Savings and Retirement investment opinions
 

Now that I have some money to invest I am wondering what advice experienced guys/gals do? I currently max 401k that is under the PRAP and diversified it to 50 conservative and 50% large cap, small cap mix. I am considering a financial planner outside of Schwab and have the insight of 2 meetings so far but I'm not sold. I have saved a bunch that's just sitting in a high yield savings. I have no substantial IRA. Very low debt and a easy cost of living, wife and I don't buy or want lots of unnecessary things. So what do you do with all the money? Hire someone to manage? Does Schwab manage portfolios like a financial planner? If so are people happy with the results? More background info I have no interest in closely surveying and management of my portfolio but I feel I've done well to this point with a hands off approach. I also have about 20 years left to work. I'm also curious if people have and use tax advisors? I've always done TurboTax as my taxes are simple but feel Ike I'm missing out on ways to better keep the money out of Govmnts pocket.

It sort of depends upon if you are an optimist or a pessimist.

If you are an optimist put as much as possible in an IRA, Roth IRA, or 401k invested in a broadly diversified stock portfolio and just leave it there until you are old enough you have to make required minimum distributions. Delay actually taking money out as long as possible unless your investments have grown to the point you are pressing the limit for federal estate tax.

If you are a pessimist, invest primarily in guns, ammo, and freeze dried food. If a severe pessimist, just guns and ammo. With sufficient guns and ammo you can always rob some optimist of their freeze dried food.

With 25 years left, I suggest converting all of your retirement assets to Roth. That way you pay taxrs on the money now and will be able to withdraw everything tax free.
I convert all of my PRAP money to Roth.
For my IRA, I'm not eligible to put money into a Roth directly (make too much money) so I max out my IRA and then do a Roth conversion on the money. This is known as a 'back door Roth'.

If you are going to want to have a mix of Roth and taxable retirement savings, wait until you're older to stop converting the money to Roth.

You could always just DIY and throw it into a target date date or fixed allocation fund. I've found that the simpler the portfolio, the less I'm inclined to mess with it. I use a two fund portfolio. I don't want to pay an advisor 1.5% for the next 30 years as it will probably eat up more that the benefit. But that's me, maybe I'm wrong, we'll see in 30 years if it's rice and beans or champagne and caviar!!

1. Max out your 401k
2. Max out your Roth 401k
2b. Company + your total 401k limit is 66,000 (2023) and 69,000 (2024), get there asap
2c. Yearly spillage goes to RHA; recommend finding your “magic number”, then spilling to MBCBP when able
3. While doing the 401k, max the IRA, either direct Roth or Traditional then Roth conversion
3b. IRA limits are 6500 (2023) and 7000 (2024) per person, you can do an IRA for your wife

Doing the above will tax shelter minimum $79,000 in 2023 and 83,000 in 2024, plus spillage, plus if you’re over 50 add 7500 to the 401k and 1000 to each IRA. Invest in a 80/20 stock/bond mix, balance frequently, retire incredibly comfortably. Boom.

My issue with target date funds is they have higher fees than plain index funds even though they are just a bunch of index funds thrown together using the simple age + x formula to determine the stock/bond ratio. You could build your own with the index fund choices and pay less fees. With millions in an account even a few basis points of fees really add up.

This is absolutely correct, especially in the beginning it matters way more how much you are investing than what you are investing it in. Take maximum advantage of the tax shelters and understand that every year you don't maximize it results in opportunity cost you can never recover.

My only complaint with 80/20 is it might subject you to a large drawdown when valuations get out of hand. Using CAPE or some other valuation metric to adjust your investment mix will let you build up a cash pile to use when opportunities present.

There are a lot of ways to build equity. My opinion is go pretty big on 401k and don't forget backdoor Roth IRA. But that gets easier going forward as we trend towards 18% company contribution in 2026. Keep it simple unless you want to stare at a screen all the time with your free time. I've tried some of that and for me it sucks. I've seen others do it with mixed results - some fantastic and some less so.

Roth is great sometimes and sometimes it's not. If you're in a high income tax state making a lot it's maybe not as beneficial, especially if you see yourself moving to a no income tax state in retirement.

Other ways to build equity include, real estate, a business, side hustle, etc. If you're not maxing your 401k at some point because your building equity elsewhere, hey, good on ya. Don't stress it. Also don't forget arbitrage... i.e. don't pay off your 2.5% mortgage early with cash that can generate a guaranteed greater amount elsewhere.

My advice is don't take investment advice from anyone on an anynonymous forum in terms of what to invest in. Depending on the amount you are talking about, professionally managed accounts get really cheap. Cheaper than most actively managed funds and open up alternative, non-SEC regulated investments that perform better with better tax consequences than what you can do through retail brokerages. Unless you have access to these (you don't directly at Schwab, Fidelity, etc.), you are leaving money on the table.

I will say that some firms won't talk to you unless you are a qualified purchaser, but Schwab may be able to handle some of your questions through their wealth advisory services in house and at least give you an idea the services they can provide.

My suggestion is to read the Simple Path to Wealth by J.L. Collins. There's an audiobook too if that's more your speed. Another good resource is The White Coat Investor. He has a website and podcast as well as a course called "Fire your Financial Advisor".

This stuff isn't cosmic as much as the financial "professionals" would want you to believe. Paying fees to advisors can destroy a large chunk of your wealth making potential. We all owe an huge debt of gratitude to John Bogle and his invention of the index fund. Now if your start buying rental properties or businesses, then you may want to look into hiring a tax attorney.

Do the investing and management yourself. Buy the entire U.S. stock market (VTSAX or equivalent at Schwab) Set automatic contributions and forget it. Check your account balances once a year. Save 20% of your income. If you can make it 50% you'll have enough to retire in 10 years. A lot of people get wrapped up on Roth vs. Traditional. A guy that I think has pretty good perspective says, do ROTH until you hit the ~30% tax bracket.

Other books (in no particular order) to recommend if you want to dive in some more:
The Little Book of Common Sense Investing by John Bogle
Your Money of Your Life by Joe Dominguez and Vicki Robin (this is more philosophical and will give great perspective on trading your most valuable resource (your time) for money)
Pilot Math Treasure Bath by Jason Depew (Written by a pilot with a good handle on the concepts in the books above)
The Physcology of Money by Morgan Housel
Same as Ever by Morgan Housel (I'm not fully through this yet. But it's great so far)
Just Keep Buying by Nick Maggiulli

The FIRE (Financial Independence, Retire Early) community gets a lot of crap, some of which it deserves. Whether you want to retire early or not, one thing that high income earners should be striving for no matter what is financial independence, which is achievable in 10-30 years for a 121 pilot. Congrats on landing a UAL job and the paycheck you EARN with it. See you out on the line.