The NSFW 401(k) Cheat Guide

For the sake of not dying of boredom, NSFW officially recommends just skipping to the questions you actually care about first. This stuff is not fun. The financial industry has ensured that it sounds as boring and complicated as possible. It’s a lot easier to take advantage of people when they’re asleep. **Edited: NSFW has removed a comment referencing Bill Cosby here as it is already a dated reference and not that funny. **

 

The Basics

What is a 401(k) and why is it called that?
It’s a retirement plan set up by employers that lets workers save and invest a piece of their paycheck before taxes are taken out. Taxes aren’t paid until the money is withdrawn later (ideally in retirement). The name 401K comes from the part of the tax code that created these plans.  The account your plan uses is made specifically to invest for your retirement and nothing else. Another company, called a plan administrator, takes care of and manages the account for both you and your employer.

My company says they will “match contributions”? What the hell are they talking about?
A contribution is the money you put into your retirement plan. The match means your employer will put in the same amount of money that you put in. You put in $100 a month, they will also put in $100. That means you now have $200 to invest with. Generally, an employer will have a maximum amount they will match (around 3-5% a month or per check on average).

What’s the catch? Why would they do that?
The catch is called “vesting”. It means that even though they put that money in there for you, you don’t usually get to keep it for quite some time. Nearly all retirement plans have a vesting schedule. Vesting schedules tell you how long you have to stay with the company to keep the money they “gave” you.  Companies love to talk about the employer match because it sounds like a great benefit (and it can be), but most will never even say the word vesting. It’s quite common for companies nowadays to require people to stay with the company for 5 or more years before they can keep 100% of their employer matches. Any gains that you made from investing the employer’s contribution will ALSO be taken away from you if you leave early. Sneaky Bastards.

How much can you put in to the plan/account per year?
2018 limit = up to $18,500
2019 limit= up to $19,000
Note that these maximums are set by the IRS, not your employer.

Can I invest in anything I want or do I have to choose from the funds specified in the plan?
Just the stuff in the plan. There will generally be a list of 20 or less mutual funds.

 

 

How to Willingly Give Wall Street Your Money While Bitching About Wall Street Taking Your Money

(aka Hidden Fees you are probably already paying)

 

“96% of people know how much they pay each month for streaming media services like Netflix. Just 27% know how much they’re paying in fees on their 401(k) accounts.”

Most people, if they invest at work at all, don’t bother looking at the cost of their retirement plan. Unfortunately, this can really suck away the returns that you make on your money over the long run. When people see a fee like .25% (for clarity that is just a quarter of one percent) they don’t give a second thought, because they’re still not completely comfortable with the idea of compound interest. The chart below can show you how much even a quarter of a percent can affect an investment return over time.

effect of fees on return 30 yearsSource: Investor.gov

Notice that the difference between the blue line and the green line is only .75% in fees. Not even 1%. In 30 years it shaved off around $30,000 from your retirement. So pay attention…

 

Types of Fees:

Plan Administration Fee = Money you pay the 401k plan administrator for managing your retirement plan. Generally there is no way around this fee while you’re with your employer, but it’s something to be aware of. This is also one of the many reasons why you don’t want to leave your 401k with an employer custodian after you’ve left.

Expense Ratio = The management and operations fees of the fund are generally grouped together into this number. It will be given as a percentage that you will pay each year you have your money in the fund.

12B-1 Fee Money you pay the fund to use for trading commisions at the brokerage and for advertising to other investors. This way you get to pay for marketing, not them. Not even kidding. You probably wouldn’t give them money if they called it Advertising Fee though. 12B-1 sounds fancy and people don’t ask alot of questions. This fee should be already included in the expense ratio.

Load = A sales charge. A load is a fee you pay when putting money into or taking out of a mutual fund. For example, a front-load fee of 1% on the fund means that before they even invest your money, you pay them 1% of all the money you’re giving them to invest. Pretty sweet deal, huh? If you pay the fee when taking the money back out of the fund, that’s called a back-load.

Redemption Fee = Money you pay for taking your money out of a fund too quickly. For example let’s say a mutual fund has a redemption fee for withdrawals before 30 days. You put your money into it. 3 weeks later, you decide you think another fund would be a better investment.  So you sell out of that mutual fund. You get to pay them for selling out before 30 days have passed.

What is a reasonable amount I can expect to pay in fees?
If you work for a large company, expect to pay about 1-2% a year with all fees included. Aim for 1% or Less (expense ratio + plan administration). Smaller companies with retirement plans generally run higher in fees (2-3%+). Aim for not paying more than 2% tops. Generally, when people are even made aware of the fees they are paying, they will make better decisions for fund choices. If a fund commands a higher fee, you may want to make damn sure that it has a long history of outperforming all other choices available.

Funds with higher fees are generally actively managed vs just indexed. The ironic thing is, the cheaper indexed funds usually outperform the stock picking managers (about 90% of the time). So just remember, 90% of the time, you’re best off just picking the index fund(s).

If you want a short cut in finding out how much money you’re giving away FINRA (financial regulator) has a free tool for you.

Fund Fee Analyzer
*Can be used for Mutual Funds, CEF’s, ETF’s, etc.

 

WHAT THE F*CK?

(A translation guide for that stupid packet they gave you at work)

 

Allocation
How your money is split up and used to buy stocks, bonds, or funds.

Equity (equities)
Stocks.

Fixed-Income
Bonds.

Balanced
Your money is put into a mix of different types of stocks and bonds.

Aggressive
Your account value is going to swing up and down more, but you have the potential to make more money in the long run.

Conservative
Your account value will be relatively stable, but you probably won’t make as much money in the long run.

Moderate
In-between conservative and aggressive. You won’t make the huge gains when the market goes up, but you also won’t lose as much if the market goes down.

Index (indexed)
The fund doesn’t have somebody making decisions on what to buy and sell. The value of the fund tries to match the growth/value of a specific market or theme.  Example, a fund that is indexed to the Dow Jones means you won’t have to buy every company in the Dow Jones. The fund owns all those companies and you will get the cumulative gains and losses of everybody. These funds are (as a rule of thumb) cheaper, better options than actively managed funds.

Global
At least some of your money will buy stocks or bonds from countries other than the US.

Developed
The big European countries. Think Germany, France, Switzerland, etc.

Emerging
Money is at least partially invested in the up and coming countries that aren’t typically considered as well off economically as the US or Europe. Think China, India, Brazil, Russia, etc.

Target Fund (aka TR  2050 or whatever number)
The 4 digit number is the year you expect to retire. A target fund means you pay a manager to allocate your money between stocks and bonds and reallocate regularly in the hopes that by the time you retire they will have invested your money way better than you could have. Hot tip: these funds are garbage and work superbly for Wall Street to bleed money from people who are too lazy to make a few simple, informed decisions.

 

Quote Source: TD Ameritrade 2018 Survey of 1000 active investors. The percentage of the general population who know about 401(k) fees is far less than 27%.

The Big 3 Types of Funds: Mutual, ETF, Closed-End… The Necessary Explanations

Below you will find links to Investopedia’s dry, long-winded explanations as well as ours, which will give you a good enough understanding that articles make sense. Use the links or google if you still have questions. And yes, some of the definitions are repeated on purpose.

 

Learn these words first:

Fund
Buying a stock is  buying a share (or portion) of a company, but only that one company. A fund is more like a basket that can hold lots of different stocks or investments. So instead buying a portion of one thing, you can buy a portion of lots of things at once. Investors in a fund are buying a share of the basket.

Active
There’s somebody actively making decisions on what to buy and sell in a fund.

Passive
Nobody is making decisions, the fund tries to follow an index as closely as possible.

Index
A number that is follows how well or poorly things are doing compared to history. For instance, the Dow Jones takes 30 big companies in the US, adds their stock share prices together and based on the result people can gauge how the stock market is doing. Indexes (or indices) usually follow different markets based on things like size of companies, geography, how they grow, etc. People who want to just “buy an entire stock market” like the US stock market can then just buy a US stock market index.

Net Asset Value
The value of all the things in the fund or “basket” added together.

 

The Fund Types:

Mutual Fund
An investment product that pools money together in a basket to invest in stocks, bonds, real estate, etc. Mutual funds will have a stated objective to decide on what it will buy. They can be active (with a manager choosing  what to buy or sell) or passive (just following an index without making decisions) They can create as many shares as they want for investors to buy into this basket or “pool of money”.  The price of the fund’s shares are calculated after the markets close and the value of all things owned by the fund (Net Asset Value) are divided by the number of shares available. Mutual funds only trade once a day, after market close. Taxation on mutual funds is different than other types of funds. Typically carry a lot of hidden fees that are disclosed in small print. Usually the only type of fund available in a 401k. Mutual funds are largely outdated and individual investors nearly always prefer ETFs.

ETF (Exchange-Traded Fund)
Nearly everything is the same as mutual fund as far as active/passive investments, but these can trade any time the markets are open, just like stocks. Fees and expenses are usually much less than mutual funds. Taxation of the fund depends largely on what the fund does. Like mutual funds, can create or destroy the number of shares available in order to fit with objective of the fund. SPY (that’s the symbol, but is said just like the word) is the most commonly traded ETF in the world, it follows the S&P 500 index.

Closed-End Fund
Almost exactly like ETFs, but only have a finite (limited) number of shares. Because of the limited number of shares, a great opportunity can arise: if there isn’t much demand for the fund’s shares, but the value of assets (NAV) held by the fund haven’t dropped, investors can essentially buy the stocks or assets at a discount. Most commonly used by investors looking for income.

 

Other helpful links:

Active vs Passive Investing

Mutual Fund vs ETF: Which is Right For You?

Closed-End vs. Open-End Funds

The Low-Income Tax Credit The IRS Forgot To Tell You About

We don’t want to waste your time. This is only going to be beneficial if you or somebody you know fit this criteria:

  1. You or your household are truly in the low-income range
  2. You want to save for retirement
  3. You sometimes end up having to PAY taxes at the end of the year
    (this will not get you a tax refund)
  4. You are not currently enrolled as a full-time student
  5. You are not claimed as a dependent by anybody else

It’s called the Saver’s Credit and nobody seems to have heard of it. If you do fit the bill, this is a really easy way reduce what you’re paying out to the IRS. It works like this: you contribute to your 401K, IRA, Roth, etc for the year like normal. That’s going to reduce your taxable income to start like normal, which is great. But when you claim this credit, the IRS matches a portion of your contribution that can be taken directly off your tax bill. To see if you’re eligible based on income see the table below or you can find it here.

 

savers credit 2018

 

Understandably, this probably seems pretty confusing if you’re newer to learning about money. First off, AGI  is “Adjusted Gross Income,” which is how much you or your household makes total BEFORE taxes. Here’s an example to break it down for ya.

Example:

Renee makes $27,000 this year as an artist.

So $27,000 is her “AGI” adjusted gross income.

She is lucky enough that she feels she can afford to contribute $1,000 ($83.33 a month) to her traditional IRA (individual retirement account)

Her taxable income is now $26,000. ($26,000 – $1,000). Remember, contributions to traditional IRAs and 401ks are made with “before-tax” dollars.

Because she’s freelance, she hasn’t paid any taxes yet for 2018. So her
federal tax bill on $26,000 ends up being about $1,489
(we just did a quick estimate here)

Because Renee decides to claim the Saver’s Credit when she does her taxes, she gets a credit of $100. The $100 is because she’s not filing as married or head of household (head of household basically means you’re claiming a dependent like having a kid) she goes to “all other filers” and she makes between $20,501 – $31,500 = 10% of her contribution.

That means her final tax bill for the year is $1,389.

…#stillsuxballs

But let’s look at what it would have been if she hadn’t contributed to her retirement…

$27,000 with no deduction or credit = $1,609

$1,609 (no contribution) – $1389 (contribution + credit) = $220

$220, not $100… 

So instead of thinking about the IRS f*cking you on your tax bill, which will never go away… think of it like you put $780 into your retirement and they paid you $220 for doing it.

Some of you are probably scoffing right now and saying “Well, pshhh, not even worth it,” but if you’ve ever complained about the rich using loopholes and strategies to get around paying taxes and if you DON’T take advantage of this you then don’t get to complain. You are throwing away the opportunity to do it the way the people with REAL money do it.

You need to change your mindset about what really just happened. Sure, its only $220. But how long did it take for you to check a box to contribute to your retirement plan + claim the tax credit? Less than an hour I’m sure. That’s $220 for less than one hour of work. 

Not a bad hourly rate…

 

Further Reading:

TurboTax on the Saver’s Credit

How the Saver’s Credit Works

How Saving for Retirement Could Lower Your Taxes With a Credit

IRS

Apple (AAPL) Is About to Give Everybody Ulcers: An Important Lesson For Beginners

Most investors don’t know it yet, but Apple is going to ruin their day tomorrow. After the market closed today, Apple slashed their revenue guidance. Meaning they told the news reporters that when they report their earnings (Jan 29) they expect to have sold around $84 billion for the past quarter vs the $89-$93 Billion previously estimated by analysts. They said it was primarily because of weak sales in China, but the truth is it doesn’t matter. After the news was released, the stock dropped 7.5% in the after hours market* from $157.92 to $146. There are 2 huge reasons you should give a sh*t even if you don’t own Apple…

Reason #1

Sales were expected to drop by apx. $7 Billion for the quarter (only 1/4 of the sales for the year) which is about a 7.5% drop. The stock dropped $11.92, which is apx 7.5%. On the surface, that seems more than fair. But you need to understand what Market Capitalization (Market Cap) is. Market capitalization is how the news can say who is the biggest company on the planet. It’s very simple:

Share Price x Shares Outstanding = Market Capitalization

Share price is obvious, we started with $157.92 when the market closed today. Shares outstanding means how many shares of a stock are available to buy on the open market. For Apple, that number is currently at 4,745,398,000. That means at the end of trading today Apple was worth:

$157.92 x 4,745,398,000 = $749.4 Billion

After hours the stock drops 7.7%, which means Apple is now worth:

$146 x 4,745,398,000 = $692.8 Billion

That’s a loss of $56.6 Billion in a matter of minutes, because they said they would sell $7 Billion less in a 3 month period. Think about how ridiculous that is. But that ridiculousness is exactly how good investors make money. Do you honestly think that in a few years people are going to give a sh*t how much Apple sold in the last 3 months? Of course not, not in the long run. It doesn’t matter. The lesson is this…

Investors can make money buying things when the market over-reacts. Benjamin Graham (the man who taught Warren Buffett) called it Mr. Market, and said that Mr. Market was bipolar. Sometimes he gets irrationally excited and sometimes he’s incredibly depressed. If you like Apple and think it’s a good company worth owning you want to see Mr. Market depressed about it so you can buy the shares on sale. You want to buy Apple for $56 billion dollars less, because they’re going to sell only $7 billion dollars less.

All told though, since the market started going down… Apple is selling for $415.1 billion less than it was at its peak on Oct. 3.  Look around you. Is everybody you know throwing their iPhones in the toilet? Are hipster douches not going into the Apple stores at the mall? Hell no. Apple is selling for 37.5% less, but that doesn’t mean that the company is WORTH that much less (intrinsic value). Now would be a good time to figure out if you think Mr. Market is right or he’s just depressed. If you do own Apple, hopefully you now realize there is no need to panic just because everybody else is. Do you really want to sell your shares because Mr. Market is a cry-baby? Apple isn’t going anywhere anytime soon.

Reason #2

As of right now, Apple is the 4rd largest company in the world. Microsoft is number 1, Amazon is 2, and Google is number 3 based on Apple’s new Market Cap. When companies are worth 3/4 of a TRILLION dollars; any little shift in their price moves the entire market. Apple just dropped over 7% and the entire market is going to feel it. Tomorrow you will see the market down, including most of the stocks or funds you hold. Most people won’t know what’s happening, they’ll panic, they make talk about getting selling out their retirement accounts before the big market crash. But not you… because you know this is nearly all because Apple “maybe” sold about $7 billion dollars less than some smart guys had guessed between October and December 2018.

 

Dont Panic

*The after hours market is offered by some brokers as a way to trade a bit after the main trading has shut down for the day. There is WAY less action than the normal hours and its often hard to get your order to go through if you can’t find a buyer or seller at the price you want.  Check with your broker to see if it’s available or you and if not you can still see if any stocks made a big move over at the Nasdaq After Hours site. There is also a Pre-Market, in case you were wondering.

WALL STREET 101: How to Steal from Market Geniuses and Start Trading Without Money

If you’ve ever tried to learn to play an instrument and were’t completely self-taught, you probably had a teacher who wanted you to start by learning basic, boring shit like scales first. But you didn’t want to learn to play C major or “Hot Cross Buns” (why did they act like people knew wtf hot cross buns are?) you wanted to play the songs you knew and liked. The best way to get to learning and stay interested is to get a jump start with the things that don’t make you feel like downing a bottle of painkillers.

That being said, you don’t get excited to learn about investing and making money by looking at boring ass charts and math problems. Enter screeners and paper trading. A screener is a tool where you put in some criteria of what you’re looking for and boom, there’s a list. In this case, the first ones we like to start people with are ones where stock market wizards set all the detailed criteria and spit out their suggestions. It’s not important in the beginning to know what all the criteria means, just that somebody who knows (or knew) their stuff thinks the stock (company) is worth a look.

The second part of the equation is paper trading. If you don’t have a brokerage account or any money to invest with, it doesn’t mean you can’t start learning this stuff. In our opinion, it may actually be better to learn when you still don’t have much. That way when you’re in a better position financially, you’ll come in with some financial know-how and won’t be so intimidated. Paper trading is a market simulation where you can buy and sell stocks with virtual money. You get the experience of putting in orders, learning terminology, and watching your account go up and down without the risk of blowing your hard earned cash in “school”.

 

Part 1: Find Some Stocks to Trade

For the screener, we recommend a free new site called MeetInvest. It’s a new kid on the block, but has by far the best guru screening criteria out there. They have a ton of famous Wall Street stock pickers and adhere very closely to the things the guys really look for. It’s genuinely shocking that this isn’t a paid service site.* So sign up for a free account there first (they really just need your email)

To get you rolling as fast as possible, we can tell you that your best bets for Gurus/Strategies to start with are going to be Peter Lynch and Patrick O’Shaughnessy. Both of these guys have some fantastic screening criteria (we’ll learn more about how they choose what they choose later) and they’re the most likely to give you the most companies that you are already familiar with.

So sign up on the website first. Then here’s how to get the list…

 

Click on My Stocklists on the home page.

 

meetinveststep1

 

 

Click Create new stocklist on right hand side of the next page

meetinveststep2

 

Enter a name for your list. Click how often you want to be notified of new stock picks (Notification frequency). Click the boxes next to the 2 names mentioned before: Patrick O’Shaughnessy and Peter Lynch. Then click the box next to United States under North America in Countries of Interest.

 

meetinvest step 3

 

 

Click Create stocklist at the bottom of the page and you’re in business. That results list of confusing crap is the Wall Street gurus picking the real sh*t for you!

 

F*ck a bunch of C majors and Hot Cross Buns

america
Eastbound and Down/HBO

 

Now run down the list that it gives you and see if you recognize any of the names of the companies in the Short Name column. If you do, write down the 1-5 letters it gives you to the right of their name under the column labelled Ticker. Don’t bother writing down the letters US, as that is just telling you that it trades in the United States. For example, if you know what the CME group is, you would just write down the letters CME. Those letters (called the ticker or symbol) are how Wall Street identifies companies trading on the market.

meetinveststep4

 

So now that you have a few companies and their symbols written down, look over in the column labelled MI Trend. See all the red and green arrows? You want to see which of the companies you wrote down have a green arrow next to them. You may only find one or two and that’s completely OK. The green arrows are a technical indicator that mean the stock is in an uptrend (going up in price) at the moment based on some technical criteria. Technical analysis has to do with the stuff you see on those fancy Wall Street-y charts they show you in movies and on TV. For now, all you need to know is that the damn arrow thing is green.

 

 

Part 2: Buy the Stocks with Virtual Money

Now we’re going to “buy” those companies you picked out. Remember: they should be companies that you know, that also have a green arrow.  In another tab or window open up the paper trading Investopedia Simulator.

Now when you start signing up for a free account here, uncheck all the boxes that it has pre-filled for you for offers and newsletter garbage. Next, Skip the partner offers. Eventually you will reach a screen that says Thank You for Subscribing!

investopediastep1

Because they want you to go check your email like a bunch of a*sholes, it’s not immediately obvious that you can just click SIMULATOR in the middle of the top of the page.

On the new page, click any one of the boxes in the Join A Game section and click Join Selected Games.

investostep2

 

If you did everything right you’ll reach a screen that looks like this.

investopstep4

 

There are plenty of tutorials on the site explaining how to use the simulator so this is where you get to figure the rest out. The next steps:

1. Put in Buy orders for the stocks you picked using the symbols (the stock/companies 1-5 letter code).

***Bonus points if you change the order to limit, put the price in at a few cents below where the current price is, and change the Duration to Day Order. These changes aren’t just for fun, they are how you will usually submit nearly all orders (real or fake) in the future. Only rookies use Market orders (which buys or sells at the next available price vs. you dictating what you will pay) and you want to learn to buy and sell like the pros. If the order doesn’t go through, it may be because the market is closed, so you’ll have to re-enter the trade tomorrow or change the Duration to Good Till Cancelled.***

2. Create a Watchlist of other companies you like or from the screener to buy in the future. It’s also a good idea to take companies listed in the screener and Google them to see what they do. They may make some products you already buy or do some really interesting stuff and you may want to buy them with actual money down the line.

 

So that about does it…

You learned how to find some promising companies you know that the pros would probably buy (screeners), what a ticker symbol is (the 1-5 letters used to identify stocks or funds), a simple way to see if its in an uptrend already (MeetInvest green arrows), and how to place an order. Believe it or not, these steps alone and the stocks that you picked already put you ahead of the pack when it comes to the average “investors” in the world.

ice cube good day

 

 

*The reason it’s free is because the guys behind it are essentially selling robo-advisor technology (that’s algorithms that make recommendations instead of people) to financial institutions. This screener is an example of this technology.
**If by the off chance you have a TD Ameritrade account, look up how to get started paper trading on their ThinkorSwim Platform. You only need a deposit of $10 in your TD account to get access to the ToS paper trading. This platform is WAY more advanced than Investopedia and really only recommended if you’re not a beginner.

MARKET CRASH!!! SELL EVERYTHING… Nah…nevermind.

Nearly everybody we’ve spoken to for the last week has been talking about how scared they are (or pissed off) when they look at their 401k’s. The market has been acting like shit and nobody seems to know who to blame first. The truth is, there are a few catalysts (as always) including the government shutdown, Apple (AAPL) slashing orders on the iPhone, Mattis resigning, the trade war, etc. It doesn’t matter though, not in the long run.

The fact that everybody is freaking the f*ck out is EXACTLY the kind of reason we’re not worried about a dot com or 2008 crash. Several things, tend to happen preceding the major crashes. A recession begins, the yield spreads have already inverted, the leading economic indicator is down, etc etc technobabble. For the layperson though, what you really want to know is this: when NOBODY is worried about their stocks going down, they crash. Bull markets end with a period of euphoria. Nobody in their damn right mind would call 2018 euphoric before stocks dumped off. This is what’s referred to as a sentiment indicator and how the big money makers bet against the crowd. You have to remember that in the beginning of learning, you are the crowd. So rest assured, this is just a correction. It may take a while to bottom out and it won’t feel good, but there is no reason to panic.

Please bear with us when news updates are few and far between. Alottt of research is being done at the moment to help in consulting clients and plan future lessons. We will be covering the real crash warning signs in-depth in the future.

 

What are Analysts Expecting for 2019?

  1. First off, they’re bullish on Energy above all else. That wouldn’t be too hard considering the smack down laid down on oil in October. Energy is followed by healthcare (another big shocker), communication services, and materials.
  2. Broad market expectations are mixed. With S&P 500 target estimates ranging from 2,705 to 3,350.
  3. If you read the above two things you realize that nobody knows nothin’… Earnings are expected to slow down as well as economic growth and we’re in for a hell of a lot more volatility. Time to sell premium (if you know how… and if you don’t stay tuned)

Factset’s Breakdown of Analyst’s Most Highly Rated Sectors and Companies

Barron’s Thinks Wall Street is Getting Bearish

Ed Yardeni (Forecasting Genius) Thinks Wall Street is Way Too Optimistic About Earnings

FinancialSamurai’s Roundup of Analyst Targets

Forbes Actually Has A Few Decent Stock Picks for 2019