Investing

The New Road to Retirement

For new investors, many financial experts recommend opening a Roth individual retirement account as a first step.
A Roth IRA allows investors to set aside after-tax money up to a certain limit each year.
Because of the way they are structured, Roth IRAs may offer a distinct advantage. “Tax-free money always grows the fastest,” one expert says.

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For newcomers getting started in investing, or those who just want to ensure they’re making the wisest moves, experts generally have one piece of advice: Open a Roth individual retirement account.
“There’s just no question that that is the better place” for their money, according to IRA expert and certified public accountant Ed Slott.

A Roth IRA allows investors who qualify to set aside after-tax money up to a certain limit each year.  
One key advantage to Roth IRAs is that the original contributions can be withdrawn at any time for any reason, tax- and penalty-free, at any age, Slott said.

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The earnings on the money you invest will also grow tax-free. However, to take those earnings out without having to pay any penalties, you will generally have to wait until after a five-year holding period has passed and you have reached a minimum age of 59½.
If you meet those two tests, anything that comes out of a Roth will be income tax-free for life, Slott said.
What’s more, Roth IRAs, unlike other accounts, also offer the most growth acceleration on your money, he said.

“Tax-free money always grows the fastest, because it’s never eroded by future taxes,” Slott said.

Who can invest in a Roth IRA

Importantly, you can start contributing to a Roth IRA starting from any age if you have taxable compensation.
In 2023, investors may put up to $6,500 in traditional or Roth IRAs (or $7,500 if they’re 50 or older).
There are certain limitations when it comes to Roth IRAs. Notably, your modified adjusted gross income must be below $138,000 in 2023 to contribute up to the limit, provided you file your federal tax return as single, head of household or married filing separately. Alternatively, that income must be less than $218,000 if you are married filing jointly or a qualifying widower.
(Phaseouts apply for contributions from individuals and couples with incomes above those thresholds.)

Why Roth IRAs are a ‘multi-purpose account’

When meeting with investors who are just getting started, Winnie Sun, co-founder and managing director of Irvine, California-based Sun Group Wealth Partners, said she often steers them to Roth IRAs.
“The Roth, I always feel, is a multi-purpose account, especially for younger investors when we talk about first investments,” Sun said.
Roth IRAs can serve two purposes: It can get them started on long-term investing, but at the same time help them sock away money that can be accessed in an emergency, she said.
Importantly, a Roth, like any IRA, can invest in anything, Slott said.

“The Roth is just the name of a container, a category of retirement accounts,” Slott said. “The Roth is not, per se, an investment.”
The way you invest the money inside a Roth IRA account can be adjusted to suit your goals.
What you choose to put in the Roth IRA can be either savings or investments.
Regardless of which way you choose to allocate your funds, this can result in tax savings compared to other non-Roth accounts, Slott said.

‘Getting started is probably 80% of the effort’

The advantages of Roth IRAs make it so funding it should be your first priority every year, Slott said. If you reach the limit you can contribute, then you can allocate money elsewhere, he said.
Notably, investors who are just getting started should not feel discouraged if they cannot maximize their contributions, said Jude Boudreaux, a certified financial planner and partner with The Planning Center in New Orleans.
“Getting started is probably 80% of the effort,” Boudreaux said, adding that investors can begin with $100, $500 or whatever they can afford.
“Do what you can now, and then build from there,” Boudreaux added. More

A continuous mindset of buying and selling in response to market changes may not be a good thing for investors.
Time, not market timing, is a great friend to money.
People who invest in alignment with their values are better equipped to stick with their financial plans.

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Following recent bank failures and ongoing market volatility, it may be tempting to try to time the market. Of course, buying low can be a good thing. But a continuous mindset of buying and selling in response to market changes may not be.
Why? Because time in the market has shown to be more important than timing the market.

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For example, according to Morningstar data, the John Hancock Funds Fundamental All Cap Core Fund Class I Fund had an 11.39% five-year annual return as of March 31. But despite the fund’s impressive performance, the typical shareholder lost 2.86% a year over that period, Morningstar found.
How is that possible? In my view, it has to do with when investors buy and sell. When investors buy after a strong run of performance, they are investing when a fund is relatively expensive.
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After a downturn, investors may hang with it for a while, but many eventually give up. That’s right — they buy high and sold low.
Then, if the fund recovers — putting on another impressive streak of performance — it may attract another set of investors, who may buy high and later sell low. When this happens over and over again, it means a fund could do very well on average but, on average, its investors could actually lose money.

In fact, research from Eventide Asset Management using Dalbar data shows that the average investor underperformed nearly every asset class, barely even beating out inflation, from 2001-2021.

It’s all about time, not timing

Time — not timing — is a great friend to money. Albert Einstein reportedly called compound interest “the most powerful force in the universe.” Benjamin Franklin is said to have defined it this way: “Money makes money. And money that makes money makes money.”
As a hypothetical illustration of compound interest, the $3 a day you might spend on a cup of coffee, invested for 40 years, could grow to over $215,000 over 40 years (assuming a 6.7% growth rate). Even modest amounts of money have the potential to grow to impressive sums over long periods of time.
People tend to forget, when the market is down, that performance over one year can differ drastically from performance over 10 or 20 years.
It can seem smart to chase a hot return. But what I’ve seen is that investors get nervous when times are hard; they respond to the environment and sell at a lower price.

The market volatility we’re seeing now spikes two kinds of fear: fear of missing out and fear of loss. Both can lead to poor investment behavior.
When you look at the performance of the U.S. stock market going all the way back to its inception in 1871, you don’t see a steady upward trend. Instead, you see a zigzag pattern, with lots of ups and downs.
Ralph Wanger, a successful portfolio manager, once likened it to an excitable dog on a very long leash, darting randomly in every direction, while its owner walks steadily and predictably from southwest to northeast across New York’s Central Park — up, and to the right. His advice, as detailed in Bill Bernstein’s “The Four Pillars of Investing,” was to “keep your eye on the owner, not the dog.”
So, what strategy can help you practice restraint and avoid the timing mindset? I’ve found that many people who invest in alignment with their values are better equipped to stick with their financial plans, rather than buying and selling at the wrong times. Values remain consistent, even when the market fluctuates.

When you have a sense of how practicing those values can contribute to a company’s success (like how a great employee culture allows a company to attract and retain the best people), you’ll be more prepared to keep with an investment through those ups and downs.
Imagine partnering with a portfolio of companies for the long-term that you are proud to own and talk about. That’s what it looks like to shift from a transactional mindset to an ownership mindset, and it can be a powerful driver for long-term success.
— By Robin John, founding member and CEO of Eventide Asset Management More

There is ample evidence that training teachers in financial education matters can improve their students’ future economic choices, which in turn influence broader economic trends.
Currently, only half of states require at least one course in either economics or personal finance for high-school graduation, according to the Council for Economic Education.
Ensuring financial capability for every child in every state seems to have broad voter support, according to Pew Research.

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While U.S. voters are divided on many issues today, there are at least two where they can agree: They want a stronger economy and better education.
The good news for policymakers is that there is a simple way to make voters happier on both fronts: They can increase the number of states requiring K-12 financial education.

Currently, only half of the states in the U.S. require at least one course in either economics or personal finance for high-school graduation, according to data from the Council for Economic Education. That means millions of U.S. consumers are entering adulthood without basic life skills needed to manage debt, invest, save wisely and appropriately weigh economic tradeoffs over their lifetimes.
Given that consumption represents some two-thirds of the overall U.S. economy, this frequent absence of financial capability can have significant consequences. We have seen consumer decisions repeatedly play meaningful roles in economic downturns, including the housing speculation that fueled the 2008 Financial Crisis and ensuing Great Recession.
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While financial literacy alone will not eliminate such risks, there is ample evidence that it can improve economic choices that in turn influence broader economic trends. Consider a few examples:

Research published in the October 2020 Economics of Education Review concluded that “financial education requirements are associated with fewer defaults and higher credit scores among young adults.”
A recent report by the Financial Industry Regulatory Authority, an industry regulatory body, found that “financial literacy has significant predictive power for future financial outcomes,” even after controlling for baseline financial and demographic characteristics.
Research by Montana State University economics professors Christiana Stoddard and Carly Urban published in 2018 focused on how mandated personal finance education in high school impacted decisions around financial aid and spending entering and during college. It showed that students receiving financial education were more likely to use lower-cost sources of capital to pay for college and had lower credit-card balances and student loan amounts.

It wouldn’t take much to produce a big incremental improvement in overall consumer financial well-being, given the impact of this education on key financial decisions such as college financing choices, which can mean less debt later on and a greater ability to buy a first home — all drivers of the economy.

Doing the math on financial education

Consider five states that currently do not have any graduation requirement tied to personal finance or economics coursework: Illinois, Maryland, Massachusetts, Pennsylvania and Washington. These states represent 15% of U.S. gross domestic product and 13.5% of the U.S. high-school student population. Educating every graduate in just this handful of states has the potential to have an outsized impact on the population and indirectly, the country’s economy.
In the U.S., education policy is overseen by state and local governments, so financial education requirements generally need approval from state bodies or education boards. While only three states — Florida, Georgia and Michigan — last year passed new financial-literacy coursework mandates, the amount of discussion around the topic was encouraging. Thirty state legislatures proposed 117 related bills in 2022, according to the National Endowment for Financial Education.

Once mandates are in place, it’s a matter of teaching the teachers. Here again, there is a large potential gain relative to the investment needed. About 4 million students will graduate high school in the U.S. this year. Assuming each high school teacher conservatively reaches about 150 students per year, we only need about 26,000 well-trained teachers to educate all those high-school seniors — that is less than 1% of all the teachers in the country.
Much of this training comes from experienced non-profits, with financial support from federal and state governments, as well as the private sector.
Of course, those teachers can often end up teaching for decades. So effective initial and ongoing training for a teacher can help not just one graduating class but an entire generation. That means millions of young adults who may be more likely to make better financial decisions.

Ensuring financial capability for every child in every state seems to have broad voter support, according to a Pew Research poll last year that listed education and the economy as top areas of focus for respondents from both parties. Policymakers should take note.
Pushing for greater financial literacy is not just a potential political win for both parties; it would also contribute to economically stronger constituents and a more robust economy over time. And it’s easy to move the needle: Pass more mandates and train the teachers.
— By Rebecca Patterson, chair of the board of the Council for Economic Education and former chief investment strategist at Bridgewater Associates More

The returns savers can get on their money are the highest they’ve been in 15 years, yet most people don’t have their cash in a high-yield savings account.
Higher returns are “the only free lunch in finance,” says Greg McBride, Bankrate’s chief financial analyst.
Amid stubborn inflation, fewer Americans are saving at all.

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The returns savers stand to get on their money are the highest they’ve been in 15 years, thanks in part to stubborn inflation, which pushed the Federal Reserve into hiking interest rates over the past year.
Top-yielding online savings account rates are now just north of 5%, the highest since 2008, and much higher than last year’s 0.8%, according to Bankrate.com.

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Even Apple got in the game with a savings account offering a 4.15% interest rate.
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“Higher returns on federally-insured savings and money market accounts represent the only free lunch in finance,” said Greg McBride, Bankrate’s chief financial analyst. 
Meanwhile, the savings account rates at some of the largest retail banks, which have been near rock-bottom for years, are currently 0.39%, on average.
“On a $10,000 balance, that’s $500 you could be earning, versus close to zero,” said Ken Tumin, founder of DepositAccounts.com.  

While savers could get better returns on their cash, just 22% of savers are earning 3% or more on their accounts — and nearly as many savers are not earning any interest at all, according to a report from Bankrate.
Most people said the main reasons for not switching to a high-yield savings account were because they preferred their local branch or were comfortable at their current bank. Some also said they worried about the security of their cash at an online institution or they didn’t have enough savings to make the switch worthwhile.
49% have less in savings, or none, compared to 2022
Americans, overall, are saving less. Nearly half, or 49%, of adults have less savings or no savings compared to a year ago, according to a separate Bankrate survey from February.
More than one-third also now have more credit card debt than emergency savings, which is the highest on record.

If you are not part of the banking system, you are not benefitting from savings rates and not likely building credit very effectively,

Greg McBride
chief financial analyst at Bankrate

“Inflation has been running very hot, so savings has been a casualty of that in many households,” McBride said.
The average American’s savings are 32% behind where they should be when scaled against their salary, according to one analysis by DollarGeek based on data from the Fed’s Survey of Consumer Finances.  
4.5% of households are unbanked entirely
And then there are those who don’t save at all, at least at a bank or credit union.
In 2022, 4.5% of households had no checking or savings account, according to the FDIC’s latest survey.

The most common reasons cited for being unbanked included not having enough money to meet minimum balance requirements and distrust of banks, followed by concerns over account fees.
Although more households can rely on online payment services such as PayPal and Venmo for day-to-day transactions, “if you are not part of the banking system, you are not benefitting from savings rates and not likely building credit very effectively,” McBride said — “and those can have pretty significant ripple effects on your finances, not only now but for years to come.”
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For the past three years, states have been required to provide continuous Medicaid coverage to enrollees.
That meant people on Medicaid couldn’t be dropped from the program during that time.
Starting this month, however, states can disenroll people and as many as 14 million enrollees could lose coverage.

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As a pandemic-era policy winds down, millions of people on Medicaid may lose their coverage — even though they remain eligible, advocates say.
For the past three years, due to the Families First Coronavirus Response Act, states have been required to provide continuous Medicaid coverage to enrollees in order to get federal funding. That meant people on Medicaid couldn’t be dropped from the program during that time.

“From March 2020 to March 2023, people could only enter Medicaid, and no one was at risk of losing coverage,” said Kosali Simon, professor of health economics at the O’Neill School at Indiana University.
Starting this month, however, states are resuming the usual eligibility redetermination process, which may lead to difficulties for millions of Americans, many of whom are already in a vulnerable position.
“The Medicaid population is disproportionately low income, with chronic or debilitating conditions, and they also frequently move residences or do not speak English as their primary language,” said Caitlin Donovan, a spokesperson for the National Patient Advocate Foundation.
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The expiration of the continuous coverage provision could result in as many as 14 million people losing their Medicaid coverage, according to the Kaiser Family Foundation. Nearly 7 million people may be dropped from their plans even though they still qualify.

“The states may not have the correct contact information for them, or even if they do, [enrollees] may not realize what the forms are when they receive them in the mail,” Donovan said.
Here’s how to avoid losing your Medicaid coverage if you believe you remain eligible.

Be on the lookout for notices about coverage

In the following months, states are likely to reach out to Medicaid beneficiaries in multiple ways, Donovan said.
“People should always check their mail for notices from their state Medicaid agency, but they can also check email, texts, phone calls or even e-portals where they may manage their care,” she said.

You’ll want to quickly provide any information your state agency requests from you, Donovan said, adding, “It may keep you enrolled.”
Some of the notices states are sending to people are confusing, Donovan said.
For example, she said one state told someone that they no longer qualified for Medicaid but then said their eligibility was still being determined. This is why communication with your agency and making sure they have the latest information for you will be crucial, she said.
“This is going to be a confusing process for a lot of people,” Donovan said. “If you receive notice, don’t give up hope.”

You can appeal if you’re dropped, find new coverage

Your state should provide you with information on how to appeal your coverage decision, should they deem you ineligible, Donovan said. That process should unfold within a certain time frame to avoid too long of a gap in your coverage.
Anyone who loses their appeal for Medicaid coverage could look for insurance on the public exchange, Donovan said, where a special enrollment period is open through July.
“The marketplace has subsidies in place so you should be able to find a zero monthly premium plan and may even qualify for out-of-pocket assistance as well,” she said.
In some states, former Medicaid enrollees may actually be automatically transferred to a marketplace program. “Every state is different,” Donovan said.
She is especially concerned that millions of children will become uninsured over the following months.
Parents who are dropped from Medicaid shouldn’t assume that their children no longer qualify either, she said. Children can be eligible for Medicaid or the Children’s Health Insurance Program at higher income levels than adults.
“Basically, double-check everything,” Donovan said. More

Those armed with a newly minted college diploma are entering a job market that suddenly looks a little less promising than it did a few months ago.
Employers now project hiring 4% more new college graduates than they did from the Class of 2022, a new report said. But that’s down from the projection employers made in the fall, of hiring 15% more year over year. 
Experts share their best advice for students entering the job market.

The outlook for newly minted graduates doesn’t look as good as it once did.
Employers plan to hire about 4% more new college graduates from this year’s class than they hired from the Class of 2022, according to a report from the National Association of Colleges and Employers.

However, that’s down significantly from earlier projections: In the fall, employers said they would boost hiring roughly 15% year over year. 
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Tech companies, in particular, have dramatically scaled back on their college hires, the NACE report found.
Year to date, job cuts are up nearly 400% from the same period a year ago, led by layoffs in the tech sector, according to a recent report by outplacement firm Challenger, Gray & Christmas.
As those layoffs mount, job openings have also begun to fall. Available positions in February declined to below 10 million for the first time since May 2021, according to data from the U.S. Department of Labor.

“We know companies are approaching 2023 with caution, though the economy is still creating jobs,” said Andrew Challenger, senior vice president of Challenger, Gray & Christmas.

Start job hunting early

As a result, many college seniors are jumping on opportunities: 62% have already accepted their first job after college, compared with only 20% from the Class of 2022 at this time last year, according to a report by LaSalle Network.  
Soon-to-be graduates “want to have something hat in hand more than before,” said LaSalle Network CEO Tom Gimbel. 
His advice: “College seniors should be interviewing with as many companies that they can and not worry about the industry or location.”
“The earlier you start planning the more options you have,” he said.

Vicki Salemi, career expert at Monster, suggests setting up job alerts to find openings as they become available and aim to apply within 24 hours.
But first, take a few minutes to craft a cover letter, tailor the executive summary and reorder your bullets to mirror the job description, she said. For example, “If the first line item is about travel, highlight that you studied abroad.”  
Then, do one last review to catch any typos or grammatical errors before hitting send.
And don’t just apply online, cautioned Barbara Safani, president of Career Solvers in New York.
Recent or soon-to-be grads can also stay ahead of their competition by networking with parents, professors, family friends, classmates and an extensive alumni network. “Attend campus career fairs to get a chance to talk to employers face to face,” Safani said.
“Be present; don’t hide behind a screen,” she said.
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Smart Tax Planning

April 18 is the last chance for most Americans to avoid late filing and payment penalties for 2022 federal taxes.
There’s still time to file an extension via IRS Free File, which pushes the filing deadline to Oct. 16.
However, you still need to pay your balance by the original deadline or you’ll start accruing penalties and interest.

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The federal tax deadline for most Americans is April 18, and there’s still time to file for an extension. But the clock is ticking.  
As of April 7, the IRS received more than 101 million returns, but the agency expects to receive in excess of 168 million through the end of the year.

“If you don’t file the extension by the original deadline, you miss the opportunity,” said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida. 

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Exceptions may include filers living outside the U.S. who receive an automatic two-month extension, with a June 15 deadline, and certain members of the military who may have more time, with varying extensions, Lucas said.
You may also have an automatic extension to file if you’re living in an area recently affected by natural disasters, including most of California, parts of Alabama and Georgia, among others.

How to file a federal tax extension

There are several ways to file a federal tax extension if you can’t make the April 18 deadline. Your state filing may need a separate extension.
You can file Form 4868 electronically via IRS Free File, which provides free guided tax prep software. Anyone can use IRS Free File to request an extension, regardless of income, according to the IRS.

If you file Form 4868, it’s very clear that you know exactly what you’re doing.

Owner at The Wealth Planner

The second option is to make an electronic payment and select “extension” as the reason, which provides an automatic six-month extension without filing Form 4868, the agency says.
But the first option may bypass mistakes or confusion. “If you file Form 4868, it’s very clear that you know exactly what you’re doing,” said John Loyd, a CFP and owner at The Wealth Planner in Fort Worth, Texas. He is also an enrolled agent.
You can also print and mail Form 4868, but it must be postmarked by the federal filing deadline — and you may want to opt for certified mail for tracking.

‘Not an extension for payment’

The federal extension gives you an extra six months to file, but it’s “not an extension for payment,” warned Linda Farinola, a CFP and enrolled agent at Princeton Financial Group in Plainsboro, New Jersey.
“You still need to estimate your taxes due and make a payment online,” she said. Otherwise, you’ll rack up a late payment penalty of 0.5% of your unpaid balance per month, capped at 25%, plus interest, which currently compounds at 7% daily.

“Your saving grace would be that there is no penalty for filing a late return after the tax deadline if a refund is due,” Lucas said. However, filing an extension means you’ll have to wait longer for that payment.
If you can’t cover your estimated balance, you may be eligible for payment plans and other options through the IRS. More

Add To Calendar

In another tough college admissions season, more students were rejected or waitlisted at their top-choice schools.
Now students are left with fewer options and only a short time to figure out their next move ahead of National College Decision Day on May 1.
Experts share their best advice before choosing a school.

Students have just a few weeks to figure out which college they will attend ahead of National College Decision Day on May 1, which is the deadline many schools set.
But with a record-breaking increase in applications pushing acceptance rates to all-time lows, some college-bound seniors may have a tough decision to make, or pivot to back-up schools. 

If you didn’t get the news you hoped to receive, “keep an open mind,” said Connie Livingston the head of college counselors at college counseling firm Empowerly and a former admissions officer at Brown University — there is absolutely a path forward, she said, although it may take doing a little more legwork.
To that end, experts share their best advice on how to frame your decision before choosing a school, including navigating a waitlist and, of course, factoring in financial aid.
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How to decide on a college

For starters, settle on a few schools among the list of acceptances, based on which are the best fit in terms of cost, academics, campus life and other factors. Then, hit the road.
For students who didn’t get accepted at their top choice, use this opportunity to revisit other schools, advised Eric Greenberg, president of Greenberg Educational Group, a New York-based consulting firm.  “A lot of colleges have programs for accepted students and incoming freshmen, which can establish a comfort level.”

Keep in mind that you can still transfer to a school higher up on your wish list after a semester or two, he said. “Realize that you are really making a one-year commitment,” Livingston added. “This does not have to be the end all and be all.”

What to do if you’ve been waitlisted

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Waitlisted applicants have neither been outright rejected by a college nor have they been extended a formal offer of admission.
Instead, they may be considered for a seat between now and September, depending on whether there’s sufficient space for them in the incoming class, among other factors.
The first thing seniors who were waitlisted should do is write a letter of continued interest to the college to let them know why they want to attend, Greenberg said.

Then, provide an update since your application was submitted that demonstrates what you could bring to the table. For example, perhaps you took classes or completed a research project that helped solidify why that school is now an even better fit.
“You don’t want to rehash stuff; you want to bring in new information,” Greenberg said.

Factor in financial aid

Also consider the amount of aid available. Some financial aid is awarded on a first-come, first-served basis, or from programs with limited funds. Students who were admitted in the first round tend to have first dibs on grants and other forms of aid.
“Waitlist students get last dibs on financial aid,” Greenberg cautioned. That may be the most important consideration, after all.
Most college-bound students and their parents now say affordability and dealing with the debt burden that often goes hand in hand with a college diploma is their top concern, even over getting into their first-choice school, according to The Princeton Review’s 2023 College Hopes & Worries survey.

Waitlist students get last dibs on financial aid.

Eric Greenberg
president of Greenberg Educational Group

A whopping 98% of families said financial aid would be necessary to pay for college, and 82% said it was “extremely” or “very” necessary, The Princeton Review found.

Key takeaways for future applicants

Finally, the hardest application cycle to date can serve as an important lesson for future applicants, according to Christopher Rim, president and CEO of Command Education. “It’s not just about having top grades and test scores,” he said.
“Decision letters from top schools are a reminder of the importance of crafting a balanced college list, honing their interests to convey a singularity of focus, and starting early in the process.”
Livingston advises high schoolers to take some of the focus off the prestige and name brand and research schools and programs based on other factors such as location, size, areas of study, research opportunities, sports, clubs and campus life.
“Visit schools and talk to current students,” she said. “The key is to make sure you can see yourself at all of those schools.”
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