Look Back Look Forward – New Years Resolutions

JanusIt’s January, the month named for Janus the two-faced Roman God who looked both backward to the past and forward to the future.

Looking back over 2016, I realized that I learned about three types of investment accounts, each of which – depending on your phase of life – might make for a nice New Year’s Financial Resolution.

Maybe best of all, all three investment accounts work well even if you start with small dollar amounts. And they each scale up to larger amounts, if you have the means.

Contemplating the start of a new year prompted me to divide these investment account ideas into three categories, past, present, and future. Or you could categorize them as investment accounts for the young, the middle-aged, and the old. I’ll start with the young.

Millennials – Automatic Deductions – Acorns

People in your twenties: This one’s for you. The number one key to investment success is starting early in life, yet we often don’t for a variety of perfectly good reasons. The Acorns app addresses many of these barriers, through automatic regular deductions into a super-simple, low-cost, diversified portfolio. The app takes about five minutes and just $5 to get started. It’s mobile-friendly and has an intuitive interface. Acorns gives you a picture of your investment value now, but interestingly also shows you graphs of how your investing activity – when you stick with it month after month and year after year – will grow your account over the coming decades. I’m a big fan of anything that shows the awesome power of compound interest.

acorns_2000
My Jan 1, 2017 balance, after just 7 months

Automatic deductions from your checking account into an investment account is not just A WAY to invest. It’s really THE ONLY WAY to invest for most people of modest means. In my experience, nobody has a surplus at the end of the month unless we’ve devised a trick to whisk our money out of our account before own greedy little hands spend it. The Acorns App is the latest, best, trick to do that automatic whisking. I set up a $50/week automatic program in May 2016, just before I wrote my blog post on it. This week I have more than $2,000 in my account, and I barely noticed how it got there. This is painless investing, made super simple.

If you are 20-something and wondering how to begin investing, here’s the solution to your New Year’s Resolution. If you have a 20-something in your life, send them an Acorns invitation link.[1]

Parents – College Savings – 529 Accounts are for grandparents

Parents: This resolution is for you if you’re in my demographic. Two kids. Big college bills ahead (should they choose that path.) The more I’ve learned about 529 college savings accounts, the more I’d always recommend parents avoid them and build up tax-advantaged retirement accounts instead of 529s.

mixalotAnd yet, Sir Mix-A-Lot, let me add to that statement a big BUT:

529 accounts make a lot of sense for grandparents who have a surplus. Grandparents who have solved their retirement needs already can use 529s to help the younger generation. Grandparent 529s do not count against financial aid calculations. Also, unlike IRAs and 401(k)s, there’s no age or income limit on making contributions. Finally, 529s are even helpful for estate planning purposes. All of these factors make 529s a better deal for grandparents than parents.

So here’s my New Year’s resolution advice to parents: You might not prioritize 529s yourself (compared to a retirement account) but work to open up an account so that you can invite YOUR parents to contribute toward their grandchild’s college fund. Do it. It’s the right way to approach 529 accounts.

Older generation – Passing on Values – Donor-Advised Funds

I am not yet part of the older generation – at least in my own mind – but opening a Donor Advised Fund (DAF) in 2017 is actually my own personal New Year’s Resolution.

The idea of a DAF is that you can make a charitable contribution this year – reaping an income tax benefit now – while parceling out charitable gifts over a longer period of time, even decades. Investments in the DAF can grow in a tax-advantaged way, while you take your own sweet time to decide who should receive your philanthropic dollars in the coming years.

charitable_givingIf you already have an investment advisor or brokerage firm, you could ask them about the availability and terms for opening up a DAF with them. If they don’t offer DAFs or you don’t like their terms, you should know that a few of the online supermarket brokerages have account minimums as little as $5,000, and charge a reasonable 0.6 percent annual fee. The point is you don’t need $25 million to open up your own private foundation. A DAF makes tax-advantaged philanthropic-giving available to the masses.

But what is the real reason for a DAF, in my mind? And why is this my own New Years’ Resolution, and maybe could be yours too?

Just this: The DAF allows you to appoint trustees, who then share in the decision-making for future charitable gifts. I have in mind appointing my 6 year-old and 11 year-old as fellow trustees of my $5,000 DAF endowment. Could we three generate maybe $250 in investment income every year – a 5 percent annual return – that we then plan together to give away each year? That renewable $250 in annual giving – driven by conversations with my kids – is the real point of the DAF. What I’m really getting for my $5,000 contribution is something of immense value: a conversation-starter.

I know I can’t move the dial of any particular charity with just $250 per year, or even a one-time $5,000, but I can create a vehicle to talk about values with my kids. We can engage in a forward-looking conversation about the uses, and meaning, of wealth.

If you’re in the older generation, with an even bigger surplus, maybe that’s a useful New Years’ resolution for you too.

I wish you peace and prosperity in 2017, and welcome your input into what financial topics you would like to read about in the coming year.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

 

See related posts:
College 529 Accounts are for Grandparents

This Acorns App rocks

DAFs help you create a pretty cool legacy

 

[1] And if you sign up using this particular link (rather than the generic one I inserted above in the main section), I get a $5 referral fee and you get a $5 starter fee, because those Acorns people are clever and give out $5 referrals to both inviter and invitee. But I’m seriously not whoring myself and my blog for the $5. This app is good.

Post read (227) times.

My New Years Resolution

bird_by_bird_I_can_do_this
New Year’s Resolution

The artist’s perspective on money

I spent the morning of New Years Day with two artists talking about money.  They asked questions about the meaning of money, and I tried to supply the answers as best I could.[1]

I waxed poetic about the importance of accumulating a small surplus every month, however tiny, which could add up, over time, to something significant.

They declared themselves indifferent to money, and I believe them.

One of their questions stunned me:

“What’s the point of even trying to save small amounts of money monthly if you don’t have something big, like a million dollars, to invest?” they asked.  “Isn’t it just a waste of effort?”

Since they’d never had extra money – and they felt that if they tried to save now it wouldn’t add up to much at all – they figured it wasn’t worth even trying to generate a surplus on a monthly basis.

After I lifted my jaw off the floor I tried to persuade them that small sums today add up to big sums in the future through the magic of compound interest.  I spluttered something inarticulate about “money generates money,” and probably failed to make any headway at all in trying to make them see my point.

In my own way in the last year I’ve been making the same mistake they make, I just didn’t realize it.

Money_pyramid

Bird by Bird

One of the best books I read last year was Bird by Bird: Some Instructions on Writing and Life, by Anne Lamott.[2]

Lamott’s advice to prospective writers is to focus, every single day, on producing some kind of written work.

Many days, perhaps most days she argues, every writer (even the greats!) feel inadequate to the task of producing anything remotely worth reading.  Writers as a rule are distracted people, full of self-loathing, or conversely, wracked by narcissism, all of which gets in the way of producing decent written material.

Lamott’s refrain is to force yourself, through habit, to produce something every day, however paltry it seems. “Just 300 words a day,” she urges, if that’s all you can manage.  “Write a shitty first draft,” she pushes, it hardly matters what it’s about.  Just start.  And then keep going.

Lamott tells the story of her 10 year-old brother who procrastinated for three months on a major grade-school ornithology project.  Dejected and daunted by the looming deadline, he froze in panic the night before it was due.  Lamott describes how her father put his arm around his brother and gave him the key piece of advice on writing, and life -“Bird by bird, buddy.  Just take it bird by bird.”

What does this have to do with my conversation with the artists?

Lamott says writers have to produce a written surplus, however tiny, every day.   But I’ve been frozen by the enormity of my project.

The money guy’s perspective on art

My New Years Resolution is to finally write the book(s) that has been dancing around in my head for the past few years.

I realize that the problem with writing my book, however, is the same one my artist friends have.  If I can’t be sure the whole finished product will be awesome and successful and read by tons of people – the literary-publishing equivalent of a million dollars invested – then what’s the point of even trying to write it?

I mean, why even start?

So, uh, naturally, I didn’t write it in 2013.

build_a_pyramid

I’m a finance guy, so I guess I needed to see the absurdity of my non-starter attitude put into money terms by these artists.

Maybe Anne Lamott’s analogy can help you too.

So whether your New Year’s resolution is to save more money, or lose some weight, or build that life-size replica of the Pyramid of Giza you’ve always wanted in your backyard, I invite you to join me.

I’m going to do my best to produce a small surplus on the book every day, and not get daunted by the enormity of the whole task.

“Bird by bird, buddy.  Just take it bird by bird.”

 


[1] They may make a short video of my answers.  We shall see.

[2] I haven’t reviewed the book on this site because the topic is – as the title implies – writing, which doesn’t fit my finance theme.  But if you want to read about the process of writing – then wow this is a good one.

Post read (9690) times.