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I do believe there are stupid questions. Anyone who has siblings knows this. Questions about finance and investing, however, are never stupid.
Readers’ Questions!
1. Do you check the markets or your investments every day?
A: I check my accounts every day, but I shouldn’t. I do not day trade. I do not change my strategy. The best long term investor checks their account once a month. You don’t want to get scared and sell. In an ideal world, I would set up auto transfers and investments then throw away the password for twenty years.
2. If you could read just one thing every morning what would it be?
A: I do have two podcasts that I listen to every morning: NPR Up First and The Wall Street Journal What’s News. The WSJ podcast does more finance and business news which I find very interesting. They talk about “the top headlines and business stories moving your world today.”
If I had to pick one, I would go with the WSJ What’s News.
3: How do IRA Contributions work for Single, Married, and Married Filing Separately?
A: Great question with an annoyingly complicated answer.
For a Traditional IRA, there are no income limits to contribute, meaning you can contribute regardless how much money you make; however, you only get a tax benefit if your income is below the tax deduction limits (meaning you can reduce your taxable income by the amount you contribute up to $6,500). The IRS has two different sets of rules for deduction if you have a retirement plan through work or don’t.
If you are single, have a retirement plan at work, and make less than $73,000, you can take the full deduction.
If you are married, that goes up to $116,000.
If you are single and DON’T have a retirement plan at work, you can take the full deduction regardless of how much you make.
If you are married and your spouse is covered with a plan at work, you can take the full deduction if you make less than $218,000.
There are more caveats than that, but those are the basics.
For a Roth IRA, the rules are more simple. You can contribute to a Roth IRA if you are single and make less than $138,000 or married and make less than $218,000. If you are single and make between $138,000 and $153,000, you can contribute a reduced amount. If you are married and make between $218,000 and $228,000, you can contribute a reduced amount. If you are above the larger number, you can’t contribute anything.
Two things to note that apply to both:
The maximum you can contribute in 2023 to either account is $6,500 ($7,500 if you’re older than 50).
If you’re married and filing separately, the IRS hates you. Apart from some exceptions, all income limits go down to $10,000 if you are filing separately. If you make more than $10,000, file a joint return if you want to use either IRA.
4: Should I close Credit Card Accounts that I don’t use?
A: If they do not have an annual fee, no. Two things (out of many) that affect your credit score are: the average age of your accounts and credit utilization.
Keeping credit cards open, especially ones you’ve had for a long time, helps your average age of accounts. Also, more credit cards gives you a bigger total credit limit. Credit agencies typically want to see your credit utilization below 30% meaning if you have a $10,000 combined limit, you spend less than $3,000 per month. If you close a card, you will lower your credit limit and how much you can spend to stay below the 30% goal. So, if you read my credit card email and want to open a 2% cash back card, I’d recommend keeping your other cards open as long as they don’t have an annual fee.
Now, there is some risk of identity theft if you have multiple cards open. You do have to be more vigilant on your accounts, but, in terms of credit score, keeping cards open is better than closing them.
5. What is a good expense ratio for an ETF or Mutual Fund?
A: Anything below .1% is a great expense ratio and anything below .4% is good. Fidelity is an industry leader with several 0% expense ratio funds. Schwab and Vanguard are both strong competitors with many ETFs at .03-.06%. Actively managed funds go much higher around 1%, which we don’t believe to be worth it. Passive funds and Index funds should be below .5%.
There is a wide variance. S&P 500 funds are closer to .04% but a NASDAQ fund is around .2%. If the ETF or Fund is a more niche market, the expense ratio will generally be higher. If you are curious if an expense ratio is too high, google “best ETFs in XXX market.” 9 times out of 10 there is an article comparing several different funds in that market and you might find one with a lower cost.
6. Is Mike as obsessed about Yankee Candles as Wilson?
A: No.
Call to Action
Send us more questions, please! We are writing this for you, and we want to make sure we are answering the questions you have!
What We’re Reading/Listening To:
Right now, I am reading Steve Jobs by Walter Isaacson. Whether you love him, hate him, think he’s a genius, or think he stole every idea, this book tells the Steve Jobs story beautifully. I know I am late to the game on this book. I am a slow reader.
Debrief on Deck
Next week, we are writing a joint letter talking about how to discuss money with your partner. Are we qualified? No! But that hasn’t stopped us before!
As always, please reach out to us with any questions or comments you have. You can reply directly to this email or find us on social media (Twitter and Instagram).
Until then, stay the course.
Wilson