  86. Brandon says


    I would first like to that you for all the information you give to us who are in search of financial independence. I’m glad that I have found your website around a year ago and have told many others who share the same interest as I do about you. I have managed to max out my 401K, IRA and send the rest to Vanguards VTSAX. That being said I have some questions about my personal investing.

    I have always lived a frugal life and have saved big percentages of the income I take home. Currently at the age of 26 I have a net worth of 132K excluding house, car ext. I set up my company 401k when I began working and didn’t know much about investing. I looked on the internet and found a website (smart401k I Believe?) which looks into your company’s funds and suggest them for a fee. Clueless as I was I decided to do this but the catch was they had a 30 day money back guarantee so I did eventually take their advise for free. Anyways, They had me set up about 8 different funds. Index as well as actively managed funds. My company offers some index funds through ING such as Russell 2000 and S&P 500 with very low fees. Now that I know I want to invest in index funds after reading your stock series multiple times, what one should I choose and when should I move the funds over? Does it matter that I will be moving my funds when the market is at all time highs?

    Unfortunately I have a couple of issues with my IRA as well. I started it a couple of years ago through Vanguard and put all the money into a Lifecycle Fund. I want this money in VTSAX but am unsure on when to transfer the funds? I guess I just feel like I’m selling high and buying high. I also started a Roth which now after more research on this I have come to learn it would have been better to open a Traditional. Should I just open up a traditional IRA for the 2014 year and add all future money into this or continue to build up my current Roth?

    My personal goal is to be financially independent by the time I’m 40. After following you and MMM I know I can accomplish this since my expenses are 21.5k yr. Thank you for all that you do and taking the time to teach us newbies- Brandon

    401k – 72K
    Roth IRA – 11.5K
    Vanguard VTSAX- 25K
    Prosper(P2P Lending)- 8.5K
    Emergency Fund – 10K
    Savings- 5K

    Gross Salary: 80-115K (Depending on how much overtime I’m willing to work)

    • jlcollinsnh says

      Welcome Brandon…

      glad you are here and thanks for passing the blog along to others. That’s the highest praise of all!

      At 26 and with 132k in investable assets, you are well on your way to being FI at 40.

      The advice you got from that website might have been free to you (your company likely paid for it), but it lead you to an unnecessarily complex and fee heavy portfolio of funds. So it wasn’t without cost.
      It is an unfortunate example of making investing seem complex to justify charging for advice.

      Most 401k plans have tons of choices and all but a few can be immediately disregarded.

      Start by eliminating all but the index funds. Then eliminate all the index funds focused on anything other than the broad market. Once you’ve done that, you’ll have 2 or 3 left.

      Choose the one that covers the Total Stock Market Index. This will also likely be the one with the lowest expense ratio (ER).

      When you do that with your 401k you wind up with these:
      S&P 500 /17% /.05
      Russell 2000/10%/.07

      Unfortunately, neither is Total Stock Market, but that’s OK. You can just go with the S&P 500 and be fine. If you are willing to rebalance occasionally, you can add the Russell 2000 and you’ll be fairly close to a Total Stock Market fund. You’ll want an 80/20 split, the S&P 500 being the 80%.

      I would make the change ASAP. You’ll drop your ER costs immediately and where the market is trading makes no difference. You’ll be going into a slightly more aggressive mix, so if the market continues to rise you might get a bump and if it corrects you might take a little hit. But over the decades you’ll be invested it is a non-issue. For more:

      Same goes for switching from Lifecycle to VTSAX.

      As for Roth v Traditional IRA, you can just leave the Roth alone and start funding the traditional, assuming it is the tax deductible IRA. But why not fund both? If you are planning to be FI by 40 your savings rate should be able to cover it.

      In general, I suggest this as the order for your investable money:

      401k up to company match
      Deductible IRA to full limit
      401k up to full limit
      Roth up to full limit
      Taxable investments

      If you are worried about having too much tied up in tax advantaged accounts when you retire at 40, read this:

      Hope that helps. Good luck and keep us posted on your progress!

      • Stu Ruiz says

        I was under the impression that Traditional IRAs were off limits for people with 401k’s available. Is there something about this situation that allows that?

        • jlcollinsnh says

          Hi Stu…

          Thanks for raising this point.

          If you are covered by an employer retirement plan Traditional deductible IRAs are still available, but income limits apply:

          Still, good catch. Because Brandon is single and makes over 69k he is over the income limit and cannot deduct contributions to his IRA.

          He can, however, make non-deductable contributions. The earnings of these will then grow tax free. Once he reaches retirement age he can withdrawal his contributions tax free, but the earnings from those contributions are then taxed.

          • Brandon says

            Thanks Jim and Stu

            I was not aware of the fact the rules change if your covered by a company retirement plan. I guess you learn something new everyday.

            Also I’m still a little confused on the last part of your reply…..He can, however, make non-deductable contributions. The earnings of these will then grow tax free. Once he reaches retirement age he can withdrawal his contributions tax free, but the earnings from those contributions are then taxed……..

            From what I’m getting is your still wanting me to contribute to both Roth IRA and Traditional? You stated why not contribute the max to both. I though you could only contribute $5500 combined to one, either or both?

            If $5500 is the max wouldn’t I just stay with the Roth that way once I hit retirement age all the money will be tax free? Or are we talking about completely different things here?

          • jlcollinsnh says

            Hi Brandon…

            Sorry I’ve made this so confusing. My response to Stu was more a discussion of IRAs than additional advice for you.

            You are correct that you are limited to $5500 across all IRAs.

            Roth IRAs also have income limits for contributing, but the limit is much higher: 127k for singles and 188k married. So you can, and should, have a Roth.

            In both a non-deductable IRA and a Roth your contributions are not deductible. The difference is, when you withdraw from them after 59.5, everything coming out of your Roth is tax free.

            So forget about the non-deductable. The Roth is your best choice.

            By the same token, my list in my original reply was just to run down the options, but not to imply you could use them all. For you specifically:

            401k up to company match
            Deductible IRA to full limit (but not available due to your income)
            401k up to full limit
            Roth up to full limit
            Taxable investments

            Hope this makes more sense?

          • Danny C. says

            Just a thought to Brandon, you may squeeze into a traditional IRA And get a deduction because it is based on your modified adjusted gross income. That calculation allows you to subtract things like your 401k contribution and HSA contributions from your gross income. So it may be worth waiting till year end to decide, unless of course you think you’ll be at the higher end of your income range.

  87. Brandon says


    Current Fund %+Fees

    Index Funds:

    S&P 500 /17% /.05
    Russell 2000/10%/.07
    Bond Market/7%/.06

    Actively Managed Funds;

    US Large/30%/.34
    US Small-Mid/17%/.72
    Real Asset/3%/.72

    Since I’m in the wealth building stage what would your recommendations be? Thanks again-Brandon

  88. Mike says

    Hey Jim, first of all, thanks for posting all this awesome insight. Very helpful. I want your thoughts on 401k plans up-charging index funds. Here are some from my plan.

    VASGX in my Transamerica 401k plan through work has an expense ratio of .92%. But out in the wild (through vanguard) it’s only .17%. So they can charge be .75% more just because they are linking the funds through their site!? That seems steep. The question is would you max out contribution to this account, or just put in my match and invest outside my plan?

    • jlcollinsnh says

      Hi Mike….

      My thoughts are it sucks!!

      The fees ladled on to 401k are outrageous and damn near criminal in my view. In fact I wrote a post on this:

      But, as you’ll see in reading it, once I was done venting the conclusion is that the best move is to hold your nose and max out your contribution.

      About all you can do is lodge a complaint with your HR department. Most HR folks aren’t well versed in what reasonable investment costs should look like and that’s how the scoundrels slip them past.

      Good luck!

  89. Sam says

    Hi Mr Collins,
    Love the info on your website, I sent the link to all my friends. I went through the questions, and still needed some advice. My spouse and I would like to semi-retire by 45. Currently I’m 35y/o. We are pregnant with twins, due June. Here’s our situation:

    Income:about $150,000
    Expenses: $3600/mos
    Debt: $17,000 (2% interest-car loan)
    Investing: total $87,000; $4000/mos starting jan 2014
    457 Horizons: $65000 (all stocks) w/ 4% employer match–investing 17% of income
    ROTH: VTIVX–maxing out
    Hers: $10,400
    Mine: $8800 (plan to increase to $10,000 by March)
    403b: VTIVX–$820–still employed but taking time off so not investing
    Taxable acct VTHRX–$2650 ( will change to VTSAX)–investing $2000/mos
    ING Savings: $47,304–$22000 for house down pmt; $18780 ER fund, $5200 baby fund; all else is for insurance payments and other supplemental savings. Will take some time off work with babies where we are both not getting paid so will use Baby fund $$ and may use some ER fund.
    Pension: will receive at least $2000/mos (will automatically adjust for inflation) at 65y/o and receive 25% medical benefits

    Plan: Transfer $22,000 from savings and $2650 tax acct to VTSAX. The $22,000 is for a house, but since we live in California, we aren’t planning to buy a house anytime in next 5 yrs. Taxable acct should allow us to semi-retire in 10yrs and get us from 45 y/o to 55 y/o, we only need $24,000. Then use Roth for 55-65 y/o. Finally, use pension, 457 and whatevers left over. Thinking about transferring ROTHs to VTSAX. And yes I have a high risk tolerance. Move in 5 yrs to Washington or Oregon where cost of living is less.

    Questions: Should we put all our taxable $$ into VTSAX, even though we may use some of it in 5yrs for a house? Or should we create 2 seperate accts for the semi-retirement goal, and house goal (which may or may not happen) What do you think of the set up to reach semi-retirment in 10 yrs? Should I invest some of the ER fund, if so, where? Any other brilliant ideas, feel free to share!!

    Thank you so much!!!

    • jlcollinsnh says

      Hi Sam…

      Glad you like it here and congrats on the coming twins!

      As you know from reading the blog, VTSAX is my favorite tool for building wealth long-term. So, yes, I’d put you taxable investments there.

      The money for the house is a difference matter. ~5 years is short term.

      You seem on the fence about the house and, if you can live without it, I’d put the money in VTSAX. If the next five years provide a nice run, you can buy the house if you choose. If not, forget it and let the money stay invested.

      If on the other hand you are pretty sure you are going to want that house, I’d use Betterment as the investing tool for that money. For more on that:

      They have some pretty cool tools to get you there.

      Good luck!

      • Sam says

        Thank you for your help. I’m comfortable with the idea of investing the $$ for the home in VTSAX, but since I’m fairly new to actually caring about my investments, wasn’t sure if 10 yrs is long enough to keep everything in stocks–would 10yrs be considered “long term” investing?

        • jlcollinsnh says

          I think of it more as a sliding scale than a fixed mark to cross.

          But if I had to pick one, I’d say anything 5 years or less is short-term. Greater than 5 years becomes progressively longer and longer-term.

          Ideally, investing in stocks you should think in terms of decades. Plural. 🙂

          • Sam says

            Thank you for your quick responses. I appreciate you taking the time to help! It was my first time asking someone for feedbak via internet and really glad I did. Your website has really helped guide me.

  90. Alex says

    Some people address you here as Jim, but since we’ve never met, I’ll start with Mr. Collins…

    Mr. Collins-

    Your blog is one of my favorites, and I’ve been keeping up with it for a while now. While your investing topics and recommendations are great, I think some of my favorite posts are when you write about your travel and perspective on travelling.

    Last year when you and Mr Money Mustache were writing about your trip to Ecuador, it sounded incredible! I had been thinking about our next potential destination and well, soon after I set a trip up for me and my wife. So now we are going to Ecuador for a week in March and had some questions for someone who has been there before.

    First off, we are thinking of renting a car so we can have some freedom while we are there. Little economy cars are pretty affordable, but could have issues with bad roads… SUVs on the other hand are silly expensive, but can handle poor conditions. Do you have any recommendations for transportation? All we are hoping for is a magic combination of reliability and affordability…

    Second, we are planning on being primarily in Quito, and a small town outside of Manta. Anything you would recommend that we must see while we are there?

    In advance, thanks!

    • jlcollinsnh says

      Hi Alex…

      It’s a funny thing. My closest friends call me “Mr. Collins” and I refer to them as Mr. or Ms. in turn. Kind of an inside joke and a response to the ubiquitous use of first names.

      We really did have a great time in Ecuador and we’ll be doing it again this August.

      I’ve never rented a car there, but I can say the roads are surprisingly good. Oil revenues at work. So unless you really intend to get off the beaten path, an SUV is overkill.

      I also wouldn’t need or want one in Quito. Traffic is a zoo and taxis are reasonable. Good public transportation too, if you are adventurous.

      My time in Quito has been focused on the old town and that’s where I’d return. Mariscal is the newer tourist area, but I don’t much care for it.

      I’m afraid I’m not much of a tourist, so I don’t see many of the sights and remember even fewer. I prefer wandering about and sitting in cafes and parks.

      What town outside of Manta? I spent three week last year in San Clemente. Right on the ocean, but a tiny town with little to do. Just what I wanted.

      Dave is a friend I made there and he runs this blog:
      As you’ll see I’ve commented there.

      John and Mary are also new friends from there and here’s their blog:

      They are all great people. If you are going to get over their way, let them know!

      Have a great trip. As for me, in March I’ll be back in Guatemala!

      • Alex says

        Thanks again for all the advice! So the town outside of Manta that we’re visiting is Canoa. Seems to be right about 5 miles or so from where you were in San Clemente. It looks small and simple, which sounds perfect to me.

        Also thanks for the contacts. I’ll read up on them. Have a safe trip yourself!

        • jlcollinsnh says

          I’ve been thru Canoa a couple of times but have yet to stop. Small but seems like a lot going on there.

          Have a great time and be sure to report back!

          • Alex says

            Well, we made it back from Ecuador! Again thank you for your advice, it was very helpful. We did end up renting a small car, and took it about 700 miles or so around Ecuador ($40 in gas, incredible). There were a couple challenging moments (driving a Chevy Spark through massive mud pits, and dodging large speed bumps), but for the most part it was just hours of beautiful scenery and relaxing driving on nice new roads.

            We ended up visiting Quito, Canoa, Mindo, Otavalo, and the small village of Chugchilan over the course of a week. I guess it was a little hurried, but that’s all the time I had. Ecuador is definitely one of the most beautiful places I’ve ever been, so it’s easy to see why you keep going back. The Andes mountains and the massive volcanoes kinda blew my mind.

            I saw your post today, so I guess you are back home. I hope you had a great trip yourself, and that your upcoming Ecuador trip is epic. One of these days/years I intend to come to one of the Chautauquas or something similar, but for now, need to save that money. Someday…

          • jlcollinsnh says

            Glad to here you had such a grand time, Alex!

            You’re right about the mountains and volcanos. Repeatedly when I’m there the thought bursts into my head:

            “Holy smokes! I’m in the bloody Andes!!” 🙂

  91. RCherry says

    I am very very very new to all this. I am worth less that 10k and I am 41 years old. I did not grow up with money nor was I around people who knew how to manage money, and thus did not learn that this was a thing I ought to be doing. I have, however, finally grown up enough to realize that this is something I can do. My question is this: Can you direct me to any of your articles or others’ articles of how to START this daunting process with minimal money. I am certainly not looking for high risk gambles, but I am a bit overwhelmed by all the options and terminology, I would love to read a good simple primer to help me make realistic goals and get me on the path to financial independence.


    • jlcollinsnh says

      Hi RC and welcome.

      I didn’t grow up in a money savvy home either. Learning this stuff has been a long, hard and expensive road of countless mistakes. I started the blog for my daughter in the hopes of helping her avoid those. That’s what my Stock Series is designed to do and I’ve tried to make it as clear and simple as possible:

      At the risk of sounding immodest, I suggest you start there. In those posts you’ll also find links to other sources I think are worth your time.

      Once you’ve read thru them, feel free to check back with any questions.

      In addition, and especially if you want to get started now and with minimal money (or if this stuff just makes your eyes glaze over), take a look at Betterment. I describe why I like these guys here:

      Hope this helps, and congratulations on starting your financial journey!

  92. WT says


    In your posts you always talk about making contributions to one’s employer 401k plan being an essential part of a retirement strategy, but I’ve not really seen much mention (one way or the other) about the benefits and drawbacks of choosing a Roth 401k plan instead. The rule I’ve always heard for whether you should contribute into a Roth vs standard 401k is your current tax bracket vs your expected tax bracket upon retirement. The logic being you should pay into lower taxes now so that you can withdraw tax free later when you would be paying higher taxes with a traditional 401k. As a highly paid technology worker in my mid 20s, I generally max out my Roth 401k $17,500 contribution based on this logic, as I assume that by the time I retire:

    A) Tax rates will probably go up across the board

    B) I will be making a significantly higher salary (and will over time develop a higher standard of living as a result, whether that’s a good thing or not)

    My question then is twofold: Do you think these assumptions are generally correct ones to make, and am I correct in making my contributions to a non-deferred Roth 401k instead of the standard 401k?


    • jlcollinsnh says

      Hi WT…

      I’m not sure I’d characterize 401k plans as “essential.” In fact I have some serious reservations about them as described here:

      But in the end, with all their flaws, over all the best advice is to hold them. The tax advantages tend outweigh the problems. And the higher your tax bracket, the more true this is.

      In principle, I also agree with the idea deciding between a Roth and a 401k depends largely on your current tax bracket and that you anticipate in retirement. The problem is that this requires us to predict the future, an impossible task.

      For instance, I tend to agree with your point A: taxes are likely to go up. It is even more likely that as you build your wealth you will be in a higher tax bracket by then. Both these seem reasonable, common sense speculations, but they are speculations none the less. We can’t be sure.

      But we can be sure (assuming you have a federal tax liability, some folks don’t) that funding a 401k reduces your tax burden today. And that your investments in the 401k will grow tax free. Bird in the hand.

      Another factor to consider is your age and how long your investments have to grow.

      So, there is a lot of personal choice involved here. But I’d say:

      401k if your tax bracket is 25% or higher.
      Roth if your current federal tax liability is zero.

      If you are in the 10% or 15% brackets, it is more of a toss up. But if I were young and my 401k had decades of tax free growth ahead, I’d choose it over a Roth.

      Then, when the time came I’d convert to a Roth as described here:

      Hope this helps!

  93. Mike says

    Hey Jim, I see your recommendation on an earlier question, that you order of investment priority is:
    401k up to company match
    Deductible IRA to full limit (but not available due to your income)
    401k up to full limit
    Roth up to full limit
    Taxable investments.

    Simple question but i’m having a hard time finding the answer by google.

    1. Is a deductible IRA and Roth IRA held in different accounts. For example, can i open each of these in a Vanguard account? Then just deduct the taxes when i file?

    2. Is the investment amount for both the deductible IRA and the Roth both 5,500?

    Thanks for taking the time to answer our questions. This site has been so helpful to me.

    • jlcollinsnh says

      Hi Mike…

      1. Yes, you would hold your Roth and your traditional IRA in two different accounts. But both can be at Vanguard. In fact, both can be in the same fund. For instance, I hold VTSAX in both my Roth and my Traditional. And I also hold VGSLX and VFIDX in my traditional IRA.

      2. Yes, if you are younger than 50, each year your contributions are limited to $5500 across all IRAs. For those 50 and over the limit is $6500. These are the current limits and they could go up in coming years as they have in the past.

      For more:,-Employee/Retirement-Topics-IRA-Contribution-Limits

      Hope this helps!

      • Mike says

        Thanks for the info.

        So you would suggest investing in both a roth and a traditional? Just split the 5500?

        • jlcollinsnh says

          That depends on your personal situation.

          Assuming you have a federal tax liability (some folks don’t), funding a traditional deductible IRA reduces your tax burden today. And then your investments in it will grow tax free. But you’ll pay taxes when the time comes to withdraw.

          With a Roth you pay taxes now, there is no deduction for the contribution. But there is no tax due when the time comes to withdraw.

          So, there is a lot of personal choice involved here. But I’d say generally:

          Deductible IRA if your tax bracket is 25% or higher.
          Roth if your current federal tax liability is zero.

          If you are in the 10% or 15% brackets, it is more of a toss up. But if I were young and my 401k had decades of tax free growth ahead, I’d choose it over a Roth.

          Then, when the time came I’d convert to a Roth as described here:

          You might also check out my conversation with WT above.

  94. Matt H says

    Hi! I was researching Roth IRAs and the like and saw a post by Mad Fientist and then stumbled onto your blog. Boy am I glad I did.

    I’ve read a lot of your content over the last couple days and it’s taught me a ton. On to my question. I haven’t seen a lot about debt from student loans on here so I was hoping for some input on my situation. I’ll try to lay it out as best I can.

    I’m planning to get married in late July of this year, and my fiance and I combined have about 60k in student loans. The interest rate is around 6.5%.

    We’ve put together a rough budget and it looks like after all of our expenses we’ll have about 2k a month leftover.

    We have a little less than 23k right now, with most (19k) of that in a high yield savings account (HYSA). We’ll probably have to shell out another 7k for our wedding.

    After that, I’m thinking we will want 15k in an emergency fund, which we would keep in the HYSA.

    The next goal is saving for a car. I drive a 1990 Camry that may not have much life left. I think I’ll want to put at least 10k down to get as low an interest rate as possible.

    Oh, my fiancee has a 403(b) and is contributing up to her employer’s match, and that is invested in Vanguard Institutional Index Fund (VINIX). From what I saw, that’s the best option. Next best might be the JPMorgan SmartRetirement 2050 Instl (JTSIX). Once I’m eligible for my employer match I’ll be contributing enough for that and investing it in a similar option, depending what is offered. So, the questions.

    1. Is a HYSA a good place to keep the majority of our cash that we’ll need for the immediate future? It’s earning 0.85%.

    2. Once we’re past the wedding, is there a better option for short term saving for a car? Or should I leave it in our HYSA?

    3. I was also thinking we would keep our emergency fund in the HYSA, thoughts?

    4. After the car and emergency money is put away, should we be paying off our loans as much as possible every month? Say, 2k on top of the minimum payments?

    5. After the loans are done, first step is a deductible IRA? Roth IRA? Maxing out one of our 401ks?

    I think that’s all the questions I had. Thanks for your blog. It’s been a great read so far.

    • jlcollinsnh says

      Hi Matt…

      1. As long as your HYSA is FIDC insured, it is a fine place for short-term cash.

      2. Depends on how short-term we are talking. But if you are going out a few years, Betterment might be a better choice. Here’s my post on them and why:

      But you should never, never borrow money for a car. Cash only, and 10k is plenty for a sound used car choice. Before you buy a new car read this:

      3. Again, the HYSA is fine for your emergency cash, but why a healthy young couple without a house (which has the potential for very ugly surprise costs) would want 15k in it is beyond me. Maybe $1000. Put the other 14k towards paying down those ugly student loans.

      4. Yes. With a 6.5% interest rate getting these gone is Job 1.

      5. Max out both 401Ks to the company match, then deductible IRAs ($5500 each) at Vanguard in VTSAX and then fully max out your 401Ks.

      Hope this helps.

      Good luck and congrats to you and your fiancee!

      • Matt H says

        Hi Jim!

        I meant to update you sooner (I’m sure you’ve been anxiously awaiting it) but it’s better late than never. It was interesting to look over my questions to you and see how far we’ve come!

        About a month ago we finished paying off our student loans (almost 80k in total payments). And about 2 months after I originally asked you those questions (April 2014) we ended up needing to buy a car, so we bought a used 2007 Honda Fit for a little over $6k, in cash. And fortunately we’ve managed to get by with only one car so far. And based on your recommendation we significantly reduced our planned emergency fund and have settled on $4k. And even with a fair amount of travel and other things we’re approaching a 40k net worth. While hanging out on the Bogleheads forum can make me feel like we’re way behind we are pretty happy with what we’ve done for being almost 3 years out of college. And you played a part in that! So thank you Jim, I hope you know that many many people have benefitted greatly from you and your blog.

      • jlcollinsnh says

        Every night for the better part of a year now I’ve said to my wife:

        “Gee, I wonder how Matt and his fiancé are doing? Did they get married? Pay off the student loans? Skip that stupid idea of financing a car?”

        Welcome back, Matt! Congrats on your marriage and what looks like awesome progress in a single year: 80k in debt to 40k in net worth. Well played! Although I am wondering how the 60k in debt you first mentioned morphed into 80k?

        $6000 on a Fit? Perfect! One car? Even better!

        Don’t worry about what you read over on the B-forum. Just take those debt payments and invest them and watch your snowball grow!

        Thanks for checking back in!

        • Matt H says

          You’re welcome! And thanks for all that you’ve done in the personal finance/investing realm.

          I’m guessing the 60k I referenced was the current balance of the loans, which we had already been making payments on. So 80k represents our total payments (principal + interest) on the loans.

  95. Ron S. says

    Hi Jim,

    My mother is 73.5 years old and was just terminated after a 35 year career as a legal secretary in Manhattan. She has saved pretty well and I just want to throw some numbers at you to see what you think.

    She has 491K in a traditional 401K from her job. My brother has been managing those investments fairly conservatively within the plans offered and he made an 11% return last year.

    She has 225K in a traditional IRA and her friend’s son has been managing the money and charging her .75% annually. He did not do as well and probably lost 1 or 2% on top of his fees last year.

    He is also managing about 61K in a Roth for her as well. He is a bit of a pessimist and has her in gold among other hedge type investments.

    Her expenses have been about $3K per month although that may rise with extra time on her hands. She has a pension of $900 per month and collects $1600 per month from social security.

    She owns her coop apartment outright. She has 12 weeks severance and can then collect unemployment. She will now be responsible for her own health insurance.

    How would you invest this money to keep it safe and make it last another 20 years?

    Thanks so much,


    • jlcollinsnh says

      Hi Ron, and welcome!

      To start off, your mother is in excellent financial shape.

      Her annual expenses are 36k. She has 30k in income from her pension and SS, and 777k in invested assets. Using the 4% guideline – – these assess can provide another 31k, for a total of 61k in potential annual income. Far more than it seems she needs even if she were to increase her spending by 33% to 4k per month.

      Using VTSAX as a benchmark, let’s first look at how her managers did. This is the total stock market index fund and it returned ~33% in 2013. Of course, 100% stocks is way too aggressive for your mother, but it is a useful point of reference.

      Your bother’s 11% return suggests to me he is managing your mother’s assets very, very conservatively, likely with a heavy bond concentration.

      Your friend’s son, based on your comment and his negative 1-2% return in last year’s raging bull, suggests he is investing for Armageddon. A very poor strategy if Armageddon fails to arrive.

      If you haven’t already, please take a moment to read “The Wealth Preservation and Building Portfolio” which is the second half of this post:

      In it you’ll find my reasons for the funds I’m going to suggest. You’ll also notice my suggested allocation for your mother is much more conservative than that suggested in the post. My sense is you and she will sleep better, and with her assets she doesn’t need to pursue performance.

      This is what I’d do were she my mother:

      389k 50% VBTLX -bonds- current yield 2.2% = $8558 annual income
      194k/25% VTSAX -stocks- current yield 1.8% = $3492 annual income
      194k/25% VBTLX -REITS- current yield 4.2% = $8148 annual income

      Total annual income of $20,198, without touching principle. It also represents a very conservative 2.5% withdrawal rate on her 777k. In addition, she’ll have bonds as a deflation hedge and real estate as an inflation hedge. If we do have a financial Armageddon, it will take one of those two forms.

      This boosts her annual income from 36k to 50k, a 39% increase. With the 2.5% withdrawal rate her portfolio will also continue to grow, likely leaving a substantial legacy for her heirs.

      Hope this helps!

  96. Dexter says


    I love your blog; it has changed my life. I have a quick question for you.

    I’m 26, and currently a few months away from eliminating all of my student loan debt, which is the only debt I have. $40,000 in 4 years! Go me, haha!

    Once the debt is paid off, I’ll have a significant amount of cash flow to dedicate to investments. My plan once my loans are paid off are to invest 50-70% of my income (more if I can downsize my lifestyle a tad bit more), and to essentially follow the “simple path to wealth” you so eloquently advocate. I’m already contributing to a pension fund, as well as maxing out a Roth IRA every year through Vanguard (since 2012) investing in index funds. The rest of my discretionary income is what my question concerns.

    I’m a newly minted Police Officer about halfway through my first year (it’s been a blast!), and am eligible to contribute to a 457b plan. Our local government uses Nationwide as the provider. I’ve held off contributing thus far to pay off all of my debt, but will soon be ready to contribute. My question is in reference to 1) the fund selections I have available to me, and 2) the fees associated with it.

    You can find the funds available to me here:

    My question is this: I want to be able to max out the 457b (as it’s fantastic in that I plan to FIRE and am not required to pay the 10% early withdrawal penalty, in addition to the tax benefits), and I’m looking for something that is as close to VTSAX as I can find to put my money to work in. From the selections I’m given, it appears to me that the closest thing is the Nationwide S & P 500 Index Fund with an expense ratio of .46.

    **Is my best option to… 1) max out my 457b, and invest in this fund? 2) max out the 457b with another fund from my selection (or a combination of funds)? or 3) forgo the plan and instead open a taxable account at Vanguard?

    High expense ratios kill returns, and in addition I’m not familiar enough with Nationwide to be able to make the call and establish whether or not their funds will provide me the benefit of utilizing the 457b or just open a taxable account.

    Take your time in your response; I have a few more months of debt slashing and crime fighting until this is immediately pertinent 🙂

    Hope all is well. God Bless!


    • jlcollinsnh says

      Hi Dexter…

      Welcome and thanks for the kind words.

      Congratulations on arresting that student loan debt and your plan to roll those payments into an awesome savings rate. I’m already looking forward to your book: The Millionaire Cop. 🙂

      Sounds like you’ve already found the low-cost index fund in your 457b. An ER of .46 isn’t great compared to the .05 of VTSAX, but as these plans go it is pretty good. I’d max it out.

      For more and if you haven’t already, read this:
      Be sure to read to the end where, after all my ranting, cooler heads prevail. 😉

      One last thing, if someday in the future you happen to pull over a speeding blue and white Triumph Scrambler….

      cut me a break will ya, officer?!

  97. Ken says


    I am 51 years old, an attorney, married, and have two young boys, ages 7 and 4. I work full time and earn, depending on yearly bonuses, from $125k to $155k. My wife works part time at home so she can take care of our boys. She earns $38,000 per year.

    Our net worth (omitting personal property) is as follows:

    Non-retirement investments: $465,000;
    Retirement accounts (IRAs, 401(k)s): $635,000;
    529 college savings accounts: $107,000;
    Home value net of mortgage: $140,000;
    HSA account: $7000.

    We live in the midwest and enjoy a fairly frugal lifestyle. Counting retirement account contributions, 529 contributions, and non-retirement investing we saved very close to half of our net income last year. Our only debt is our home mortage balance of $107,000. My investment philosophy is very similar to yours as most of our investments are in Vanguard index funds, with around 70% of all investable assets in the Vanguard Total Stock Market Index fund. Our monthy expenses are about $4000.

    Here is my question/issue: I’m currently stagnating at my current place of employment and am think about making a change. I suspect that unless there is a reversal of this stagnation the change could very well be “involuntary” and could happen as soon as next year. Because of the age of my boys I feel I cannot retire and need to work at least another 12 years or so when my oldest son enters college. If I am kicked to the curb I will likely wind up self-employed is a small general law practice and my income could drop substantially. As such, what do you think is the proper asset allocation for my investments? How much in stocks, bonds, REITs, and cash?

    By the way, your site is great, I find most of your advice to be spot on, and I’d appreciate any words of wisdom.


    • jlcollinsnh says

      Hi Ken…

      Thanks for writing and I think I have good news for you.

      I think you might be better off than you realize.

      You have assets, not including your home equity, of ~1.214m. At a 4% withdrawal rate that’s 48k per year, exactly matching the 4k per month you are spending.

      Now, at age 51 and with two small boys, were this all you had and your plan was to hang it up completely I’d be concerned. But that’s not the case.

      You plan to open your own practice. Even if your income from it is only, say, 20% of the low end of what you make now, that’s 25k.

      Plus your wife will still be bringing in her 38k. So that’s 63k, 15k more than you are spending.

      Not only could you leave your investments alone to grow, you could add to them each year.

      Because you won’t be drawing down these accounts, I’d be inclined to be more aggressive on the stock side where the greatest growth potential lies. But mostly the proper allocation depends on you and your risk tolerance. You certainly have enough that there is no need to swing for the fences. So if a more conservative allocation lets you sleep better at night, let that be your guide.

      If I were as unhappy as you sound, I’d be planning my exit. Especially if the change allows you more time with those boys of yours.

      Good luck and thanks for the kind words!

  98. Lars says


    I love your blog. I’ve read every single part of your “stocks” series, and send them to friends who ask me questions about investments.

    I am a mid-20s man about to enter a very good financial situation via marriage to a great woman, also in her mid-20s.We are both fairly thrifty and are completely debt-free. We have college degrees and steady jobs. We each have reliable, working cars that are paid-in-full. Our annual combined salary is about $125k, but will probably drop to $70k as we have children in the next few years. Because a family member started a successful company years ago, we will receive about $6-7k per quarter in cash dividends. We have already saved about $100k in combined 401k/IRA retirement savings (in VTSAX and index funds, thanks to your blog) and are maxing out our 401K/IRA accounts every year. We have about $75k in combined cash savings. We don’t own a home or any other noteworthy assets. We live fairly frugally, and save about 40-50% of our after-tax income, and we plan to continue to do so in marriage.

    Here are the details again in bullet form:

    Total debt (student, credit, mortgage): $0
    Combined annual salary (before tax): about $125k
    Annual cash dividend: $25k (or $6-7k quarterly)
    Current combined retirement savings: $100k
    Current Cash savings: $75k

    I know we have too much cash on hand, and I want to invest it. We’re not interested in buying a home soon, we would rather rent for a while. How would you invest our current cash on hand ($75k) as soon as we get married and how would you continue to invest $6-7k quarterly?

    Any other investment allocation or other life-planning advice is MUCH appreciated.


    • jlcollinsnh says

      Welcome Lars…

      and thanks for the kind words and for passing the blog on to your friends. That’s the highest praise of all.

      One of my pet peeves is people who look at the asset building strategies discussed here and dismiss them as accessible only to those who are very lucky.

      You certainly appear to have been luckier than many who write me. But to your credit you are not squandering the luck that has come your way. Far too many would, followed by their complaints of how unfair life is.

      So kudos.

      The biggest risk I see for you is the lure of lifestyle inflation. So my first suggestion would be to cap your spending at 35k, half the income you’ll have when the kids start coming. Or, if you are feeling really badass, live solely on that ~25k dividend and invest all your earnings. Then let your lifestyle expand only at the pace those investments grow.

      That said, it sounds like you’ve already nailed my nine steps as described here:

      Well done!

      If you haven’t already, take a look at this path I laid out for my daughter:

      Again, seems you’re hitting most all these already but it never hurts to review as an aid for staying on the path.

      The 75k in cash I’d put into VTSAX. With your dual incomes and cash flow you can afford to have little or no emergency fund. This is especially true since you don’t own a house. Since houses require a relentless parade of often expensive repairs, they are the single biggest generators of the need for emergency cash.

      While I am blissfully back to being a renter now, I’ve owned houses for over 3o years. In each case, I’m glad I did. But only because I wanted the lifestyle. They are an expensive indulgence and as such should only be bought if and when that indulgence is worth the price and the price is one you can easily afford.

      That may well be when your kids are around school age and school districts become critically important. But be sure to read this first, if only to be sure you enter homeownership with your eyes wide open:

      VTSAX is also where I’d put your investable cash flow, either from those dividends and your saved income or from all your income as you live on the dividends.

      First, of course, fully fund your 401k and deductible IRA accounts.

      Congratulations on your upcoming marriage and the awesome financial start!

      • Lars says

        Awesome advice Jim, thanks for the attention. Love your idea about living off the dividends.

        Clarifying question: would you invest the $75k in VTSAX in one lump purchase, or would you space it out somehow using dollar cost averaging? If so, is there a DCA time-segment strategy you would use in our case? (i.e. $5k every month for 15 months).

        • jlcollinsnh says

          Glad you like that living off the dividends idea, Lars. That’s what I’d do personally.

          As for DCA, I am not a fan. For three reasons:

          — It messes with your allocation. Initially you are way too cash heavy. Better to decide what allocation works best for your situation and implement it.

          –You have a 50% chance of it working against you. If the market rises while you are DCA you’ll be paying progressively more for your shares. Of course, it could work the other way and by choosing DCA you are betting it will. Basically you are predicting the direction of the market in the short-term. That’s market timing and market timing is a loser’s game.

          –Since you are in the wealth building stage, as you invest your income over the months and years you are in fact stuck with a de facto DCA situation. This one you can’t avoid, but no sense adding to it with your cash on hand.

          Make sense?

  99. Kenneth says

    This is not a question. Just a thank you!

    I did it all wrong for decades. Stocks, options, futures. Couldn’t understand why I couldn’t make money. Maybe it was the gambler in me, I used to have a problem, and actually went to GA for several years to cure it. You have changed my thinking about a great many things. I’m now quite content to be in index funds. Actually I’m using Betterment, and currently have a 60/40 allocation Stocks to Bonds. I just keep moving money over there, and it keeps doing well. I sleep better at night. Wish I had figured this out years ago.

    I’m 685 days away from retiring. I don’t have much, but along with my paid for home, it will have to do. I could save $1,100/mo on social security and a small pension with a zero percent draw on invested assets. But I will do a 4% draw on assets also, so we have plenty of money for world travel!

    One thing I’ve never figured out is how one could “run out of money” with a 4% draw on assets. If the market tanked 50%, I’d still get half as much out as my initial 4% draw. If the market tanked that much, I’d probably forgo the draw for a year or two anyways. If it was down 75% from the top, we would be in Great Depression 2, and we’d all have problems. At least I’d have a paid for home and able to start growing a vegetable garden etc. Somehow, we’ll all muddle through.

    Thanks again for posting your thoughts over the years! Every time we have a decent market stumble, I reread parts of your Stock Series, and they give me solace and encouragement to stay the course.

    • jlcollinsnh says

      Hi Kenneth…

      ..and thanks! Very kind of you to check in like that.

      Like you, I’ve made many mistakes over the years. In fact, if I know anything about this stuff it has coming from the very expensive school of errors. 🙂

      My hope is this blog will spare some that hard way of learning and move them straight to the front of the class.

      Anyway, sounds like you’ve found the path and Betterment is a fine way to go:

      Oh, and BTW, the way people run out of money using the 4% rule is by following the original recommendation: Take 4% each year AND adjust it up for inflation each year to maintain your spending level regardless of what the market does. Even with this, a portfolio lasts for 30+ years 96% of the time.

      If you make sensible spending and withdrawal adjustments when the market is in one of its to-be-expected declines, as you plan, you’re golden:

      Congratulations on your pending retirement. Sounds like you’ll do just fine!

  100. Brad says


    My wife and I really appreciate the time you put into this blog. The resources have been very useful to us as a young couple seeking to walk the financial straight and narrow. We are recent (within the last few years) mustachian converts. We’ve recently paid off about 100k worth of student debt by paying upwards of 3k per month until the balance was 0…had to get those “shackles” off as quickly as possible. We’ve also recently both been given substantial raises. Coupling that with a no longer existing student loan, we are having trouble deciding what to do with the excess. I know, I know…our lives are so hard…haha.

    Anyway, our “stats” are as follows:

    We are both 28.
    Income Pre-Tax – 175k
    Monthly Expenses – About 4100 (Far from optimal, I know…but we’re still putting away quite a bit.

    We max out the 401ks – with match, this comes out to about 45500 per year.
    – This money is mostly in vanguard index funds.
    This leaves us with about 8400 take home.
    – After monthly expenses, we have 4300 left to distribute

    We then max out the Roth IRAs – 11k per year
    – This leaves us with about 3300 dollars per month to invest as we see fit.

    Our Current Asset Allocations: About 50k between our two 401ks (mostly Vanguard index funds…70% Domestic, 30% International); 13k in individual stocks (my wife’s….her dad and her have been buying individual stocks since she was like 8….she’s been frugal far longer than I…haha); 11k in Roth IRAs (All Domestic Stock Index Funds); 13k – cash; House – 230k – ish; 2 cars – probably worth total of 15k

    Liabilities – Mortgage – 195k at 3.25% interest; Car Note – About 4k at 0% interest (I know, I know…we’ll never borrow money for a car again);

    Our goal is FU Money as soon as possible. So, I guess I have 2 questions:

    1) Would you reallocate my existing assets?
    2) What would you do with the extra 3300 per month? Would you pay off the mortgage? Invest? Where to invest?

    Thanks so much. I look forward to hearing your opinion.

    • jlcollinsnh says

      Thanks Brad…

      …and welcome!

      Sounds to me like you’ve got all the big stuff right.

      I’ll leave it to Mr. MM to chide you for spending ~49k per year. 😉
      I’m more interested in your awesome savings rate of 70%+. 🙂 For folks with your level of income, you are living very modestly. Well played, that!

      As to your questions:

      Your asset allocations seems OK, but as you read thru the blog you’ll see my choice for wealth building is:

      VTSAX, Vanguard’s Total Stock Market Index fund, for. This is where I’d put the $3300 per month each month, and my IRAs.

      While I hold bonds and REITS at this stage in my life, VTSAX is my stock allocation in my Roth, IRA and taxable accounts.

      Personally, owning VTSAX, I don’t feel the need for International Funds for reasons I explain here:
      But if you feel the need, I don’t hate the idea of owning them.

      I’m also not a fan of individual stocks, unless you’re Warren Buffett. Too much work for too much under-performance.

      That said, if this is a tradition your wife enjoys with her father, let it be. Especially with only 13k in play. Sometimes it’s not about maximizing the money.

      Your 3.25% mortgage is cheap money and I’d let it ride rather than pay it down. Over the next 20-30 years, VTSAX should do far better for you than 3.25%.

      Same thing with the 0% car loan. Although, you are right. Never borrow money to buy a car! Or any other consumer good. Even at 0%. Too big a trap.

      One last thing. I’d max out in Traditional IRAs instead of the Roths. At your income level, the tax deferral and the ability for those extra dollars to grow tax sheltered, is too good to pass up.

      But don’t worry about the money you already have in your Roths. It’s just fine there and will serve you well.

      When the time comes you can shift to Roths as described here:

      Kudos on an awesome start!

        • jlcollinsnh says

          Thanks Danny…

          Good catch!

          If they didn’t have a retirement plan at work, their 175k would have been just under the 178k limit for married filing jointly for the full deduction.

          But of course they have 401k plans and that drops the limit to 95k.

          Back to the Roths, where the income limit for contributions is 188k.

  101. Josiah says

    Hello Mr. Collins

    I have loved reading your website! It is the exact information that I have been craving in regards to where the heck to park my money.

    My wife and I are on the road to FI. We have a few more miles to go (10-15 years) but we are on our way. My goal is to never “have” to work a day after my 42 birthday.

    With all that being said, my parents are 50 and 53 respectively and are not destitute but pretty poor. They have jobs that are a bit above minimum wage but absolutely nothing in the realm of savings or pensions.

    My wife and I have realized that we will be ultimately responsible for them in roughly 30 years as my brother is not in the best boat financially and has expressed disinterest in taking care of them, because of different family issues.

    I am going to help them get a Vanguard account and put a bit of money aside for them each month. The big problem is that they are currently spending 600 dollars a month in rent in the middle of Iowa, which is normal if they had kids living with them, but as my brother and I are gone, it’s a bit much, especially with them making just over ends meet.

    My question is would it be prudent to buy a cheaper property and rent it to them so they could cut their rent in half, and then after it is payed off when they are in their 80’s that expense will basically be non exist? There are plenty of houses in their community that could be had for around $50K-$70K.

    I have read your post about how real estate is not the best investment and I am realizing that I really don’t want to make a habit of getting rentals, but I am wondering since you have owned a house before, is it worth the extra costs that will be associated with owning a home, to provide that stability for them, or should we just find them a cheaper rental?

    Thanks for all you do,

    • jlcollinsnh says

      Welcome Josiah…

      …and thanks for the kind words. Glad you found your way here and thank you for the question. I have actually been planning a post about the time I did exactly what you are considering. It was a major mistake and I’ll share that story with you, along with some thoughts as to how you might evaluate the decision for your unique circumstance.

      But first, congratulations on having your feet firmly on the path to financial independence! And for being clear-eyed enough to see that your parents are not and that this is likely to become your problem. The good news is you will have positioned yourself well to help.

      Back in ’79 I was young, single, renting, making good money and very foolish. I bought my mother a condominium. It was just about the worst decision I could have made, both financially and psychologically.
      My father died in 1974 and in 1976 my mother sold their house and moved to Florida to escape Chicago’s winters and to be closer to her brother and his wife. She took the proceeds from the house and invested in some dividend paying stocks to supplement her Social Security. She found a lovely apartment near her brother and settled in.

      Unfortunately, her stocks failed to keep pace and her rent continued to rise. By 1979 she was expressing grave concerns.

      Now, with the benefit of hindsight I can see her concerns were greatly overblown. But at the time I got swept up into them, as us good sons are prone to do. Plus then, like now, (like always, really) the vested interests in the real estate business were relentlessly pounding the drum of how wonderful owning property is.

      On a visit I rashly told her I would solve her problem by buying her a condo. I gave her a budget of 40k, a fairly hefty sum in those days, and told her whatever she found in that price range that she liked was fine with me. We agreed she would pay me her current rent of $300 a month and I would absorb the difference and all future cost increases. Not surprisingly, this worked exceedingly well for her. For me, as we’ll see, not so much.

      She found a beautiful 2-bedroom, 2-bath unit in a very nice complex. It was a step up from where she had been and it came in under budget. It looked like a pretty neat, if expensive, solution.

      To see just how expensive, let’s run the monthly numbers:

      $390 — Mortgage payment (interest rates were much higher in those days)
      $125 — Association fees
      $50 — RE taxes
      $565 — Total

      So I knew going in I would be supporting mom to the tune of $265 a month. And I was good with that.

      But there were two big things I hadn’t counted on.

      First, I was now mom’s landlord and as such she turned to me for improvements on the property. Not all at once, but over the years: New appliances, carpet, painting and other stuff I don’t remember. Maybe because they paled in comparison the the second thing I hadn’t counted on…

      The Association. See this was a building owned and operated by geezers who were retired and had cash on hand. They were loathe to pay into a contingency fund. The monthly assessments covered only the monthly costs. So about once a year, sometimes twice in the bad years, I’d get a notice announcing a “Special Assessment” had been approved to re-pave the driveways or re-roof the buildings or some such, and telling me my share. Typically $5-6000. Oh, and by the way, it is due next Tuesday.

      Now this is a perfectly fine way to do things for retired folks with money in the bank. But each notice sent me into a mad scramble to pull the cash together in time. At least the first couple of times. After that, I created my own contingency fund.

      My mother lived there for about seven years, until 1986. Each year, of course, these costs marched ever higher. Fortunately, so did my income. Meanwhile, Florida went into one of its routine real estate collapses, just in time for my sale of the property.

      So it was financially ugly. But expensive as it was, that would have been OK. It did solve my mother’s problem. But then there was the psychological factors that came in to play. Those started before the condo was even bought.

      The Saturday after I returned from my trip to Florida, the one where I had told my mother I would do this, I got a call from one of my sisters. She was not happy.

      She got it into her head that somehow I was exploiting our mother and that I was going to make a financial killing on this condo. Now I had no idea at the time just how financially ugly it would get (had I known I would have run for the exits) but I could certainly see that there was no monetary killing to be made.

      When she got done yelling at me (and this took a while) I told her I really didn’t want to do this at all (I didn’t) and if she wanted to I would be happy to step to the side and it would be all hers. Unfortunately, she said she couldn’t afford it. She later suggested we buy it together, but after the harsh words I was uninterested in a partnership. That might have been the only smart decision in this sorry affair I made.

      My other sister was considerably more financial savvy. She could see both the hole I was digging for myself and the way it would ease her share of the burden of providing help to our mother.

      Now here’s where the psychology gets really interesting. My mother was a smart woman. She understood intellectually that I was supporting her to the tune of hundreds of dollars each month, thousands each year. But she never saw that money. What she saw was the $300 check she wrote and mailed to me each month. Wrote and mailed to her landlord.
      Meanwhile, when my sisters would visit once or twice a year, they’d slip her $100 to “help with the extras.” A kind and generous gesture that she felt emotionally. Even if, in the overall scheme of things, an inexpensive one. And, of course, when I’d visit I would get to hear in detail just how kind and generous her daughters were and what a blessing in a mother’s life such children are.

      Now, a better man would not have been bothered by this. I am not that better man. I was the guy doing the heavy lifting.

      As a postscript to this story, and in fairness to my sisters, when my mother took ill and moved back to Chicago for the final two years of her life I was living in Cleveland. The heavy lifting of her care fell to the two of them. In retrospect, mine was the easier path.

      So that’s my sad tale. What should I have done? That’s easy. I should have said to mom on that trip: “Don’t worry about your rent increases. Just let me know and whatever the amount over the $300 you are now paying I will send to you.” Much cheaper for me. Better psychology, too. 🙂

      Oh, and then I’d have had plenty of hundred dollar bills to slip her on my visits. You know. To help with the extras.

      So, enough about me, Josiah. How does this relate to you?

      Well first, buying your parents a house is likely to be much more expensive than you might anticipate. While you won’t have association assessments, you will have an endless parade of repairs as all houses require. If your parents are unable to handle these repairs or arrange for them to be done, that will fall to you. As will the costs.

      Of course, the house will have all the drawbacks I describe here:

      So why isn’t my answer a simple short and sweet: Don’t do it!!?

      The $600 rent and the houses available for 50-70k.

      You may have read this post:
      If not, please do.

      In it I describe just how to evaluate how your choices compare financially. In my experience, renting is usually clearly less expensive. But not always and, from the rough numbers you’ve shared where your parents live in Iowa, maybe not for you and them. So run the numbers and see where you stand.

      But for me, the financial case for owning would have to be very compelling before I’d accept the downsides. When I owned houses they were expensive indulgences I could afford and the benefits made me willing to pay for them.

      In your case, supplementing your parents rent might be the expensive indulgence. Only the numbers will tell. But, personally, I be willing to pay a fair amount to avoid the hassles and pitfalls.

      Good luck and keep us posted.

      BTW, Josiah….

      I am planning to make this a Case Study post that will go up in the next day or two. But wanted to give you a chance to see my reply now. Cheers!

  102. Vexed says

    Jim, I want to thank you so much for your well-reasoned posts. I’ve made my share of financial mistakes; most from not being able to see clearly. My wife and I have only been seriously investing/saving money for retirement for about 10 years so hopefully we’ve learned early enough in the process. In that regard, your stock series was eye opening and, most importantly to me, made enough sense to get me to take some action. So, last year I sold my myriad of individual stocks — among them a number of laggards that should have been pruned long ago — and poured it all over into VTSAX. I also rolled over an old IRA (former 401(k)) into my current retirement account so that I could do back door Roths each year. Not a huge deal, but man, simplifying our investments by getting rid of the dead wood, freeing myself from rooting (and kicking myself for having invested in) individual stocks and having a plan has made me feel so much clearer about what we are doing with our money. Thank you! Also, thank you so much for your insight into your relationship with your daughter. I have a 3 year old girl so this particularly hits home for me.

    My wife and I wouldn’t call ourselves Mustachian, but we do value making reasoned decisions about what we’re doing with our money and making sure that when we spend money on something, it is truly what we want. Do we deserve a face punch from time to time? Sure. I’m envious that some can live on $24k/year, and often think about what it would take to steer the ship in that direction, but we always come back to that we really enjoy the things we have and our willingness to delay FI in order to have them. I think some of it is that we both enjoy our jobs and we have relatively good flexibility to spend time with our daughter. Still, I’m often vexed (my wife not as much) over this issue and whether we are consuming too much. Yes, I know the answer is only we can answer that question entirely…

    Anyway, here are our stats:
    Me (40); Wife (37)

    Combined annual salary (before tax): about $240k

    Max out retirement account: around $46k/year with match
    Back door Roths: $11k/year
    529 for 1 child: $10k/year
    Post-Tax Investment account: $14k/year (into VTSAX)

    I know that some will find our monthly spending of around $9500/month gross. A lot of it goes to our house, which we actually do greatly enjoy, but I wouldn’t mind down-sizing in the future.

    416k on mortgage (14 years left on a 15 year mortgage @ 2.75%); House is worth about $600k (monthly payment is about $4k with tax+insurance — over $2000/month is principal)
    No other debts (credit card, students loans, etc.)

    Combined Assets:
    Home — maybe $180k equity
    Retirement Accounts — around $510k
    Vanguard Post-Tax — $205k
    Roth IRA — $100k
    529 Fund — $70k (child currently 3 years old)
    Cash — $40k
    TIPS Bonds — $22k

    Wife and I would see about $55k/year (today dollars) were we to retire in 15-20 years if we stayed with our current employers. Of course both of us staying with the same employer that long is a big if.

    My wife and I are looking to retire when we can afford to maintain our current fairly high spending. Granted, once the house is paid off that will knock out $3k/month, but we’ll still have upkeep+tax+insurance. We would probably downsize but any savings would likely go towards money to travel. I’d figure we’ll want about $100k/year (post-tax) in today dollars.

    With all that said, I’d really value your opinion as to whether you think we’ll make our goal in 15-20 years max? I’m sure you’d suggest lowering our spend and we will certainly try to get better about the spending. I know that we could be FI a lot sooner if we could get the spend down.

    Thanks Jim!

    • jlcollinsnh says

      Welcome Vexed…

      Thanks for the kinds words. Simplifying really does feel good, doesn’t it?

      As to your concerns, let’s work backwards a bit.

      Since you are looking for 100k per year in retirement, using a 4% withdrawal rate you’ll need about 2.5M in assets. And you’d like to have this in 15 or 20 years.

      Currently you have 1.127M and you are investing an additional 81k per year.

      If we plug those numbers into this calculator
      and use a modest 6% return:

      After 15 years you’d have 4.250M — 170k per year @ 4%
      After 20 years you’d have 6.144M — 246k per year @ 4%

      And if you’re curious: After just 9 years you’d have 2.6M, just over your target.

      I’ll leave any face punching to my pal Mr. MM, but if 100k a year is what works for you and if you are willing to refocus more of your income to your investments, you are a very short few years from work being entirely optional.

      It all depends on what you want to “buy” with your money: Freedom or stuff.

      Good luck and keep us posted! I’ll be very curious as to what you decide!

      • Vexed says

        Thanks Jim for the analysis. I’ll be interested to see which way we go too. And whichever way it is, I’m trying to enjoy the ride more. I have a tendency to get fixated on “the right decision” without taking the time to enjoy the moments along the way. What do they say? It’s about the journey, not the destination? I intellectually understand that if I don’t enjoy the moments, I may achieve financial freedom, but it won’t really amount to much. In some ways, the money end of things is the easy part — just plug in the numbers and figure out how to get from point A to B — but the mindfulness part takes more practice time.

        If you get a chance, I’d love a post on the how/when/where of your achieving, what appears to me, a large degree of peace.

        Thanks again Jim!

        • jlcollinsnh says

          Sounds like we wrestle with the same issues, Vexed.

          As for a post about achieving peace, that’s way, way above my pay grade. 🙂

  103. Arsene says


    I am thankful to have come across your blog. I have found it so enlightening.
    They thing that comes out your blog is “You love to keep it simple”, that’s something i love as well.

    I was going to commit to an asset management firm which charges .25% AUM , not that expensive but it would be a factor when my nest egg grows big.
    I would love to follow your lead and example. I had few questions lingering in my mind i hope you can help answer.

    Financial Background:-

    401k:- options :- 1) VINIX (ER 0.04%)( Largecap)
    2)VMCIX( ER 0.08%) (Mid Cap)
    3) VSCIX (ER 0.08%)(Small Cap)

    Roth IRA :-VTI,VWO,VNQ(Currently)

    Taxable:- VT, Asset management company:- ER(.17%) + AUM (0.25%) consists of various index funds.

    1) Which options in my 401k should i choose?
    2) Why should i go with VTSAX versus VTI?
    3) Is tax loss harvesting as beneficial as most advisors/Asset management firms say? Can I tax loss harvest with VTSAX or VTI?
    4)Is now the right time to go the VTSAX route? as VTSAX is made a lot of gains?
    5) As you say You should aim to be FI, I have a hard time figuring out how much we spend per year? what would help me figure that out? How do you do it?

    I consider this blog to be something of a revelation to me.
    Thanks a millions for your suggestions.

    • jlcollinsnh says

      Hi Arsene…

      Glad you like it here because by way of answering you I’m going to give you some reading assignments. 🙂

      If you read thru this:
      You’ll find the answers to most of the questions you are asking.

      Pay special attention to these:

      As for how you figure out how much you are spending each year, it is a simple matter of writing down and adding it up each month. By the end of the year, you’ll know.

      If you still have questions after reading the series, please feel free to ask. I’ll be back in April.

      Good luck!

      • Arsene says


        I did all my homework :).

        What i did.
        1) I converted all my funds to vti etf.
        2) my 401k is 70% vinix and 30% VSCIX
        3) Converting all my taxable accounts to vti slowly.

        Questions i still have
        1) is that 70/30 allocation what you would do?
        2) I read about the stages in life you are( preservation and building) what if at the time i retire the market just crashed, it wouldnt make sense to convert to wealth preservation allocation.
        3) Do you personally do any tax loss harvesting?

        Thanks for your help.

        • jlcollinsnh says

          Welcome back Arsene…

          It indeed sounds like you’ve done your home work!

          As for your questions:

          1. Yep, that 70/30 allocation is just fine.

          2. Since market crashes (-40%+) are pretty rare events the odds of one hitting just as you retire are slim. But if it should happen, I would stick with my full stock allocation as we worked our way thru it.

          3. Yes. Tax loss harvesting can be very effective. If you have losses it is worth harvesting enough to offset any gains and to capture the $3000 that can be applied to ordinary income.

          Gains are also worth harvesting at times. My pal the Mad Fientist has two great posts on these strategies:

          In fact, his whole blog is well worth reading. There. A new homework assignment! 🙂

  104. Eric says

    Hey Mr. Collins!

    Like many, I stumbled across your blog from MMM. You both have transformed my financial thinking and given me budding motivation for a building a simpler, less complicated, financially independent life. Thank you for the bottom of my heart!

    Some background: I am 26 yrs old and married to the love of my life(also 26) who is a homemaker with our 2 small boys(aged 1 and 3). I have always been rabidly interested in personnel finance but was pulled every which way by the flavor of the day.

    Thanks to you and MMM I am currently enjoying a 42% savings rate post tax that has me speeding toward my FI goals.

    I have two specific questions:

    1) I own a single family home that I rent out for positive cash flow. The house was newly built in 2009 and I was able to refinance it at 3.25% 30 yr fixed. Your position on owning property is clear, but what do you think of the plan of holding this property long term, contributing extra to pay off the note early, and using the monthly income to assist in funding retirement?

    2) I am a partner in a private REIT that I contribute heavily to(growing up I had always been told/believed that wealth was developed through real estate). It holds 43% of my total retirement investments. This is attractive to me because of its rich dividend and I know/ trust the manager personally. At my age (26) is this over-allocation dangerous?

    Thank you so much for your time.

    • jlcollinsnh says

      Hey Eric…

      Welcome and thanks for the kind words.

      Congrats on the savings rate, especially with your wife being an at home mom!

      There certainly is a lot of financial nonsense written out there and I can see where it would be easy to be pulled this way and that. Good to hear what you’ve found here and on MMM resonates with you.

      1. Your 3.25% mortgage rate is nice and low. I’d be in no hurry to pay it off. Better to invest the extra money. Typically, in my view anything 4% or less is a hold and over 6% is a pay it off. Between depends on circumstances, temperament and available options.

      2. Yes. Very dangerous. But since you are young and since you like it, what I would do is keep it but stop future contributions. I’d invest that money elsewhere and in doing so slowly bring that 43% allocation down.

      Hope that helps!

  105. Justyn says

    Hi Jim,
    Thanks for the great blog. I’ve been learning much.

    I’m looking for some advice regarding where and how to invest, allowing me to retire early.

    38 Yrs. Hoping to Retire around 50.

    My wife and I are in education. We both pay into our state pension system. We also contribute $22,500/year to our 403(b) accounts (combined – no match). Combined, we’re just into the 25% tax bracket with our current contributions and deductions.

    I have a roth IRA with Vanguard
    We have some taxable index funds with Vanguard as well. (just starting – about $20k)

    In order to retire early, we’ll obviously need to be able to access some funds. So, I know I can add more to our 403(b) accounts and max out Roth IRAs, but I’m concerned that I won’t have money available at 50….

    From looking at various calculations, I think our funds are looking good after age 60, even with less than what we’re currently contributing to 403(b) accounts.

    In addition to what we contribute to our 403(b) accounts, we have about $2000/month available to invest.

    I know I can benefit tax-wise from putting more into my 403(b) or Roth IRA right now, but I’m concerned that I won’t have the money when I want it (i.e. age 50) and also a bit concerned that withdrawal rules may change and force me to grind longer….

    Can you also provide a little guidance as to how to plan for withdrawing money if it is in my 403(b) or Roth?

    Are there better ways around this?

  106. Tweaker says

    Mr. Collins,

    I’d like to thank you for outlining the path to financial freedom so clearly and simply. I’ve been reading your blog for a long time, and I’ve devoured each post. Your advice is like Occam’s razor for personal finance, and I’ve been able to apply it to each financial situation I find myself in. When I finished school I had 41$ in the bank before my first payday and 90k in debt. However, I now have an excellent income, and your blog has helped me lay down the foundation to financial independence.

    I’m finally commenting because I’m having trouble calculating whether or not rolling over an old 401(k) is worth it. Before I give you the background information, I have to confess an obsession with making good things better. I look at something and my brain automatically thinks, how could this be improved. I don’t know if my tweaking will make a huge difference in my portfolio in the long run, but I hope it might help others with IRA conversions in the future. The mad fientist’s post on 401(k) rollovers is brilliant. I just don’t see how it’s applicable to people in the beginning of their careers when they’re in high tax brackets.

    I have been working for total of 3 years and have recently changed jobs and married.

    Yearly Income: 130k-150k
    Roth IRA: 18k
    401(k): 68k

    I have always contributed to the Roth through the back door because I didn’t have any tax advantages in the traditional IRA due to my high income. My old 401(k) consists of 11k in a Roth 401(k), 14k in a traditional account and the rest is employer contributions. My former employer had a great 401(k) and it’s full of low-fee vanguard funds.

    The last piece of the puzzle is my new household income. My husband makes the same amount I do and our combined income was about 300k last year when we married.

    My IRA is through vanguard and I was hoping to simplify my finances by doing a roll-over. The following questions are holding me back.

    1. Is there any benefit to my rolling my old 401(k) into an IRA other than streamlining my finances? Since I’m investing in vanguard funds anyway I have low fees.

    2. If I roll over the 401(k) will it hinder my possibility to contribute through the back door in the future? I know when you contribute yearly to a traditional IRA you can re-characterize the account to a Roth, but only according to the ratio of traditional/Roth you have existing. I have no idea what my new ratio will be once I complete the roll-over. I don’t know how to figure out what amount I can contribute to a Roth without paying taxes. I am really motivated not to pay more taxes since I’m in the second highest tax bracket.

    I would appreciate it greatly if you broke it down for me or even did an rollover/recharacterization post in the future. Have a wonderful vacation!

    • jlcollinsnh says

      Ohhhh. Occam’s razor. I rather like that! 🙂

      Welcome, Tweaker. Glad you find the stuff here useful.

      Congratulations on your excellent start and incomes. If you can keep lifestyle inflation at bay you’ll be hitting FI in no time and your choices will be endless.

      BTW, I’m sure my readers share my curiosity as to what kind of work you and your husband do. Care to share?

      As for your questions:

      1. Ordinarily, I like to roll 401Ks into IRA when possible for the simplicity and for the (usually) better investment choices. But in your case, your have the low cost Vanguard options available and your backdoor Roth strategy could be compromised.

      2. This “backdoor Roth” article provides a nice overview, including some cautions:

      In reading it, you will want to take into careful consideration the complicating effect having other IRAs creates with the backdoor strategy.

      My guess is you are better off leaving that old 401k where it is.

      BTW, given your high tax bracket, I wouldn’t use the Roth 401k option. Take all the tax deferral you can get.

      Keep us posted!

      • Tweaker says

        Hi Mr Collins,
        Checking back in here after a while. My husband and I are mid-level providers in the medical field. We are doing our best to avoid life-style inflation, but it’s harder since we’ve had our first baby and I’ve cut down to working part time. In regard to my old question, I’ve left my old 401(k) in place. I’ve heard rumors that the back door Roth might be closing in the near future and will re-evlauate if that happens.

        I’ve taken your advice to take all the tax-deferral I can get to heart. Now my obsession is to lower my taxes as much as possible. I’ve noticed you recently recommend investing in a taxable VTSAX to buy a house. My story of warning about taxable accounts:

        My MIL graciously paid for my husbands undergrad in full and last year she sold a stock that was meant to pay for his college that she held as a custodian so it had his name on it. It was about 3K and it was a long term capital gains sale. Well, with our income you can imagine we got hit with capital gains tax, medicare tax and alternative minimum tax. All in all it ate up about 75% of the sale of the stock. It’s made me quite wary of starting a taxable account. Right now we are maxing out our 401(K) (front loading), IRAs, and HSA. We’re also contributing 2K to a 529 (it’s the tax deduction limit). The rest of our leftover savings go to a savings account for maybe our dream of an outdoor kitchen or one day investing in commercial real estate.

        I’m very grateful for the “problems” our high tax bracket creates for us. Our income is incredible and I know we’re quite privileged. However I prefer to donate to charities instead of Uncle Sam and am constantly looking for ways to decrease our current and future taxes.

  107. Danny C. says

    Hi Jim,

    Great, great site you’ve got here. I feel like I’ve gone back to college and have received the equivalent of a bachelors/masters of personal finance between reading through your site and many other great online contributors (MMM, Mad Fientist, to name only a few).

    Looking for a quick peer review. I have a student loan balance of $25k and an investment property with a $62k balance. Both of these carry an interest rate of 5%.

    I am currently throwing all savings beyond the maximum 401k contribution toward paying off the student loan debt because I hate the fact that I have it. After it is paid off (on track for September) I was planning on maxing out our family HSA. Going forward I was planning to create equal monthly payments to maximize 401k, traditional IRA (or Roth if our income increases past the point of getting the tax deduction), and HSA accounts with the balance of savings going to paying off the rental property.

    My question is should I be so obsessed with paying off debt at 5%? We are a single income family and after 401k contributions would qualify for the traditional IRA deduction. In prior years I have only been contributing up to my employer match in my 401k so that I could aggressively attack student loan debt. I only recently ran the numbers on the taxes I was paying as a result of not putting more in compared to interest payments on the debt and it wasn’t even close, thus I upped my 401k contribution. But for some reason I don’t feel as strongly about an IRA even though it would be the same calculation, actually better since I could be in Vanguard funds. I just really like seeing progress on the debt repayment side I guess. Thoughts?


    • jlcollinsnh says

      Hi Danny…

      If you haven’t already, check out my conversation with Eric a few posts above. In it I say:
      “Typically, in my view anything 4% or less is a hold and over 6% is a pay it off. Between depends on circumstances, temperament and available options.”

      So your 5% is right smack in that middle ground.

      I think you are making the right choice to max out the 401k first, and I would extend that to the IRA. Tax deferrals in a sense immediately boost your returns and then they grow tax free until withdrawal. Too good to pass up.

      Once I had done that, money I had available for taxable investments I’d plow into blowing out those loans.

      Since VTSAX is likely to produce over time returns well over 5%, it is easy to make the argument that, strictly speaking, investing there is the better financial call.

      But paying off the 5% is a guaranteed return with no volatility. Plus getting debt free is just so damn satisfying. 🙂

      So, that’s what I’d do. Sounds like you might feel the same.

      Then, once the debt’s gone, just keep making the payments, but now into VTSAX.

      Oh, and thanks for the very high praise for the blog!

  108. Merle Tebbe says

    Do you have an example or template to use in planning out what to give to whom upon our death? This would include children, grandchildren and various charities.
    I know tax regulations are complicated and may have to go to an attorney for best approach, but I’d like to have the basics of what we want to do in a reasonable format and to have thought through key points to consider prior to sitting in front of the attorney with the meter running.
    Any sites or blogs you can point me to or if one of your past blogs covers this (I looked though quickly but may have overlooked it), please direct me to these.
    Thank you, I’ve learned from reading several of your blogs. I understand you are traveling now.

    • jlcollinsnh says

      Thanks Joe…

      …great clip! I’ve just added it as an Addendum on two of my posts.

  109. Pat says

    J’ai lu dans votre blog que vous voulez étudier la belle langue. Aussi que Françe, il y a la Belle Province du Quebec qui on peux parlez francais. Venez ici, Montréal est une belle ville, avec beaucoup de vin. On ne bésoin pas d’etre bilingue, il y a des gens qui parle anglais aussi.

    If you are comfortable in Spanish, you should be fine with nouns having gender and words with accents 😉

    • jlcollinsnh says

      Bon Jour, Pat!

      Well it is a very large stretch to say I’m “comfortable” with Spanish and French continues to elude me completely. As it has since college. 🙂

      That said, Montreal and Quebec are beautiful places and I’ve always enjoyed my travels there!

      Is that where you live? Want to set up a reader meeting to give me an excuse to visit again?

  110. financialblogger23 says


    What are you thoughts on Vanguard Specific Stock Sector Index Funds like: Healthcare, Materials, and Energy for example. All 5s by the way.

    • jlcollinsnh says

      Hi FB23…

      Sector funds are one step removed from trying to pick individual stocks and actively managed funds.

      You are in effect trying to time the market for various sectors. You don’t have to read very far in this blog to know my negative take on market timing and stock picking.

      I’ll stick to owning them all in VTSAX.

  111. Kenny says

    Dear Jim,

    What a great blog you have! After I discovered your blog, I have been reading through all your articles in the stock series and others, and I must say that it really enlighten me in term of my personal financial life.

    I have been trying to figure out what I am doing make sense, and hope you can help me.

    My wife and me are in our mid 40’s, and have been working for about 20 years, and we have accumulated some money in the region of 1 million (excluding our house and funds in our retirement account). We have no debt other than a car loan that will be fully repaid by end of the year.

    The funds are split into the following:

    Stock – 10%
    REIT – 40%
    Bond – 30%

    Our plan is to move more of our cash into REIT and a little into stocks to produce income for us so that we can retire and live on the dividend from the investment. The intention is not to touch the principal.

    Do you think it is wise to allocate say 60% into REIT so as to have a steady stream of dividend income from REIT for our retirement? I understand that your suggestion is 50% stock, 25% REIT and Bond.


    • jlcollinsnh says

      Thank you Kenny…

      and Welcome!

      Sounds like you’ve done a tremendous job so far. Congratulations.

      Without knowing how much equity you have in your house and how much, and where invested, you have in your retirement accounts, it is very difficult to comment on the allocation in just your taxable account. When considering your allocation you need to include all your assets.

      That said, it sounds like you are already heavily over-weighted in the REIT and with your home equity, you already have too much in RE for my comfort level.

      REITs are sector funds and for my opinion on those, see my reply above to FB23.

      I hold REITs primarily as an inflation hedge and only secondarily for income. Holding more than 25% in them is far too risky for my taste.

      You seem to be leaning in that direction to meet your goal of not touching your principle. But in my view, that is a very limiting and unnecessary goal.

      Better to focus on keeping your withdrawal rate at 4% or less and build your allocation around investment results.

  112. Brett says

    Hi Jim,

    I was just introduced to your blog and love it. Great job! Looking for some thoughtful advice on my family situation.

    I am married and have a soon to be 3 yr old girl. I am 35 and my wife 44. I am open to higher ‘risk’ investments and my wife is ultra conservative. Here is a look at our situation. We have no debt other than mortgage and about $10k car loan under 1% APR.

    After all regular monthly expenses (mortgage, insurances, taxes, utilities, etc.), annual spend is about $50k.

    HHI: $130-150k (wife stays at home)
    401K: About $325k combined between my wife and I. I max out my 401k.
    Schwab Taxable Account: $60k. About $46k cost basis.
    Cash: About $125k in ING.
    Mortgage: $270k remaining at 3.875%
    529Plan for my daughter: About $3,500

    What would you suggest for a ‘moderate’ risk strategy keeping in mind my wife’s ultra conservative approach?

    Any and all insight would be greatly appreciated.


    • jlcollinsnh says

      Hi Brett…

      Thanks for the kind words. Glad you like it!

      My first thought is that ultra-conservative approaches are very risky. They lead people into high cash positions that get relentlessly eroded by inflation while fostering the illusion of safety.

      Truth is there are no absolutely safe investments. Only investments that can smooth the ride but at the cost of long term results.

      Second, with an annual spend of 50k against income of 130-150k you have a great savings rate. This gives you the opportunity to invest aggressively.

      Personally, if it were me, I’d be heavily into the total stock market index in the form of VTSAX and I’d have my seat belt buckled for the wild ride.

      Since that might be beyond your wife’s comfort level, I’d default to the wealth preservation portfolio I describe here:

      The 125k in cash would drive me nuts as it slowly lost value to inflation while remaining completely unproductive.

      The safest thing you can do is to focus on paying off the mortgage. But you have a pretty sweet rate I personally wouldn’t want to give up. Plus, with your savings rate, you’ll polish it off in short order and then be faced with the challenge of investing still more cash flow. Nice problem to have, that.

      Hope some of this helps!

  113. Luke says

    Hi Jim!
    First off, I have been reading for about 2 years now and thanks to you an MMM, I have been able to turn my wife and I’s finances around. I am even in the process of transferring my wife’s Roth IRA over to Vanguard!

    The question I have is not because of our personal situation, although I am sure it will eventually affect us, it is about my in-laws and the only living grandparent. She is my father-in-laws mother and currently lives in a nursing home in NY. I am still trying to wrap my head around the whole situation, but this is what I have gathered so far. She is in a nursing home, I believe through Medicare. I am unaware of her current income level with SS or any other benefits. My question comes from a conversation we just had with them, where they stated that they have spoken with a lawyer, and he has told them that when she passes they will owe money to the ‘government’. In my research he seems to be referencing the ‘estate recovery’ aspect of Medicare. From what I know right now, she does not own a home, that is already in my father-in-laws name and they are looking into selling it. At this point I do not know what I do not know and have just started to do my research to try and help out where I can. Is there any guidance or advice on how help them best keep their money and not end up loosing big twice at one time? Also, are there specific questions that my in-laws need to be asking?

    Thanks again for the informative writing and enjoy your travels

    • Prob8 says

      I would be very surprised to learn that your in-laws owe any money once the grandparent passes. Typically, Medicaid (not Medicare) is entitled to recover assets from the “estate” of the person who received benefits. They do not typically recover from other relatives. Although I have heard of laws or proposed laws that would attempt to recover from children, I thought those were the stuff of myths and legends. In any event, your might want to start your research here:

      and here:

      I would not spend too much time researching Medicare as that is a different program that is not in the business of recovering assets or providing long term nursing home payments (although they do pay for up to 100 days of skilled care after being in-patient at the hospital).

      Good luck.

      • Luke says

        Thanks Prob8!

        I am gathering a list of questions, based on the information I have been reading through, that they need to ask/answer to make sure they have their ducks in a row.

        I will update when I have more information.

        Thanks again

  114. Zach says

    Found your blog after reading through Madfientist and love them both.
    I am looking to join my company’s 401k this summer which is through John Hancock. I am 29, new to investing and understand the importance of using my tax advantaged accounts, but have some hesitation with this specific 401k due to complaints all over the internet. These include very high expense ratios and hidden fees. In general group annuity plans are not great I gather?
    If I enroll, I am looking at the Total Stock Market Index Fund they offer (JETSX) which is the equivalent of Vanguard’s VTSAX I believe? I also have the option of a 500 Index Fund.
    First – do you prefer one of these funds over the other?
    Second – Should I skip this 401k altogether and focus on my Roth IRA for now until I come across a better 401k?

  115. Chris says

    Mr. Collins,
    My wife and I are teacher who live very frugally. We are both 35 and we have our Roths 100% in VTSAX, currently valued, in total around $150,000. We max the Roths out each year. We are thinking we can weather a few ups and downs and then reallocate it within the next 20 years. Is this an insane approach? Or might we be better off with a targeted fund (2045). Do you have a suggested portfolio based on age–30s, 40s, etc… that includes the VTSAX? Also, we have two children, 1 year and 3 years old. We put $300 in each of their 529s(Maryland T-Rowe Price) each month. Any thoughts on if this is a good approach?
    Thank you so much!

  116. DB says

    Dear mr. Collins,

    Thanks for this wonderful site – after discovering it a year ago my husband and I are debt free and currently building a F-You stash.
    I live in Denmark and have read all of your post regarding investing Europe. I found a website with very low fee’s: Nordnet. The problem is they don’t offer all the different options as vanguard but its a bit more accessible for danes. (since i have a really fun demanding job, I am willing to pay a bit more for less effort. :-))
    My questions is as follows. our investing is for all our extra cash (meaning that we are all ready saving for retirement, emergency funds etc). So we are not relying on this but just want to have extra for retirement and of course F-you money. The money will probably be invested for 15-20 yrs at least.
    We have our stocks in 80% spar invest global atier min risk. (meaning global stocks minimum risk) it focuses on stocks in MSCI World Minimum Volatility Index.
    20 % are in Index C20 capped. As you can tell I am not a professional stockbroker – are these informations enough for you to determine anything? I read an article at Johnnymoneyseed saying: just get started! figure it out as you go along, which is the strategy :-). My question is if this is enough of a spread or I need to get to vanguard to get more options.
    Hope you can help. Thanks again for your amazing site.

    • jlcollinsnh says

      Welcome DB…

      Glad you are here and have found this site useful. Sounds like you are making great progress and I agree with my friend Johnny Moneyseed, getting started is important.

      I would urge you to post your comment/questions here:

      This will give my European readers a chance to hear about your find in Nordnet and they may have some thoghts on the two funds you’ve chosen. Unfortunately, I am not familiar with either.

      It sounds like you are on the right track with MSCI, assuming it is a low cost index fund investing in stock markets around the world including the USA. My guess is C20 is a world bond index fund? If so, this gives you an allocation of 80/20 which should serve you just fine.

      Held og lykke!

      • DB says

        Thank you so much!
        Actually I think the C20 is in stocks…hmm…I will dig deeper… but its nice to know I am not completely on the wrong track. Thanks!
        If ever in Denmark – we would love to host you! Keep up this amazing, funny educational sight. We need it! It’s a jungle of bullshit out there and your site is a very rare little beam of light. Thanks.

        • jlcollinsnh says

          MY pleasure, DB…

          …and I see you posted your question and my reply on that post. Hope you get some useful responses.

          You might want to be careful offering to host me in Denmark. 🙂

          I’ve always wanted to go there and my daughter has friends in your country who were exchange students with us for a couple of weeks.

          She’s been to visit them and raves about what a beautiful place it is!

          • DB says

            Haha, well the offer still stands even though you might actually take me up on it! You shall be more than welcome! I have travelled a lot in Scandinavia so feel free to contact me for hosting or just for tips if you’re going to the area – would be my pleasure. – DB

  117. Joe says

    Mr. Collins,

    Ive been reading your blog for a while now and I want to sincerely thank you for all of your writing, and for you stock series, it has been very helpful to me as I am new to investing and know very little about it.

    My wife are in the wealth building stage and have saved up some money ($11,000) that we want to invest in Vangaurd stocks. We are planning to open an IRA for now for each of us and arent sure how to invest it. We want to eventually use VTSAX like you suggest, but we dont have enough right now. We want to max our Traditional IRA contribution for the help on our taxes. Can you suggest another Vangaurd fund to invest in for our situation? And then can we convert to VTSAX? And what would you recommend if we are expected to retire at the age of 40 (we are 26 and 24 now). Thanks for all of your help. We really appreciate it.

    We are following the path of the Mad Fientist and will have a savings rate of about 75% of our total income. We have no debt, and would like to retire early.


    • jlcollinsnh says

      You are very welcome Joe…

      and thanks for your kind words.

      What you are looking for is VTSMX. It is the “investors’ shares” version of VTSAX. Exactly the same portfolio, but with a slightly higher expense ratio. The minimum investment for it is $3000 v. $10,000 for VTSAX. The cool thing is that once you hit 10k, Vanguard will automatically convert your account to VTSAX and the lower fee.

      Here’s the link:

      Following the Mad Fientist is a splendid idea and he writes one of my favorite financial blogs. And not just because he has interviewed me!:

      Congrats on the awesome 75% savings rate. That should easily get you to FI by 40!

  118. Christoph says

    Hi there, one more question about investing: You guys are often talking about the good things one can do with their money when there is more than enough, – supporting projects or helping other people to become independent etc.
    However: On the investment side the advise is to invest in tracking indices. That means however to also buy shares in very unethical companies: companies who export landmines, take profit in products they sell to support war all over the world, companies that don’t hesitate to contribute in ruining our climate etc etc. Get the point!? So how does that fit? Should we not look at putting our money to better use, not just where the money return is, but where the better return is in the broader picture? Appreciate your view on that! Thanks

    • jlcollinsnh says

      Hello Christoph.

      If you are so inclined there are many socially responsible funds from which to chose. And since socially responsible means something different to different folks, you should be able to find one that fits your preferences. But be aware of the drawbacks:

      1. These funds are by definition actively managed, and that means higher fees. High fees are a huge drag on performance.
      2. It also means the managers are stock pickers, and that is a loser’s game.
      3. They are frequently “load” funds, meaning they charge a sales commission, typically 4-6% when you buy.
      4. Some even charge redemption fees that can tack on another 1-2% or more.

      So, in all likelihood you will pay a stiff financial penalty for your beliefs. Select very carefully.

      What some choose to do is to invest in the index and enjoy the extra wealth that creates. They can then deploy that wealth to help the causes they support. This is what I do personally:

      Of course, you don’t have to invest in stocks or funds at all. You can find companies or projects that fit your standards and back those. That’s more work and higher risk, but if you feel strongly about this you should find it worth the effort.

      In this post, for instance, in the first conversation Scott talks about his investment in a Columbian coffee plantation. If you choose to read it you’ll see he was drawn to the environmental and human benefits as well as the potential for monetary gain.

      You might also be interested in my conversation with Mike right here in these comments back on January 10, 2014.

      In any event, one of the great things about FI is you can deploy your money where and as you see fit.

      I’d be interested in your choices if you are willing to share them.

  119. BLW says


    I recently moved my 401K from a full service broker to Vanguard. I used the tools Vanguard provides on risk tolerance; retirement date etc. The chose to put 42% of the funds in VTSMX, rather than VTSAX. Any opinion on the difference in these two funds?

    • jlcollinsnh says

      Hi BLW…

      VTSMX is the “investors’ shares” version of VTSAX. Exactly the same portfolio, but with a slightly higher expense ratio. The minimum investment for it is $3000 v. $10,000 for VTSAX. That’s probably why they directed you to that version.

      The cool thing is that once you hit 10k, Vanguard will automatically convert your account to VTSAX and the lower fee.

  120. David says

    Dear Mr. Collins,

    I greatly appreciate the advice and insights you share on your blog. I find them informative, entertaining, and inspiring. You are providing an outstanding service and I appreciate that.

    My question, in a nutshell, is how should I prioritize funding my different retirement accounts given a relatively low income ($400 a week after taxes), zero debt, and a relatively long working career ahead of me (I’m 24)?

    The facts:

    Annual income after taxes: $20,000
    Roth contribution: 10% or $200 in a typical month, sometimes $300 in a Vanguard tdrf
    Investment with Betterment: $100 a month gets auto-deducted
    Savings in an emergency fund: $100 a month
    Expenses in total run about $1000 every month
    Whatever else I save gets divided up between Betterment, my savings account, and a high-yield checking account.

    I have read the advice that bloggers like you and the Mad Fientist have given about converting a traditional IRA into a Roth and while I understand the benefits I can’t help but think that at my income level and the length of time until I retire, compounding interest will probably be a greater factor in my 401k’s growth than it would be for someone like the Mad Fientist. Also, financial independence is a much bigger motivator for me than early retirement so I don’t really anticipate having to worry about early withdrawal penalties. With all this in mind, what would you recommend I do differently in order to reach FI in the shortest amount of time?

    By the way I hope you had a blast during your last visit to Guatemala. Lake Atitlan happens to be one of my favorite corners of the world and I read your travel posts with a great deal of envy.

    • jlcollinsnh says

      Thanks David…

      …you made my day!

      First let me compliment you on what sounds like an impressive savings rate and an admirably low cost of living.

      As for taxes, the idea is that you want to pay as little, ideally no, income tax as possible so you have more to invest and that money can grow for you.

      For instance, assuming you are single, you have a $3900 personal exemption and a $6100 standard deduction. That means the first $10,000 you earn is tax free.

      By then using deductible IRAs and 401Ks, you should be easily able to shelter the rest of your income. Here are a couple of great articles showing just how this works:

      Then, when the time comes, you can convert to a Roth as described here:

      Here’s a cool calculator that can help with your personal planning:

      The point is that every dollar you pay in taxes is not just a dollar gone. Also gone is all the money that dollar could have earned you over the years. So it is well worth the time to figure it out. Doing so will help get you to FI that much faster.

      Make sense?

      Yep, I had a blast in Guatemala — thanks for asking! But don’t envy me. Envy another David who showed up at my hotel one day. He is an Aussie one year into his three year around the world motorcycle journey. He plans to finish in Bali where he is having a catamaran built that he will then spend the next few years sailing around the world.

      He’s a guy about my age who did at your age what you are starting to do. His biggest problem now is he can’t spend his money as fast as his investment replace it.

  121. Phil says

    Hi Jim,

    I discovered your website while you were on your recent trip. I love the site. My wife and I are implementing a savings and investing plan very similar to what you advocate, though you’ve got me thinking about ways to save closer to 50% of our income instead of our current 30%, and you’ve got me thinking twice about our plans to buy a house in an expensive neighborhood in a few years for school district reasons (we’ve managed to not buy a house at all so far, but are saving aggressively for a down payment as well as for retirement).

    My question is actually about salary negotiation. I know it’s not the main topic you discuss, but you’re so insightful on money stuff, I thought I’d ask anyway.

    Here’s the situation. I run a medium sized non profit. I’m approaching the end of year six on a seven year employment agreement. Our board of directors has indicated to me that they’d like to enter into a new agreement when the current one ends, and my wife and I would like to stay as well. The salary for the first seven years was structured as follows:

    Year 1: salary = a
    Year 2: salary = a*(1.07) = b
    Year 3: salary = b*(1.05) = c
    Year 4: salary = c*(1.05) = d
    Year 5: salary = d*(1.05) = e
    Year 6: salary = e*(1.05) = f
    Year 7: salary = f*(1.05) = g

    The year 7 salary isn’t set in stone yet, but it’s a reasonable guess, and it doesn’t matter anyway for the purposes of the question. The raises were based on merit at the end of each year.

    In addition to the salary, I had a deferred compensation arrangement as an incentive to keep me around through the 7 year agreement. It is paying out like this: The nonprofit set aside 15% of my income, and paid out 30% of what had accumulated in year 5, 60% of what had accumulated minus the year 5 payout in year 6, and everything not already paid out in year 7.

    So, here’s my question. As a starting point for negotiating the year 8 salary, would you consider my year 7 salary to be g or g*1.15? The point of the deferred compensation arrangement was to keep me around, but the reality is that the year 7 salary is g*1.15. Or to put it another way, in year 7, the 15% isn’t really deferred compensation, it’s just compensation.

    I don’t know want to ask for more than is reasonable, but I also don’t want to leave reasonable money on the table.

    In case it matters, the board is very happy with my performance, and very much wants me to stay. I don’t know whether we’re going to end up with another multi-year arrangement, or just take it year by year from now on. Taxes shouldn’t be much of a consideration, as I’m in the 25% bracket, but have plenty of room to grow before I hit the 28% bracket.

    Thanks for the blog, and for taking the time to answer questions!

    • jlcollinsnh says

      Hi Phil…

      It is great to hear the blog has been so useful to you, but your question is a bit beyond my pay grade.

      I’m no expert at salary negotiations. Now that we understand that, I’ll offer some thoughts anyway. 🙂

      First it sounds like you are very well positioned. You should go into these meetings expecting to be pleased.

      Start by being very upbeat and positive. You want them to have the most upbeat and positive feelings towards you.

      If the timing is appropriate, talk a bit about how much you’re enjoyed the last seven years and how much fun it has been to make the contributions you have made. Do this only before they share with you the new package.

      Then let them talk. Be very upbeat and positive with your facial expressions and body language while they do.

      Right up until the time they tell you what your new package is going to be.

      At that point, shift your facial expression and body language into neutral. The contrast will be stunning. This is why you start so upbeat. Doing this, there is no need to go negative, which could only hurt.

      At the same time you go neutral, go silent. Silence is very powerful because it is very uncomfortable for most people.

      At some point they’ll say something like, “So what do you think?”

      Staying flat neutral, reply by saying something like, “Well this is very interesting. I’m going to have to take some time to digest this.” No more smiles.

      If they ask, “well what would make it better?” or “what are you looking for?”

      Respond with something like, “I’m not sure. I just wasn’t quite expecting this.”

      Very important not to be negative, just neutral. Rely on the contrast.

      Try to avoid giving them any sort of counter. You want them to volunteer something better on their own.

      BTW, I’d do this even if you are thrilled with the initial offer. That way, even if you accept is as is, they’ll feel like they got a bargain!

      Hope this helps and maybe some other readers will have ideas to offer.

      Good luck and keep us posted!

  122. Nicole says

    Hi Jim,

    I’ve just gone through your stock series and was considering investing in VTS (the Australian equivalent of VTSAX), but came across some comments from other Australians in your comments suggesting the Vanguard Index International Shares fund, which is a managed fund. I’m confused. Wouldn’t the ETF be the best bet due to the lower management costs?

    I ask because it would be nice to be able to automate monthly contributions (which I can do with the managed fund) but I don’t want to do it if I’m going to end up paying more in fees in the long run! I am 28 and expect to buy and hold for a very long time.

    Thanks in advance!

    • jlcollinsnh says

      Hi Nicole…

      VTS is indeed the equivalent of VTSAX: The Total Stock Market (US) Index fund. It also has a nice low cost ratio of .05%. But, since it is an EFT, you’ll have to be careful of transaction costs buying and selling.

      VTSAX is the stock fund I most commonly recommend and, unlike most commentators, once you own it I don’t feel the need for further international funds for the reasons I describe here:

      I suspect the reason the Australians in the comments are drawn to Vanguard Index International Shares Fund is for the international exposure. It is hard for most Americans to accept that a fund like VTSAX is all they need, so it is not surprising that many Australians feel this way.

      But Vanguard Index International Shares Fund is a fairly pricy option. The ERs range from .35% to .90% and there are .15%/.10% in additional transaction costs. That’s a heavy drag on returns.

      If you are comfortable with the case I make in that post I linked to, VTS is the better, lower cost choice. If not, you’ll have to pay to have the international coverage.

      Good luck!

  123. Daniel says

    Hi Mr. Collins,

    I really enjoy your blog. Thank you so much for sharing your knowledge. I would like to get some advice regarding investing for my future. Here is where I stand. I’m 36 and single. My annual gross income is $108,000 and the only debt that I have is on my mortgage ($180,000). I am currently putting 10% of my income into my Roth 401k at $90k. I also have another IRA ($18k) from an old 401k that I rolled over. I have roughly $30k sitting in a local savings account earning basically 0% interest.

    Where would you recommend that I start from here?

    Thanks for taking the time to read and answer my question.


    • jlcollinsnh says

      Thanks Daniel…

      Glad you like it!

      First, at your income level, I wouldn’t be using the Roth version of your 401k. You want the tax advantages the regular 401k provides. When the time comes, you can convert to a Roth as described here:

      Don’t worry about the money you already have in the 401k Roth. You can leave it there. But I’d redirect your future contributions.

      I also hate the idea of 30k earning nothing in your savings account while the spending value gets eroded by inflation each year. That should be long term money and I’d put in in VTSAX.

      Be sure you read the Stock Series first and be sure you will stay invested when the market gets rough. If you can’t do that, use it to pay down the mortgage.

      You don’t mention your savings rate, but if having F-you Money — — is important to you, you’ll want to get it up around 50%+.

      Hope that helps!

  124. BrianS says

    Dear Mr. Collins,

    I’ve been reading your stock series and have been learning a great deal and so appreciate the time and effort you have and do put in to writing the posts as well as answering in the comments.

    My situation is that I m mid 50’s, married and have not done a great job of saving for retirement, but am now (better late then never) getting my brain around what is possible. Do you have a post that addresses the issues and concerns of older folks, still in need of accumulating savings specifically with regard to risk management?

    I know that I want to invest in index funds to lower costs, but am not certain about how much bond exposure is good or right for my situation. If you don’t have a post about this and think it would be of value or interest to your readership I can supply the details of my situation. I figured I’d ask if it’s already been addressed before posting about me.


  125. Mark says

    I am a long time reader of your blog and have implemented a few changes since I started reading. My allocation is not perfect yet, I still hold a lot of cash, because I got badly burned in the stock market prior to finding you.
    I have been living a life mindful of my expenses and live quite well on about 20k a year.
    I am single in my early forties, no children.
    I would like to have more time for travel and my volunteer work with a local charity and am not sure, what the best next steps are. I think I may have FU money, but it as is not optimally invested, I am certain the 4% rule does not apply to me. I wanted your opinion on my situation.

    I currently am employed and make a decent salary. I would like to retire early (possibly at the end of 2015).

    This is what I have:
    Savings @ 0.012% 198
    Savings @ 2.6% 11
    Bank Account 32
    Roth IRA 18
    100% VTI
    401 k 146
    37% VINIX
    30% VWNAX
    18% VBTIX
    10% VIPIX
    5% VGSNX
    Taxable Account 124
    40% VTI
    60% Stock

    Taxable Account Vanguard 19
    100% VTSAX

    TOTAL 548k

    In addition to that I have a paid off house. My roommate has recently moved out and
    I am planning to sell the house when I retire. I plan to rent or buy a much smaller place
    in a cheaper area of town. This may result in an additional 150-170k to invest after paying fees and commissions.

    Conservatively, if markets don’t tank, I’d have about 700 k in FU money, much of it not in the market at this point.

    At a SWR I’d have more than I need, but I don’t think the SWR applies to my case as a big chunk of my money is held in cash.

    Can I still retire in 2015? Should I wait?
    What should I do considering I am trying to get out so soon.
    Is it wise to add some of my savings to VTSAX considering my plans to stop working 2015.
    I have been pondering for several weeks, if I should write at all. I find it scary to share my financial picture with the world out there, but I would very much value your advice.

    • Mark says

      Jim, apologies just realized that part of my post is missing:

      By the end of 2015 I will have added some more funds to the picture:
      +31 k 401k (own contributions now through 2015 and employer match)
      +5k in Roth IRA
      +40k in taxable accounts

      I credit you with where I am with my investments today. Had it not been for your blog, I’d still be in cash mostly, earning nothing, actually loosing money.
      Thank you for providing valuable information in a very entertaining way, enabling me to slowly and carefully expand my comfort zone as far as my investments are concerned.
      I place immense value on your advice. I know my decisions are my own and I am fully responsible for them.
      Thank you for your consideration and for taking the time to read my comments!

    • jlcollinsnh says

      Hi Mark…

      If you can live on 20k per year you are certainly already at FI.

      Using the 4% rule you’d need 500k to generate 20k annually, and you already have 548k in investable assets and another 70k coming if I understand correctly.

      Of course the Trintiy Study (from which the 4% idea comes) is based on being invested in stocks and bonds. As you observe, you have 241k in cash.

      The problem with cash is that while it is “safe” in the sense that in an FDIC bank account you will have the same x-number of dollars next year as this, each year those dollars lose purchasing power to inflation. That makes cash very risky if held for the long term.

      To use the 4% withdrawal rate you’ll want to consider a stock/bond allocation as discussed in this post:

      Your 548K + 70K = 618k; If you pull 20k per year your withdrawal rate is only 3.24%. This puts you in a very strong position.

      Taking your money out of cash means stronger potential growth but also more volatility. Be sure you understand and are ready for this before you make the move. It will be critical that you not panic and sell when the next crash comes; be that the day after you invest or a decade from now.

      Hope this helps.

      • Mark says

        Thank you Jim for taking the time to go back and spell it out for me again!!
        I have taken a decision to keep three years worth of expenses in cash as a buffer, so I don’t have to withdraw from the investments, in case the market is really bad.
        Looking back at the “bad times” of the last couple decades that should give me enough coverage (maybe a bit too conservative in your eyes, but as you probably guessed, I am not a great risk taker anymore) to hang in there for a couple of years, without having to touch the stash. I will replenish when times are good and live off the cash when times are not so good. I will invest the rest of my cash in VTSAX over the next few weeks, as I get around to rearranging accounts to simplify investments

        What do you think about that idea?

        I had considered putting the money freed up from my house sale into REITS, once the sale is completed and to hopefully cover my rent from the REIT returns. What had me concerned, was that I need to buy the REITs in my taxable account.
        Now I saw your recent post about REITS (great timing for me, thank you!) and I am second guessing this entire idea.
        I will need to let that sink in some more, to weigh my options with the house money.
        Thank you again for providing great food for thought!

        • jlcollinsnh says

          Hi Mark…

          I actually discuss that strategy at the end of this post:

          88% in VTSAX
          12% in cash

          The idea has appeal to me, but I could never get past how it would work after a crash like 2007-8.
          The cash would be mostly used up and the assets from VTSAX reduced by ~40%.
          From there you’d be asking VTSAX to do three things:
          Provide 4% a year
          Replenish your cash position
          Continue to grow itself

          That’s asking a lot, maybe too much.

          • Mark says

            Thank you Jim! I did read that part a couple of times actually.
            Sorry, if that was not clearer, but I was going to continue to hold VBTIX, VIPIX, VGSNX in my tax deferred accounts and only put the now available cash into VTSAX. But thinking about it now, effectively that percentage would become really small if I do put most of my cash into VTSAX.

            The 88%/12% strategy would be almost the complete opposite of what I am doing now, risk wise and would most likely rob me off my ability to sleep sound at night.

            The concern I have is, that bonds should be held in pretax accounts, if I understand correctly. And the amount of money I can contribute to those is capped. So I won’t be able to offset this percentage in order to balance, even if I allocated all contributions to Bonds in the 401K
            I could probably achieve it if I turned most of my 401k into Bonds.

            Also what happens if I need to tap into the Bond funds in a bad year? I know I can get them out of the 401k via roth pipelines, but I have to plan ahead of time for 5 years to do that, which makes these things very complex for me.

            I am probably overlooking something very obvious here? Not sure what it is though.

          • jlcollinsnh says

            Hi Mark…

            While it is best to hold bonds in tax-advantaged accounts, it does complicate rebalancing. You just have to do what you can, hold some in your taxable account and/or rebalance more slowly with the new money you invest each month.

            When it comes time to withdraw the money, you’ll be in a lower tax bracket presumably and so where you hold the bonds will be less an issue.

            This will help you prepare:

            I don’t hink you are overlooking anything obvious. It takes some juggling.

          • Mark says

            Thank you! I am willing to do the juggling, if that is what it takes.

            I could in fact convert my entire 401 K to a Vanguard bond index and get to roughly a 28% Bond allocation

            But what shall I do once the house is sold? Put everything at once into VTSAX? All 170 K? Even though I know I’ll retire at the end of 2015?

          • Mark says

            Thank you Jim!!!!
            I am an IDIOT! I knew that this:
            would be your answer! Knew it!
            I don’t know how many times, I have read that particular post! I actually read it again this morning!
            Still, I felt the need to ask that question! I just had to hear it again, maybe from you directly, to really believe it!
            Thank you for taking the time to respond to dorks like me, who still ask the same questions over and over and over again.
            Golly, you must be thinking, some people are incapable of reading (or at least this guy is)!
            I appreciate you taking the time to ever so patiently respond to these questions!!
            You have made such an impact on my life since I discovered your blog!!
            I also had an new moment of clarity as far as rebalancing and asset allocation is concerned!
            Heartfelt gratitude for all the time you put into helping dorks like me to see the light and for the reassurance!
            Thank you Jim!!!

          • jlcollinsnh says

            Ha! 🙂

            No, you’re not an idiot. LOL

            It is scary investing a chunk of money into a raging bull. At all other times, too. I can understand wanting to hear it again.

            I remember many years ago when I first discovered discussion forums. There always seemed to be a click of old timers who would get outraged anytime a newbie dared ask a question if anything like it had ever been asked before.

            That always offended me. It seemed to be asking a lot for new comers to have read and remembered everything on the site before they participated.

            I confess that occasionally I have that reaction to questions that have been covered multiple times and I am always grateful when the comments indicate the person has read at least a little bit of the content here.

            But at the same time, I remind myself that there is now a lot on this blog and even those who have read a fair amount can easily have missed something.

            It’s not always easy, but kind words like yours make it worthwhile. 😉

          • Mark says

            Thank you for understanding Jim!
            I suppose, I am a bit slow and need to hear the facts more often than others!! But it has sunk in now, really I promise!

            Just one more question: Should I REALLY put it all in to VTSAX?….Ha! Just, kidding, just kidding 😉 Don’t rip your hair out 😉
            I am planning to do some major juggling today and then I’ll stick to it.

            Although I find it refreshing that Vanguard does not plaster the internet with sign up offers and bonuses and affiliate offers like many other financial institutions, I believe they should make you their brand ambassador or reward you in other ways!

            Apparently, if you have a great product and reasonable fees, you can afford not to lure in people with questionable deals and promises, so that reassures me, my money is in good hands with them.
            Still, in your case, I believe they should be offering you some sort of affiliate bonus, as you must have helped to send a great deal of funds their way over the years.

            Again, many thanks for all your help! Hopefully our roads will cross on one of our many travels in the future, so I can thank you in person and maybe use some of my VTSAX income to buy you a beer or two!

  126. Jian says

    Hi Mr. Collins,
    An idea popped up while I was searching for a cool tax estimator you posted the link for a while back – how about creating a page that has all the calculator links? It would have saved me a hour furiously searching, and save other readers the same trouble. Thanks for maintaining such a high quality blog!

    • jlcollinsnh says

      Great idea Jain! There are times I have the same issue.

      Are you volunteering to go thru the blog and find them all? 🙂

      • Jian says

        Not sure about “find them all”, but I can certainly start the effort by jotting down calculator links on the blog whenever I see them.

        • jlcollinsnh says

          No worries, Jian…

          I was actually just teasing.

          But that said, if you want to keep track of the ones (and the posts they are in) you see going forward that would be helpful. I plan to do the same.

          Once we have a few in place, I’ll launch the page and ask others to do the same in the comments. Over time, we should have them all in one place.


          • Jian says

            Sure, let’s do that. You’ve put in so much work on this blog, I’m only too happy to pitch in just a bit.

  127. jlcollinsnh says

    Note to Nicole, Daniel, Brian and Mark….

    As you may have noticed in the last few weeks I’ve been having tech problems with the blog.

    I just noticed that my reply to each of you has gotten lost. I hope you had a chance to read it first. If not, let me know and I’ll try to reconstruct it.


    • Nicole says

      Hi Jim,

      Unfortunately, I didn’t get a chance to read your reply to me. Would you mind terribly rehashing it? I’d appreciate it very much.

      • jlcollinsnh says

        Hi Nicole…

        Thanks for letting me know. You’ll find it is now rehashed! 🙂

    • Daniel says

      Good morning Mr. Collins,

      I was also not able to read your response. If its not to much trouble, could you answer again?

      Thanks in advance.


      • jlcollinsnh says

        Thanks for letting me know, Daniel.

        Just put my reply back up for you.

    • BrianS says

      Hello Mr. Collins,

      I did get a chance to read your response. It was very helpful. I have subsequently rebalanced my ROTH, selling several other mutual funds and purchasing a 90/10 split between VTI, the Vanguard Total Stock ETF and BND, Vanguards Total Bond ETF. I do not have access to the non ETF versions at Schwab. You mention to Nicole to be careful of transaction costs with ETF’s. Can you elaborate on that?

      Thanks again for such great, straight forward advice.


      • jlcollinsnh says

        Great to hear it Brian!

        Maybe you can remind me about what I said…. 🙂

        ETFs were created primarily to enable trading, and in reading this blog you know I am a believer in long-term investing.

        So ETFs concern me to the extent that they lure people into more frequent trading and market timing.

        My other concern is that sometimes buying and selling them involves sales commissions and I hate any additional expenses.

        But if you can buy them commission free and resist the trading urge, I have no problem with them.

        Make sense?

        • BrianS says

          Glad you’ve gotten your tech problems worked out. They can be a real pain.

          You basically said that you hadn’t written anything specifically for older people who need to accumulate and how that affects their risk tolerance. Regardless of age you could be in any stage of the process. Preservation or accumulation.

          You also linked the story of your friend Tom and how he had everything go wrong and he’s ok.

          The two ideas clicked with me and I decided that I am in accumulation and have a fairly high tolerance for risk. It gives me the best chance to retire with a decent income in about 10 years. If it doesn’t work out I’ll be no worse off than if I do nothing. Doing something sounds better.

          As for the ETF’s, I do a pay $8.95 every time I make a purchase. At Vanguard it’s free to trade the funds I want. So I’ve opened a Vanguard account and moved all my finds over from Schwab.

          Thanks again for the sane and simple advice.


    • Mark says

      apologies, I have had difficulties connecting to the site for several weeks and as a result did not see your response either.
      If you don’t mind I would very much appreciate your input.

      I mostly need to know if I should dissolve my cash holdings and put them into VTSAX right now
      Thank you for your time!
      Glad to see the site back up!!

      • jlcollinsnh says

        Hi Mark…

        No, no. My apologies to you! These blog tech issues have been a nightmare but I believe they are now resolved. Knock wood.

        Sorry for the delay!

        I just put my reply up under your original comment.

        Hope you find it helpful, and good luck!

  128. Sai says

    Hi Jim,

    I am a fan of yours writing. After reading your series, 1st thing is did was to open a vanguard account & transfer 3K from my checking account in Total stock fund. Its a year now & I have about 60K in it. I appreciate your efforts in telling us about investing in low cost index fund.

    I have a question for you on 401K. The account I mentioned above is a taxable account, except $5500 which is Trad IRA. Initially i was in company where there was no 401K option. The current company is providing the option but without a match. I learnt from you that low index fund is that one I need. So found US large Cap Equity Index fund from Merrill lynch which has Gross expense ratio of 0.03%. I couldn’t find the Prospectus since its an unregistered investment. I contacted their customer service to know if there is any additional fees, the answer was No for mutual funds ( which is what the index fund is). However I am not sure which are the other things to look at before opting for this plan. Pls share your views, as I am very confused. Also let me know if I am missing something here.

    I am planning to max the 401K if this fund gets the clearance from you. Rest will be in IRA and taxable account. I am 32 yrs now.
    Thanks a lot again. Appreciate all your efforts.

    • jlcollinsnh says

      Hi Sai…

      Welcome! Glad you’ve found this place helpful.

      First, it sounds like you are asking all the right questions and I share your concerns.

      I just spent about an hour and I can’t find anything on a “Merrill lynch US large Cap Equity Index fund”

      My search took my to the ML website, but there is no information there on any of their funds. Seems they want you to contact their “advisors” to get the info. No good can come of that! 🙂

      Just poking around there made my skin crawl.

      Morning Star has a list of ML funds, but this one isn’t one it.

      The fact that you can’t get a prospective because it is an unregistered investment causes me concern as well. Typically these are hedge funds, not index funds.

      I’d need to have a much clearer understanding of exactly what this fund is and where to get more info on it to give it my blessing.

      That said, the name suggests that it is an Index Fund, as does the nice low ER of .03% — so you are looking for the right kind of fund.

      Maybe some of our other readers are familiar with it and can offer some thoughts. But without more information, I just can’t tell.

      Good luck and please let us know if you find out anything more about it.

      • Sai says

        Thanks a lot Jim for your reply…Yea when I contacted ML customer service they mentioned that its an unregistered fund. Also was informed that its fund of different funds which tries to match S&p500….That’s why I am writing to you, because I wasnt sure if that’s the type of Fund our jlcollisnh suggested….With further questing the CS, I am directed towards investment Fact sheet. I am not sure how can i share with you the sheet. Its a pdf document. Pls let me how I can share it with you safely.
        Again thanks a lot for your time…Appreciate all your efforts….

        • jlcollinsnh says

          My pleasure Sai.

          I’m also not sure how you could share that fact sheet with me, but reviewing investment documents like that is beyond the scope of what I can/should be doing here on this blog.

          My suggestion is that you have someone there explain it to you. Once you understand what it is, you should be able to evaluate how it fits with what is discussed here.

          Good luck!

  129. Chris says


    We had a prior exchange in late November when I commented on your “Why I don’t like investment advisors post” and you were kind enough to reply to help out my wife and I. Your work along with a few other early retirement and financial blogs have been extremely beneficial to my wife and I in planning our early retirement. This has inspired me to start a blog of my own documenting our experience in planning the final couple of years as we prepare for early retirement at around 40. One of my first posts thanks and reviews a few sites we’ve found particularly useful and I’ve included yours. I also plan to next post an account of our experience with our former advisor in which I also cite your blog and which may be of interest to you and your readers as a case study.

    This is a link to my blog if you have any interest in checking it out.

    Thank you again for what you do!


    • jlcollinsnh says

      Hi Chris…

      I received a notice that you had linked to a post of mine in yours. Thanks!

      It sent me over to your blog to poke around a bit. Looks good!

      I’ll look forward to reading your post on the advisor experience!

      Good luck with the blog and may you be spared the tech nightmares I’ve been going thru of late! 🙂

  130. Richard says


    I discovered your website about a month or two ago and have been trying to absorb as much as possible. I finished reading the entire stock series and it made a lot of sense, but I had some questions. So I went back, and re-read it including all the comments the second time around (because I figured many of my questions were likely already answered in the comments). Now that I’ve completed that, I have a few remaining questions that I will attempt to post in the most relevant areas of your blog in the near future. But I thought I would start with an introduction here so that you might know a bit about me before you start seeing my name popping up here and there in the comments. I feel like I’ve gotten to know you a bit, and if I’m right, you enjoy hearing people’s stories and what they’ve learned from you, so I figured I’d share. And of course, if Im wrong, you can always skim over it or skip it completely 😉

    As many others have indicated previously, I have also found your website to be eye opening in many ways. I have learned quite a bit from your experience and I am now feeling much more comfortable about the future. I have always felt a little unsettled about my savings. Not in the sense that I didn’t have enough, but more in the sense that I didn’t quite know what to do with them. This blog has been the perfect answer. Finally, I have the information needed to provide a clear and simple path to financial freedom.

    I stumbled upon your site when doing some research about what to do with my savings. I started collecting a fairly substantial amount of money in my savings (that was getting essentially zero interest) and I wasn’t quite sure what to do with it. I had some “managed” accounts in e*trade as well as a brokerage account. I was buying some mutual funds here and there as well as putting money into the managed accounts. But I felt like the markets were getting high and was thinking that maybe I should wait until they went back down a bit before buying in with the rest of my savings.

    After reading your blog I have learned several things wrong with what I was doing:
    1) I was trying to time the market, which is a losing game. I should’ve invested the money instead of collecting it in order to get it working for me right away.
    2) I shouldn’t have been buying specific mutual funds on my own. I did some research and tried to buy funds that sounded good, but still, I had no idea what I was doing and should’ve been putting it into index funds. Which brings me to ….
    3) The managed account had a high ER as well as all mutual funds that I owned. I should’ve been putting this money into a Vanguard account to reduce ER’s as much as possible.

    Since I found your website I have opened a Vanguard account, sold everything in the E*trade managed accounts, and moved it all over to Vanguard and invested most of it in VTSAX. I’m in the process of moving my ROTH account from E*trade over to Vanguard and will stick that in VTSAX as well. I still have some mutual funds in my brokerage account that I will sell off over time and move over as well (I’m holding off because some haven’t been held for a full year and I want them to be long term capital gains as opposed to short term gains. A few of them I think will go up higher still – I realize this is a bit like gambling, but I’m ok with that since it’s a small amount relative to the rest).

    I have some funds with financial advisors in Canada that have ER’s of just under 2%. I plan to sell these and move them into Vanguard as well. Unfortunately, I also have some funds with those advisors in RSP’s (Canada’s version of 401k’s) that I don’t think I am able to move anywhere since I now reside in the US (I moved from Canada to California in 2008).

    I’m lucky that naturally I tend to save well. I have some expensive hobbies, but I also have a pretty decent income. I’m single, somewhat young (mid-thirties), no kids, no debt, I rent an apartment (for way too much – since afterall, I live in California). I also enjoy math and spreadsheets, so over the years I’ve often looked at finances, and retirement outlooks, etc. I never realized how close to financial independence I actually am though until I started reading your website, and some of the articles on MMM and MF’s websites as well.

    Investing has felt so complicated and foreign until now – I really like how your approach is simple and straightforward. I have really enjoyed reading your posts because they are very logical and explain all the reasoning behind the advice.

    So thank you very much for sharing everything you’ve learned over the years. One of my new favourite quotes seems to apply: “Employ your time in improving yourself by other men’s writings, so that you shall gain easily what others have labored hard for.” (Which ironically enough, I found in the comments on one of your posts). I look forward to posting some questions and I hope you will enjoy some discussion as a result!

    As I said, I don’t have a specific question for you here, but just wanted to introduce myself. If by chance, you have any thoughts, opinions, or suggestions on my situation, I would love to hear them!


    • jlcollinsnh says

      Thank you, Richard…

      ..for the very kind words and sharing your story. Very much appreciated!

      As is your taking the time to introduce yourself.

      I look forward to hearing more from you around here and I hope in addition to your questions, some of your comments will be in response to the questions of others here. My guess is many will find your insights of value.


  131. Matt H says

    Congrats on being all caught up! I have a question that may not be all that common, but you’ve probably heard it before or at least thought about it. I’m 23 and I’ll be getting married in about 2 months. My Fiancee and I will have just under 60k in student loans together, with a sizable check being at 6.55%. My question is would you still consider doing some traveling while having that amount of loans, or would you just focus on the loans? I’ve read several times that you advocate traveling while you’re young, but I’m not sure how loans factor into that. At most, any trip we take would mean using one month’s net income for travel, instead of loans. And often times I think it’d be less. We’re planning to use credit card sign up offers for most the flights and some of the hotels.


    • jlcollinsnh says

      Thanks Matt…

      …it feels good!

      Financial freedom was always my #1 goal and to get there I saved 50%+ of my income.

      Travel was my other passion and it came out of the other 50%. This meant:

      1. All my other expenses were kept very low. For instance, for many years I didn’t own a car.

      2. My travel was cheap. When I was in my twenties that meant bicycle and hitchhiking. Maybe a cheap airfare to get me someplace, but mostly just stepping out my door.

      But I’ve also never had any debt.

      A loan at 6.55% is what my pal Mr. Money Mustache would call a debt emergency. Those payments are a huge drain on your resources. All my money and energy would go towards scraping that blood-sucker off. That includes taking on a part-time job. More income and less time to spend money on anything else.

      Once it’s gone, take that monthly money and begin your investment program.

      Lastly, spending one month’s income on a trip is way too expensive. I don’t think I’ve ever spent that much, even now. Step away from the glossy travel brochures! 🙂

      My guess is this isn’t what you want to hear, but your financial position is currently very weak and a lavish trip will only make it worse.

      You’ll be young for many years. Spend the next few getting on firmer ground. For now, travel can wait.

      • Matt H says

        Thanks Jim. Whether I like it or not, it’s always helpful to get a wiser perspective on the issue! I’d like to throw as much money as possible at the loans, and that is our plan for what we have leftover every month. I made a budget with my fiancee and she probably would like it to be a little looser, and she doesn’t see the student loans as a debt emergency. And I think traveling a bit will make it easier to stay tight to the budget. I have randomly floated the idea of working a couple nights or weekends, and while it’s never been a serious conversation, I’m pretty sure she thinks that’s ludicrous. So we’ll see how that plays out in the next few months. Thanks again.

  132. Paul says

    Love the stock series. I link it to anyone who asks me investment questions.

    Curious why you view REITs as a inflation hedge though any more than stocks are an inflation hedge. I get the diversification point of view, but if we assume stock prices are representative of the value of the company then they should be just as much of an inflation hedge on average as REITs are, or am I missing something?

    • jlcollinsnh says

      Thanks Paul…

      ..glad you like it.

      Yours is an interesting question as I was just writing about this in the draft of my upcoming book.

      Inflation is, of course, the process of prices increasing. For the last several years the Federal Reserve has been trying hard to ignite a bit of it into the economy. Mostly to stave off the prospect of deflation and collapsing prices, but also because modest inflation, as you suggest, is good for businesses. It allows them to raise prices and wages while posting greater profits.

      The problem comes when inflation rages out of control. In that scenario, business finds it far more difficult to keep up and credit becomes tight and extremely expensive as lenders demand huge interest rates to compensate for the increased risk of being paid back with currency rapidly dropping in value, perhaps to the point of worthlessness as in Germany in the 1930s.

      All of this combines to overwhelm a company’s business and in the process destroys the value inflation would have otherwise created.

      In times like these, money flees into tangibles and real estate is perhaps the most favored.

      Of course, REITs are made up of real estate businesses like office and apartment buildings. These are also not immune to serious hyper-inflation.

      I confess that sometimes I wonder if I really need the REITS and holding just stocks and bonds appeals to my preference for simplicity. But each time I review it the value of the extra (if not perfect) hedge wins out. The higher dividends don’t hurt either. 🙂

      Make sense?

      I’d be very curious to hear more on how you, and my other readers, view this.

      • Paul says

        So this will be somewhat a whacky economists point of view (both my job and education).

        I guess part of my reluctance to buy in to REITs is from looking at the fundamentals. Land itself is not a productive asset. Therefore, unlike stocks which are based on companies, it cannot increase in productivity. Any capital gains on real estate is due to some other factor.

        Now, this can be legitimate reasons (I live in Houston and houses are getting more expensive due to an influx of people), but it can also be for silly reasons. Up until the late 90’s when we as a country decided everyone should own a home and incentivized it, housing prices essentially tracked inflation. There were no capital gains.

        That means if I am hoping for anything in excess of the high dividend I have to assume the REIT owns property where demand is increasing, or rely on the government to continue to incentivize or boost real estate sales somehow. I suspect (and this is my wild guess) that the latter is not sustainable indefinitely. I already rent on a 6 figure salary because housing is a poor deal and I live in one of the cheaper big US cities.

        Now, the higher dividends are nice, but the economist in is doing some NPV discounting and wondering if that’s not just trading dollars now for higher dollars in the future. That’s not to say that’s a bad decision if my time value of money is lower than most people. I suspect that is a true statement for most people on this website.

        To get back to my original question, as far as why REITs for an inflation hedge, the problem I still have is this:
        At best, they will beat stocks when we are incentivizing home ownership. At worst, they are likely (on average) to match inflation from a capital gains point of view and provide a healthy dividend. Now, neither of those is bad, but neither captures the value of increasing productivity like the stock market does.

        The reason I’m asking here is because I can’t find good data on the historical returns of real estate vs stocks. Most of it is focused from 2000 onward.

        As far as the potential for hyperinflation, I’m not sure either asset will do great in those cases. I can’t imagine selling a house is much more fun than selling a burger in a time of hyperinflation.

        Essentially I still kind of see REITs as similar to investing in gold. Any captial gains rely on changes in demand and supply rather than fundamental increase in productivity. Caveat here that real estate is at least far more useful than gold, which is why you see the higher stability in prices.

        Anyway, thanks for your thoughts. I don’t disagree with any particular point, but like you I wonder if REITs are needed. Right now I own none, and I am leaning toward staying with just stocks and bonds.

        • jlcollinsnh says

          Thanks, Paul, for the great and well thought out analysis. Very helpful as I re-evaluate my thinking on these things.

          I’ve held them for the hedge against high to hyper inflation and to a much lesser extent for the income. In fact that was just a slight bonus.

          While something like land might serve this role, it occurs to me once you start adding buildings RE has really become a business like any other and as such it is just as suseptible to the ravishes of hyperinflation as any other.

          REITs, of course, hold mostly apartments and commercial buildings.

          I’m very close to changing my position on this, a big step, and am thinking your response above along with my commentary might make for a great guest post.

          With that in mind, any further REIT thoughts?

          Also, what would your choice be for a hedge against hyperinflation? My guess is most would say gold. But I gather that, like me, you are not a fan of the metal….

          • Paul says

            You’re correct that it wouldn’t be gold for me.

            Honestly, I take MMM’s wild optimism here. I assume it’s not going to happen. There’s a few reasons for this.

            Primarily, hyperinflation is just hard to plan for and to truly be protected from it I think you’d have to allocate a huge amount of resources that will then otherwise underperform.

            Secondly, if the US goes in to hyperinflation I think the saying “You can run, but you can’t hide” would become painfully clear to the whole world. The US economy is such a central feature to the world economy that I think it would be hard to avoid the consequences with any typical assets.

            Thirdly, if we look at the German stock market performance during their hyperinflation, it’s really not that bad, even in USD terms.
            Not bad as far as hedging a black swan.

            Lastly, I think it’s something you could somewhat see coming. Once you know hyperinflation has arrived, I’d do things like hold foreign currency and/or say, cattle. I’d still avoid gold because foreign currency is a better medium of exchange and a steak is way more useful to someone on a monthly basis than a gold brick. In basically every hyperinflation situation we see that people are remarkably flexible. Barter systems spring up, so goods that are useful short term (food, gas, clothes, etc) are going to maintain similar relative values.

            Due to all of that, I just don’t really think it’s a situation worth hedging against. Ultimately, going back to MMM’s optimism, the most important asset during hyperinflation is me. If I can maintain my usefulness, I can make my way through hyperinflation. I’m sure it’d set financial independence back for me (or mess up plans for those already in it) but long run, we’ll be okay.

            As far as last thoughts on REITs, after our discussion I’d have to say this. I think they have their place in more active portfolio (say someone who does growth, value, small cap type break downs). I think there they can make sense so long as you are following market conditions and keeping up with potential legislation as far as home ownership. Otherwise, in a fire and forget type portfolio, I have to agree with your conclusion, they’re essentially a specific business, and I think they won’t offer any substantial difference compared to a stock/bond portfolio. I think international exposure would give more diversification although even that seems to correlate more and more with US performance. I lean toward the keep it simple approach. I enjoy talking about this stuff, but I don’t enjoy tracking finance news to the level required for anything beyond a big dumb stock/bond index portfolio. If you want real estate as a hedge to hyperinflation (along the lines of my cattle ownership) I think you’d have to physically own the land with all the joys that entails.

            I’d be happy to talk further if you need to for writing a post on this.

          • Rich says

            This is meant as humorous but…In prison cirgarettes are always worth something. Buy them now and hold for future resale. Now that’s an inflation hedge. Maybe sugar too.

  133. Travis in TN says


    Absolutely love your site and didn’t know that individuals like you, MMM or the mad FIentist existed. Glad to know like minded people are out there in the world and are happy to share their experiences and thoughts. My personal story is similar so if you’re curious, read the next paragraph, otherwise skip to the bottom for the question.

    I was raised by two parents who believed very much in hard work and living below your means, so I find myself in my mid 30’s with nearly enough to retire, even though I’ve never considered not working a possibility (my parents are in their late 60’s and are still going strong though they had enough to retire decades ago). As a rule, I’ve only taken jobs that I found interesting/fulfilling and thus I’m on my third career in two decades of employment (Adult ADHD as you wrote about). I now have a job I enjoy very much as a financial analyst the healthcare insurance business (specifically Medicare). Would be happy to provide feedback on those seeking health coverage or those who have questions about future medical expenses or what medical care actually costs.

    Enough rambling, quick investment question: Convert old mutual funds to Vanguard or leave alone?

    I’ve been a Vanguard investor for several years now and have nearly the same portfolio as yourself, however we have about $350k in high expense (0.9%) mutual funds that we inherited years ago (sitting in a non tax sheltered account). I’ve largely left these funds alone and thus the avg cost is very low compared to the current market rate (i.e. large tax liability). My family is on the northern border of the 25% tax bracket after our retirement contributions and other deductions. I’m considering rolling these funds to vanguard (VTI) so I can continue to forget about them for another decade or two, however I’m worried about the tax liability. Also, these funds have for the past decade out performed the comparable index funds even after factoring in the taxes and expenses though I know that trend is statistically unlikely to continue. The math seems to point towards doing a multi-year conversion while paying close attention to tax liability.

    Thanks again,


    • jlcollinsnh says

      Hi Travis…

      Thanks for the kind words and for sharing your story. Great stuff! Kudos to you and your parents.

      As for your question on converting the old mutual funds, your last paragraph provides as good, if not better, an analysis of the problem and solution as anything I might offer. Seems to me your thinking is spot on!

      I hope you’ll keep an eye on these comments, not only to weigh in on any health care cost questions that might come, but also to provide your perspective on some of the financial issues.

      Such as my conversation with Paul about REITS immediately above. 🙂

  134. Tracey says

    Hi Jim,

    Love your website. I have a basic question that you may have already answered. If so, you can just refer me to that. Here goes, I set up a taxable account in VTSAX. I am making automatic monthly contributions. Is it better to set up the automatic investment monthly with a smaller amount or to invest quarterly with a larger amount? Also, Since I can pick any day I want to set up the automatic investment wondering if historically there is a day of the month that is better to invest (i.e cheaper stock price). It may not make much difference but just thought I would ask.

    Thank You,

    • jlcollinsnh says

      Hi Tracey…

      I’ve not seen any research about this, but my guess is over the many years you should be planning to hold this investment it likely doesn’t much matter: Quarterly v. Monthly and for the day of the month.

  135. Joe says

    Hello Jim,

    Thanks so much for your blog. I’m very new to investing and you (along with some other blogs) are providing a lot of food for thought. My biggest difficulty is that I’m starting from a knowledge base of absolute zero.

    My situation: My employer has an automatic contribution of 10.7% to my retirement account. Pretty sweet, in my opinion. Of the three options that they offer, one is Vanguard. When I became eligible for the retirement plan in the summer of 2012, I was unsure of what to do. I went with Vanguard because of the low fees and the fact that index funds made sense to me. However, I did not know what or how to pick beyond that, so I simply picked the Vanguard Target Retirement 2045 fund. I put 10% of each paycheck into the fund and my employer puts in 10.7%. Now I have about $30k in the fund. Again, pretty sweet (to my newbie mind).

    But am I doing the right thing? I notice that the 2045 fund (VTIVX) has fees of 0.18%. Meanwhile, the funds that you recommend (VTSAX, VBTLX, and VGSLX) all vary from .05% to .10%.

    1) Is the Target fund a ripoff?
    2) I don’t know how to even begin figuring out whether I should MOVE my money from VTIVX to VTSAX, or just leave the VTIVX alone and now put all future funds into VTSAX (though that will require some juggling to get the minimum $10k in to get admiral), or … I’m just spinning in circles in a sea of too much information. Any thoughts on where to start?

    Thanks so much!

    • jlcollinsnh says

      My pleasure, Joe…

      glad you like it!

      For a guy who new to investing, it seems you have excellent instincts. 🙂

      1. Nope. Target funds are just fine. They are a bit more expensive, but in return they are a bit more carefree. I discuss these in some detail here:

      2. VTSAX is 100% stocks and is the more aggressive choice compared to VTIVX which also holds bonds and international. So the decision really depends on your temperament.

      If you are going to hold VTIVX, your 401k is the right place as the interest and dividends will be sheltered from taxes.

      VTSAX is considered “tax efficient” and therefore a better choice in regular — non-tax advantaged — accounts. But it works fine in IRAs and 401Ks too. I have it in both IRA and regular myself.

      So maybe, once you’ve maxed out your 401k you might consider VTSAX for your IRA and regular accounts.

      Make sense?

      Regardless, you are on the right path. Kudos! If FI is your goal, your savings rate is far more important than which of these fine funds you chose. Pick one and focus on adding as much to it as you can.

      One last thing. As of today I am stepping away from VGSLX for reasons described here:

  136. Carol Lane says

    Hi Jim.
    First, I must say thank you so much for your blog. It has helped me a great deal in understanding financial concepts that were pretty foreign to me. Also, I must apologize in advance if someone with a similar situation has already asked, but I was wondering if you might be able to help me evaluate my own situation and figure out the next steps?
    I am 32 years old, no kids, renting, and making only $15.00 hourly in a customer service job. I read your advice to your daughter, as well as the portfolio advice for growing wealth and then the advice for keeping/growing it once you have some. My problem is that I’m older than the age for “early saving and leaving it alone” I think, but I still want to build my wealth as quickly as possible, although obviously making a low income makes it difficult. I also owe $67,000 in student loans, and $300 on a credit card.
    My monthly expenses are approximately as follows:
    Rent: $450.00
    Auto payment: $282.00
    Auto insurance: $70.00
    CC payment: $25.00
    Cell phone: $35.00
    Gas: $200.00
    Groceries: $250.00

    I guess I’m wondering what plan you would recommend for a thirty-something person with essentially no savings, a large student loan debt, and a job that doesn’t pay much-haha.

    Thanks in advance for your help!

    • Jeffrey says

      Hi Carol,

      I’m going to try my hand at this. Jim can make some changes/corrections as he sees fit. To give the best advice, there are a couple of questions that need to be answered:
      1) What is the interest rate on your student loan? For now, I will assume this is a low rate loan (ie. less than the rate of your car loan).
      2) What is the interest rate and balance owed on your car loan? We want to get rid of the car payment (as long as it is the next best target after we pay off your credit card). For now, I will assume this is a medium-rate loan with a $5k balance.
      3) You do not mention payments for the student loans. Are they in deferment or not-requiring-payment for some other reason?

      Right now, you are in a bit of what we call a “debt emergency.” The answers to the questions above will show how much of an emergency it is. While in “debt emergency” status, you are not yet looking to build wealth. Instead, you are looking to pay off debts that will cost you more money than your wealth-building can provide. I’ll elaborate how to address this below…

      My back-of-the-envelope math says that you’re bringing in about $2050 per month as after-tax income (based on paying 15% in taxes and working 40 hours per week at $15/hour). Your total expenses amount to just over $1300 per month (btw, I commend you for the low costs here, especially the cell phone plan. Those low costs will be powerful for helping you go further). Bringing in $2000 and paying out $1300 should leave you $500-$700 per month to leverage to improve your situation.

      In month #1, that extra money should go to paying off your credit card debt completely. Never make the minimum payment on a credit card – the interest is WAY too high to do this. Pay it off completely and only use the card in the future if you are going to pay it off completely at the end of the month. Note that by doing this, you have an additional $25 every month going forward.

      That takes care of $300. The other $200-$400 should go toward your next-highest interest debt. Chances are good that this is your car loan. From now until the loan is paid off, everything extra that you have remaining is going to pay off the next loan. Again, assuming this is the car, then once it is paid off, you will have an additional $282 every month as well.

      Depending on the specifics of the student loan, you may be ready to start building wealth once the car is paid off. Basically, this comes down to how high an interest rate you are paying on the load. For rates below 4%, building wealth makes more sense than paying off the debt. From 4% to 6%, it’s a bit of a toss-up (I’d pay off debts under $10k, then build at least enough wealth to serve as an emergency fund and cover 3 months of expenses, then probably start paying off more). For rates over 6%, you are better off paying down the debt before trying to build wealth.

    • jlcollinsnh says

      Hi Carol…

      Welcome and thanks for the kind words.

      I think Jeffery has done an excellent job of analyzing your situation and suggesting appropriate lifestyle adjustments. (Thanks Jeffery!)

      At 32 you are still very young and you have plenty of time to make this happen. Please don’t think any of the ideas here work only for those starting in their 20s. With focus and dedication reaching FI can take as little as 10-15 years. You can be there in your mid-40s when most of your peers are still wondering where all their money went and how many more years they’ll have to work.

      For an overview of how this might work, check out: Be sure to look at the links in that post too.

      After you’ve followed Jeffery’s path on your debt, turn your attention to investing. Since you’ll be starting small and are still on the learning curve, I suggest you look at Betterment. It is a great way to get started and they offer a steady stream of encouraging emails updating you on your progress. Set up an automatic monthly investment to your account with them direct from your bank.

      Hope this helps and please keep us posted!

  137. Carol Lane says

    Thank you both Jeffery and Jim! That advice is invaluable and I don’t feel so lost now. I’m not sure of my student loan rate, but my car loan has a dismal $11,700 left and the interest rate is 7.99%, meaning I assume your advice would be to pay that off asap? 🙂

    • Paul says

      Hi Carol,

      It seems like everyone is weighing in to give you advice here, but I wanted to add a couple of things to Jim and Jeffrey’s sage advice.

      First, to answer your most recent question, definitely pay off the car loan aggressively. Using Jeffrey’s math, once you pay off your credit card in month 1 of this plan, you’ll have $700 to throw at the car loan in addition to $282 you’re already paying. At $982 a month, the car loan will be paid off in a mere 13 months, as opposed to over 4 years if you stick with the $282 payment. Over that time, with the larger payment, you’ll only be giving $531.53 to the car loan company, as opposed to $2038.79 with the $282 payment.

      Second, and this is the reason I really wanted to weigh in, you may actually be in the catbird seat with respect to building wealth. You’re already living well below your means, which is the biggest problem most people have. Paying off debt aggressively requires basically the same behavior as building wealth aggressively – taking a significant chunk of your income and applying it to building your net worth. In this case, your net worth is negative, but soon enough it will get to zero. When that moment comes, the crux maneuver will be to simply take the amount of monthly income you’re applying to debt and start applying it to savings and investing. It sounds simple, but most people, when they get to the moment of pulling themselves out of their debt emergency, apply that $982 a month (or whatever it is at the time) to lifestyle increases, or worse, go out and get a new car and and a new loan along with it.

      By the way, I speak with the vigor of the recovering addict. I was once in a very similar position as you are in now. I paid off the bad debt (in my case, it was a credit card), and transitioned the monthly income I had been using to pay down debt to wealth building. As my income has increased, I’ve been able to increase my lifestyle only a tiny amount, and apply most of the increases to wealth building. I now have a net worth around $250K, and will reach FI in my mid-forties (depending on how the market does). When I think about the despair I felt when I was saddled by bad debt versus the freedom I feel now (and the even greater freedom I’ll feel when I reach FI), and then I read your comment, it gives me great hope for your future. But it will only happen if you’re willing to do the counter-cultural thing – paying down bad debt aggressively and then, once it’s paid, applying that income to wealth building.

      BTW, I’ve ignored a small issue here, but it’s an important one: Once you’ve paid off the CC and the car, should you build wealth and make the required payment on the student loan, or pay down the student loan aggressively? You’ve got to get this information: What’s the interest rate, and is it fixed or variable? What’s the payment schedule? Is the interest tax deductible (generally, true for government loans, not true for private loans)? You don’t list a student loan payment in your monthly expenses, so my guess is they’re still on some sort of deferral. Anyway, Jeffrey’s advice was excellent as to whether you should pay it down aggressively or not. Once you’ve got the details, you could post back here if you want and get Jim and others to weigh in.

      • Carol Lane says

        HI Paul, thank you so much for the additional advice, and congrats on getting yourself out of debt and into a much better place! 🙂
        I am in deferral right now on the loans, but only through October. I have about $67,000 in debt and that is spread out into a bunch of loans, 18 total-10 unsubsidized and 8 subsidized. They are all through Fed Loan Service and the interest rate is all over the place, varying from 6.8% to 4.5%, but they are all fixed rate, and the interest is tax deductible as long as I pay at least $600.00 in payments for the year.
        Thank you again for your help!

        • Paul says

          Hey Carol,

          If it were me, I’d probably attack everything over 5% aggressively, before building wealth, but that’s a bit of a judgment call.

          Once your payments start in October, it will change all of this math somewhat, but I’m sure you’ve got the idea. Good luck!

    • jian says

      Hi Carol,
      I’d like to make 2 points, one short-term, another longer-term, about your situation.
      1. You may want to read the MMM blog, if you haven’t already. Pay particular attention to car-ownership and its costs. To most Americans, it’s radical even to contemplate NOT owning a car; but it’s worth looking into. You might conclude that you can adjust your life, say, live close enough to work that you can walk/bike/take public transportation. Or, if that’s not an option, maybe consider downgrading to a less expensive and used car. Either approach may seem radical, but it’ll be a one-time action with significant reduction to your debt burden. Now that I’m thinking in this vein, why not also consider having roommate(s) to further lower your rent? For example, you can probably rent a nice single family house with multiple bedrooms/baths, if you can find the right roommates to share the house with, then you’ll end up paying much less in rent, utilities, etc. Do this until you’re debt free.

      2. With a college degree, it seems to me you are only doing your current gig until you find something better. But as we get older, it gets harder and harder to get out of a sub-optimal routine. 32 is still pretty young, but then it’s not 22 either. So if you do plan to get into a better job, now is the time to have a concrete plan on how you’re going to do it, with a schedule and intermediate steps (I’m a project manager :D). Just thinking ‘one day, I’m gonna do this or that and make a lot more $$’ is not enough.

      I even think #2 is more important, because it’s extremely hard to achieve FI on an annual income of $30k, even if you live in an inexpensive state (judging from your rent). Although it’s easier to LIVE on $30k a year, if it’s coming from investment returns after you’ve built a portfolio of $750k.

      So I would say, pay off the CC debt and the auto loan (or get rid of the car altogether) first; then, focus on getting into a profession that can pay you at least $60k a year. With that level of income, you can achieve FI in about 10-15 years depending on frugal you want to be. Good luck to you!

      BTW, I find it wrong and depressing that large number of young college grads are saddled with so much debts, esp. student loans, yet can only find minimum wage or near minimum wage work. Something is wrong with our policies. I came to the US in the late 90s to chase the American dream and luckily got on what seemed to be the last boat. Young people graduating after the early 2000s seem to be in an entirely different and much, much harder situation, esp. if they have mountains of student loan debts. These unfortunate kids seem to have been entering a depressing life in serfdom, making barely enough to get by, but never enough to better their circumstances. We need to have radical remedies for them.

  138. Jeffrey says

    In short, yes. It’s worth checking the rate for your student loan, but almost certainly the result will be that it is low enough to warrant paying off the car ASAP. The good news is that you’re probably only looking at about a year to 18 months until the financial drain from the car becomes a thing of the past. Then you’ll have that much more money available to continue improving your situation.

  139. Tim Henderson says

    Hi Jim — I noticed some discussion by you and others on the Money Mustache blog about deciding to move from Wisconsin to either North Carolina or Colorado — I’m working on a story for stateline about people moving around the country, and I believe North Carolina and Colorado are two of the states that still get a lot of movers despite a general stagnation. So I was interested in hearing what your experience was, and if you eventually chose North Carolina as you indicated — anyone else reading with a point of view is also welcome to chime in, I’m thenderson at pewtrusts dot org. Thanks!

  140. Tim Henderson says

    Wait– never mind — I think I have you confused with a James who posts on Money Mustache and is a different person from Rice Lake, WI. And yet your ideas on retirement are very interesting for another story I will be doing soon on retirement options — would still love to talk to you about it — thanks!