Listen Money Matters - Free your inner financial badass. All the stuff you should know about personal finance.

What is a robo advisor and should you use one? Larry Ludwig from Investor Junkie joins us to tell us what we need to know. A robo advisor is an on-line money management service that uses automated algorithms to give investment advice. It takes humans out of the equation. These are companies like Betterment, which was the first robo advisor, Wealthfront, and Personal Capital. They are geared towards younger people who are comfortable with transacting business on-line and are less expensive than traditional investment advisors. Robo advisors use a lot of complicated math but basically they look at past returns to determine future returns. A problem with some robo advisors is that while they’re tax efficient within their portfolio, they don’t all have an over all picture of your investments so are not tax efficient overall. A robo advisor should be easy to use and inexpensive. Larry recommends Betterment above the others. Robo advisors aren’t perfect but it’s better than just throwing your money into an account and hoping for the best. And if you are the set it and forget it type, they’re the easiest way to do that. Show Notes Son of a Peach: An American wheat ale. Investor Junkie: Larry’s site about all things investing. Betterment: The easy way to invest. Personal Capital: Invest with confidence. WiseBanyan: Free financial advisors.   Learn more about your ad choices. Visit megaphone.fm/adchoices

A few months ago we did an introduction to bonds episode. We wanted to get a little deeper into the topic and a listener, Eric, agreed to help us out. As you heard in the disclaimer, this is a complex topic. Stick with it though, it will all make sense by the end of the episode. There are many types of bonds but the most basic description would be, a bond is an IOU. A coupon is the interest payment and you get that on a semi-annual basis until the bond matures. At maturity, you get the face value back. A government bond is a treasury bond. These are often the benchmark that other bond rates are based on. Agency bonds are issued by government-sponsored agencies like Fannie May. Mortgage-backed securities are mortgages sold off by the mortgage lender. Corporate bonds are what many of us are familiar with. These are sold when a company needs to raise money. A municipal bond is issued by a city, town, state, or even a water company to fund expenses. Even Yankee Stadium has bonds! The yields are lower but from a tax stand point, they are a good investment. Bonds are affected by interest rates and their credit ratings. Triple A is the highest rating. Anything rated below Triple B- is considered a junk bond. Since most of our audience are buy and hold investors, we don’t need to be concerned with bond pricing on a day to day basis. You just need to be happy with the coupon payments you will receive and the credit rating of the bond. This is why Treasury bonds are a good investment for buy and holders. Phew, get all that? Show Notes Backpocket Brewing Penny Whistle: A Bavarian wheat with spice notes. Betterment: The easy way to invest. Learn more about your ad choices. Visit megaphone.fm/adchoices

Being completely burnt out can happen to the best of us and it is not uncommon. Especially for vacation deprived Americans. But we can’t all quit and go live on the beach. So we have to recover somehow. You can bounce back. A break and a few deep breaths and back on track. We did an episode on burnout which generated a ton of emails and still does. Many of you have suffered or are suffering burnout yourselves. What can we do about it and what can we do to prevent it in the future? What Is Burnout? “Burnout is a psychological term that refers to long-term exhaustion and diminished interest in work.” That’s the technical definition. In real speak, “fed up with this shit!”  The Symptoms Do you know the difference between being physically tired versus mentally tired? I’m a big fan of physically tired. Being tired from a long hike, a good run, helping your best friend move out of their fifth-floor walk up. That kind of tired quiets the mind and lets you sleep like a baby. Mentally tired sucks and it’s the kind of tired that being burnt out produces. When you’re mentally tired, your brain won’t shut up. It’s the kind of tired that won’t allow your thoughts to stop long enough to let you rest. Being burnt out can also result in cynicism and detachment. “This job sucks. Things will never get better.” “Nothing I do makes any difference.” “This job creates nothing of value in the world. I sit at a desk eight-plus hours a day and don’t engage my brain at all.” Hard to find motivation with those kinds of thoughts ringing in your head. Being burnt out sucks the meaning and engagement out of work life. The Causes When the economy tanked in 2007-8, many employers began laying off workers. Those lucky enough not to lose their jobs now were expected to do the work of two, sometimes more, people. And they did it and did it without complaint lest they be next. By mid-2014, all 8.7 million jobs lost were replaced. But in the interim, a lot of people got burnt out. During that time, people felt a lack of control. They felt they had no control over things like scheduling, what assignments they got, the amount of work they were now expected to make up in the face of layoffs. Because people were now expected to take on work once handled by someone else, expectations were unclear. And if you had a question about how to do something, there was no one to ask. The person that used to do it was long gone.  Workplace dynamics weren’t exactly pleasant either. If it was you or the guy next to you, you would be looking for any reason to throw him under the bus and he was doing the same to you. Not exactly a healthy, supportive environment in which to spend eight or more hours a day. Where Does It Happen? Well, work is the most likely spot but not the only place it can happen. Even stuff you normally enjoy can burn you out if you do too much of it. I had a friend who liked playing soccer in the organized leagues in the city. He was a keeper and a pretty good one. Eventually, people he played with who also played on other teams, started calling him when they needed a ringer for a playoff game or when the regular keeper couldn’t make it. Eventually, he got sick of playing soccer, something that had once been an enjoyable pass time. Or those parents, usually mothers, who get sick of doing everything around the house and go on strike. They refuse to cook, clean, or do laundry until they get some help. Usually, they fold because a house full of kids can stand dirt, smelly clothes, Learn more about your ad choices. Visit megaphone.fm/adchoices

 Today we’re answering listener questions. Student loans, home equity loans, over paying your mortgage and a day in the life of a data engineer. We love to answer your questions on the podcast. If you are wondering, odds are someone else in the audience would like to know too. 1. I miscalculated and took out too much in student loans. Should I pay it back right away? Yes, pay it back if you don’t need it. Pay off the higher interest rate loan first. 2. Should I take out a home equity loan to pay for roof repairs? Yes, a home equity loan will have a lower interest rate than a personal loan or heaven forbid, putting it on a credit card. 3. Should we use Betterment as a savings account for a down payment, to bulk pay student or car loans, and as a place to keep a 3-6 month emergency fund? If you’re going buy a house in less than five years, no. Yes to the loans again applying the five year rule. Yes to keeping your emergency fund there. 4. How to allocate extra money to mortgage payments versus to a retirement fund or emergency fund? It’s almost never best to over pay the mortgage. It’s better to throw extra at the retirement account. If you do want to pay extra to the mortgage, pay more than once a month to cut down on the interest you pay. 5. What’s a typical day for a data engineer? Data engineer is a niche job so it commands good money. Andrew has an undergrad in info technology. He pulls data from various sources, builds warehouses to store it, and gathers insight from the culled data. He goes to lots of meetings.Show Notes:Betterment: The easy way to invest. Patreon: Help support LMM.   Learn more about your ad choices. Visit megaphone.fm/adchoices

Balance is important in all aspects of life, including your financial portfolio. Find out what well-balanced means when it comes to your portfolio. What makes up a well-balanced portfolio? Andrew breaks it down for us. Part of it depends on your age. The younger you are, the more risk you can afford. Diversity is important too. Many Americans have the majority of their wealth locked up in their home. Owning stocks and having retirement accounts is important too. If your employer offers any matching, take it. Even if you have debt, it’s free money! Have some money invested internationally. Vanguard’s International Developed Market ETF can get you there. US investments only account for one-third of the world’s market so by only investing in US companies, you’re missing out on the rest of the world. Never spend more than one-third of your take-home pay on rent. The same percentage goes for owning a home. The home you live in should not account for more than one-third of your wealth. If you like to buy individual stocks, one company should never make up more than 10% of your investments. Make sure you have an emergency fund. Six months of expenses is the gold standard but get something together if you can’t manage that just yet. Keep 6-8 weeks expenses in a checking account. Any start into investing is a good start. Once you have a handle on what you’re doing, make sure you follow these tips to help perfect your portfolio. Show Notes Personal Capital: The investing version of Mint. LMM Ultimate Investment Strategy: Andrew lays out a blueprint for you. Learn more about your ad choices. Visit megaphone.fm/adchoices

  Today we break down listener Sylvain’s financial life. What is he doing right, what is he doing wrong, and what could he be doing better? Our This Financial Life series is back. One of our listeners lays out his financial picture for us and we critique it. Sylvain immigrated to the US from France in 2009. He does not have student loan debt because education is heavily subsidized in France. He’s now a permanent resident working for a private company. He currently lives in the Berkeley area which is expensive. Sylvain and his wife bring in about $7,000 a month and spend between $4-5,000. They share a credit card, split the bills, have $10,000 each in an emergency fund and are saving for a home. They expect to spend about $500,000 to buy a place. The money they are saving toward a home is invested currently. They discuss finances once a month. Sylvain was leery of getting a credit card but wanted to build credit in the US. He only uses it when he has the cash to pay it off immediately which is how we should all use our cards. He has a 401K which he plans to use to fund his retirement. Sylvain is doing well. His family has an emergency fund, they pay off their credit cards every month, have their savings invested and have a retirement account. And now if you’ll excuse me, I’m going to start packing for France. A few of you probably had the thought too. Show Notes Patreon: Help support LMM Betterment: The easy way to invest. Mint: Start tracking your spending today. Learn more about your ad choices. Visit megaphone.fm/adchoices

  We haven’t done a five questions for awhile. Today it’s back! Andrew and Thomas answer five questions submitted by our listeners. Today we answer questions about bonds, interest rates, and one of our favorite subjects, retirement. 1.  If you’re young and looking to grow wealth, why bother have 10 or even 5% invested in bonds? If you’re in your early 20’s, go ahead and go 100% stocks. As you get closer to retirement, you move more to bonds. This is what a life cycle fund does for you. 2.  Am I going to incur a lot of fees if I take money in and out of my Betterment account frequently?  When you pull money out, Betterment will let you know the tax implications of doing so. That’s one of the reasons we tell you to buy and hold. But even with the taxes, you will almost always make more in Betterment than making dick interest in a savings account. The bigger question is why Joe is not leaving that money alone. 3.  Wouldn’t it be beneficial to have a traditional IRA for your working life, retire, wait a year, and then withdraw the money?  Yes, your tax rate will be lower after retirement. You can even start slowing converting to a Roth. 4.  How does the Fed lowering or raising interest rates affect me?  Banks offer us loans with interest rates that are based on the Fed rate. The higher the Fed sets it, the higher the interest rate the banks will charge us to borrow money. 5.  I have unvested stock options. What are the implications of exercising them before the IPO?  It depends on the price. You could clean up or you could end up under water. The most important thing to consider is the taxes. Thanks everyone for sending in your questions! Show Notes Patreon: Help support LMM Keegan Ales Hurricane Kitty: An India pale ale. Betterment: The smart way to invest. PS:  Gawd, PF nerds don’t know who Vince Lombardi is! Embarrasing. Learn more about your ad choices. Visit megaphone.fm/adchoices

We are anti-fee at LMM whether they be bank fees, credit card fees, or investing fees. Uri Levine from FeeX joins us to discuss avoiding investing fees. You probably go out of your way to avoid having to pay a $3 ATM fee but you might be losing much, much more than a few dollars through investing fees. Americans pay $600 billion in investing fees every year. That is 4% of the Gross Domestic Product! On an individual basis, you lose about one third of your retirement money to these fees over time. Types Of Fees Expense Ratio: This fee is charged for mutual funds, ETF’s and no-load funds.  Expense ratio is what it costs an investment company to operate a mutual fund. Expense ratio is determined by a yearly calculation. The fund’s operating expenses are divided by the average dollar value of its assets under management. Operating expenses are taken out of a fund’s assets and lower the return to a fund’s investors. Plan Fee: If you have a 401(k), the provider may be charging you a plan fee for the privilege of holding your money. Your bank is already doing that! Advisory Fee: If you use a financial advisor, you’ll be charged a percentage fee. This is often negotiable. Real Dollars You might know what percentage you are paying but how much is that in real dollars? The average actively managed fund charges 1.25%. That doesn’t sound like much but over time, it adds up. It adds up to a lot. If you invest $100,000 in a fund with a 1% annual fee, which is less than average, it will cost you nearly $28,000 over twenty years, according to Securities and Exchange Commission calculations. If you had that $28,000 to invest, you would have earned another $12,000. How To Pay Fewer Fees Tailored investing advice is expensive. It might seem like paying a “highly trained expert” would guarantee higher returns than all those slobs who can’t afford an advisor are getting but a big chunk of those returns will be eaten up by fees and commissions. Under 1% is a good percentage to look for and you’ll find fees that low and lower with Index Funds and ETF’s. The average traditional index fund has a fee of 0.74% and the average ETF fee is 0.44%. Vanguard’s lowest fee fund is the Vanguard 500. The fee is 0.17%. Betterment charges a fee of 0.35% on the first $10,000 invested. If you’re choosing funds through your employer, it’s likely that no one in your HR department is an expert investment advisor so don’t count on them to explain the fees to you or even know what you’re talking about. Read the prospectus of each choice. That’s where you’ll find information about the fees charged. If you don’t like what you see, do some research on your own to find a fund with better fees and suggest it be included in the choices. FeeX As the saying goes, if you want something done right, or in the case, fairly, you’ll have to do it yourself. Uri was once charged thousands of dollars in fees on a retirement account. After lots of phone calls and time wasted on hold, he got the fees waived. But it made him wonder how many other people were being charged fees and if they were even aware of it. So he did the only logical thing; started a company to help root out those hidden fees and find alternatives. That’s when FeeX was born. FeeX will analyze your investments to uncover where you are paying fees and how much you’re paying. They will then find you cheaper alternatives with the same asset allocation. Learn more about your ad choices. Visit megaphone.fm/adchoices

What is a penny stock?  Can they make you rich?  Well, it worked for our guest Timothy Sykes who turned $12,000 into $4.2 million by trading them. Timothy took his bar mitzvah money and started trading penny stocks against his parent’s wishes. What they warned him would be a hard lesson in the value of a dollar, turned into a small fortune. What Is A Penny Stock? Penny stocks are stocks sold by speculative companies for under $5 per share. Penny stocks are usually growing companies that have limited cash and resources or companies in dire financial trouble, often already in bankruptcy. As such, they are much riskier than traditional stocks. You don’t trade penny stocks with the intention of finding the next big thing, rather, you’re trading momentum. If you’re wrong about a pick, get out fast. This is not a buy and hold discipline. When a “conventional” stock is down, over time, it’s likely to bounce back. That’s not the case with penny stocks. The companies often go out of business before a bounce back can happen. Short Selling You can make money betting against a company too. You take a negative position and sell first, then buy. If you see a stock that you think is over valued at $10 a share, you sell it and buy it back later at $2 a share. How do you sell a stock you don’t own? You borrow from your broker. You’re betting on failure. What Makes A Penny Stock Risky? This all sounds good, take a small amount of money and turn it into millions through penny stocks. But nothing is that easy and the vast majority of penny stock traders lose money. There isn’t much publicly available information on these companies and some of what you can find is from dodgy sources. Never risk disaster, don’t be sure of anything. Some of the companies are very young so there isn’t much information to be had. Many are in bankruptcy making it hard to find a fair valuation. The exchanges that these stocks are sold on do not have any minimum requirements to remain on the exchange. Because these stocks don’t have a lot of liquidity, you might not be able to sell them. More Is Not Always Better If you have $1000 to buy Apple stock with, that won’t get you much, currently less than ten shares. But if something is selling for .50 a share, you can snap up 2000. It seems more likely that your .50 cent stock will rise to $1 a share and you’ll double your money. But you have to consider the value, not just the price. The value is what someone else is willing to pay for something. In this case, part of the value of the stock is the value of the company. And a company selling shares so cheaply, is not doing well. It’s better to own part of a company that is making money than losing it. Do Your Research This kind of trading takes a lot of research. Timothy spends about 17 hours a day doing this. And as mentioned above, it isn’t easy because there sometimes isn’t much information to be had and what you find might not be accurate. Look for momentum, look for warning signs. Yahoo Finance is a good resource. The SEC website also contains a search engine where you can find all official filings made by a penny stock or any notices about an enforcement action from the SEC directed at any particular penny stock. You can use the lack of coverage for penny stocks to your advantage. CNBC and the Wall Street Journal aren’t following them. But you are and if you see some momentum, the company just got a big order for example, there is a lag between the time you see it and the time more casual observers see it. General Rules Look for big movers based on a big earnings win or a big contract win. Look for signs of economic value gains. Learn more about your ad choices. Visit megaphone.fm/adchoices

College costs are rising.  If you have kids and want to help them pay for college, the earlier you start a 529 Savings Plan, the more it will grow. Kathryn Flynn from Saving For College will explain the fine points. A 529 Plan is like a retirement account for college. You contribute with after tax dollars and are not taxed when the money is withdrawn as long as it is spent on educational expenses. You do have to name a beneficiary but can change it once a year. There are two types. Pre-paid which is more restrictive. You are locking in current prices. The more common type is the college savings plan. You can invest in any state’s plan. If your kid forgoes college for the starving artist route, you can change the beneficiary, use the money to fund your own education or make a non-qualified withdraw. You will pay income tax and a 10% penalty on earnings. You can control the level of risk of the investment with an aged based investment option. The closer your kid is to college, the less risk you want to take and can weight the investment appropriately. Kathryn’s site has a cool planner.  You input some information and it will generate how much you need to save for college. You can buy 529 Plans direct or through an adviser. You can use 529 money to pay for lots of different types of education, community college, a four year college, trade schools and some study abroad plans. If you want to start even before you have a kid, you can designate yourself as beneficiary and then change it to the child once they have a social security number. While funding your kid’s education is important, it is not more important than your retirement. Always fund retirement first. College isn’t getting any cheaper so start saving now. Show Notes Saving For College:  Kathryn’s guide to 529 plans. Betterment:  The easy way to invest. Learn more about your ad choices. Visit megaphone.fm/adchoices