The official lounge stock market & investment advice thread

[Don Pichardo]

What’s the max I can do in a year?

I only make $16 hr that’s the problem I think.

What do most experts say? Put about 10% of earnings towards savings and investments?

It’s 15% of your yearly income. No less.

[Don Pichardo]

Your illustration does not take into account several components

You are forgoing a tax deduction each year you contribute to the Roth. Those are real dollars. Example: in year 1 if your effective tax rate 30% and the deduction is $6,000; then you are out of pocket $1,800.

The fundamental finance principal is: a dollar today is worth more than a dollar tomorrow.

Secondly, both traditional and roth IRAs grow tax deferred.

Third, when you take distributions from your IRAs you don't take a lump sum as you suggested ($1,000,000); that would make no sense.

Typically, people use Roths when they think their effective tax rate will be significantly higher than their current effective tax rate. This is not always the case and future tax rates are hard to predict.

Also, people use a combination of 401ks, tradional and Roth IRAs to optimize their tax results.

Roth’s do not grow tax deferred. I’ll grows tax free.

I’d rather pay the tax now on the principle than pay taxes on the growth later.

I gave the million example for illustration only. But the concept is the same. Whatever you withdraw from your Roth it’s tax free. That principle and the gains are zero percent tax.

The Prinicple that a dollar today is worth more than a dollar tomorrow is inherently false in the investment world. Mathematics proves it.

That principle sounds like a bird in the hand is better than one in the bush. Sure a dollar today is worth more than once you might get tomorrow. But a dollar that you actually have today, that is invested today is going to be worth many times more 30 years from now.

[Sugar Adam Ali]

Roth’s do not grow tax deferred. I’ll grows tax free.

I’d rather pay the tax now on the principle than pay taxes on the growth later.

I gave the million example for illustration only. But the concept is the same. Whatever you withdraw from your Roth it’s tax free. That principle and the gains are zero percent tax.

The Prinicple that a dollar today is worth more than a dollar tomorrow is inherently false in the investment world. Mathematics proves it.

That principle sounds like a bird in the hand is better than one in the bush. Sure a dollar today is worth more than once you might get tomorrow. But a dollar that you actually have today, that is invested today is going to be worth many times more 30 years from now.

Totally agree about the Roth. It’s probably the best investment account to have. You can’t beat tax free long term growth

[BostonGuy]

Tradional IRS, 403bs, 401ks also grow tax free. You pay the tax when you take distributions.

With Roths you pay the tax upfront. So in essence, you're paying tax today instead of paying the tax in, say, 30 years - when you take it in distributions.

For me, I'd rather pay the tax in 30 years than paying it today.

Also, if you are in a high tax bracket right now, you're better off contributing to a traditional IRA or 401K.

If you are in a very low tax bracket and you think you're gonna be in a higher tax bracket when you retire, then it makes sense to do the Roth and instead of the traditional.

[krazyn8tive]

I have a Roth 457. I want all of my money later, not pay taxes on it. Everyone is different though.

[ShoulderRoll]

Any suggestions for investments that can be counted on to provide a constant source of extra income now?

As opposed to having to wait until one is old and wrinkly to enjoy it?

[BostonGuy]

Any suggestions for investments that can be counted on to provide a constant source of extra income now?

As opposed to having to wait until one is old and wrinkly to enjoy it?

I have a rental property that pays (after expenses) a lil every month. Also, been accumulating stocks for the last 11 years and I’ll receive around $7,000 in dividends this year. Not a tremendous amount of extra income but it gradually grows larger and larger every year. The key is to be disciplined and invest frequently and over time it grows to something meaningful

[BostonGuy]

Anyone bullish on Uber and/or Lyft?

[Don Pichardo]

Totally agree about the Roth. It’s probably the best investment account to have. You can’t beat tax free long term growth

It is the best. Unless you have an employer match. The match is the best no matter the form. It’s free money. Free can never be beat.

[Sugar Adam Ali]

Tradional IRS, 403bs, 401ks also grow tax free. You pay the tax when you take distributions.

With Roths you pay the tax upfront. So in essence, you're paying tax today instead of paying the tax in, say, 30 years - when you take it in distributions.

For me, I'd rather pay the tax in 30 years than paying it today.

Also, if you are in a high tax bracket right now, you're better off contributing to a traditional IRA or 401K.

If you are in a very low tax bracket and you think you're gonna be in a higher tax bracket when you retire, then it makes sense to do the Roth and instead of the traditional.

Why would you want to pay tax later and be taxed on your growth?

If I put in 10 thousand in when I’m in my 20s, by the time I’m 65, it could be 50k. Paying taxes on 10k even at a higher rate, is much more efficient than paying taxes in 50k at age 65.

Steps of investment allocation
1. Fully max 401k to the extent of matching funds by employer.
2. Once that maxes and they don’t match, put it in a Roth.
3. Once Roth is maxed, and you still have investable income, then put it back into your 401k minus the employer matching.