Cheat Sheet Q&A:

Today’s topic:  Choosing between different types of investments

Here’s the entry:

Brian, I am a husband, and a proud father of two.  I have spent the last 10 years paying off medical debt, credit card debt, and chipping away at my student loans, all while trying to be the provider of the household. Kids aren’t cheap! 

Through our struggles, my wife and I have managed to buy a house in 2011, create a Will, set up Life Insurance, and create a ‘rainy day’ fund.  I now have a better paying job and my wife has since started her own successful business.  With this increase in gross income, my wife and I have focused our attention towards retirement planning and have contributed roughly 10% each towards IRAs and 401Ks for the last two years.  I am interested in investing in the Stock Market to add another vehicle to our portfolio.   So here is my question(s) assuming our income-stream stays constant…


A) Should we work towards contributing more to the IRA/401Ks to try and max for the year? or...


B)  Start investing in the stock market?--I recall you referring some good reading materials; however, I can’t seem to locate them.  I have a very basic understanding of the stock market and need more fundamental knowledge to feel comfortable.  And if so, what is a decent monetary amount to have in the bank to start with? or…


C) Is there another retirement vehicle that you may suggest or way of keeping our portfolio well-rounded given our age?


Bottom Line:  Before we get started…  Congrats!  You timed the housing market perfectly.  You’ve been paying off debt.  You’ve been saving and investing.  That’s all outstanding!  So let’s get started. 


I’ll take the last question first.  The two best performing investment classes historically are the stock and housing markets.  Given that you’re young and you already own your home; I’d stay with stocks for additional investment income.  As for the stock investment vs. IRA/401k questions…


The odds are that you are investing in the stock market via your IRA and 401k investments.  Unless you’ve selected investing in a bond fund or money market option in your 401k, all of the other options are going to be stock based investments; the same is most likely true of your IRA based investments as well.  So that’s where you should start.  Figure out what you’re actually invested in currently and where your new contributions are going.  You should be able to talk to a representative from the administrator of your 401k and an investment advisor from the company who holds your IRA.  Once you have a better grasp of those investments you’ll then weigh access vs. taxes.


Generally speaking I’d suggest you max out your 401k first, prior to investing additional money in a traditional and taxable investment account.  Let’s compare the two types. 

The advantages of an IRA and 401k account:


·          In a 401k account you get to invest gross proceeds and don’t have to pay taxes on gains until you withdraw money in retirement

·          In a traditional IRA you get a tax deduction for your contributions in each year you make them and you don’t have to pay taxes on investment gains until you withdraw money in retirement

·          In a Roth IRA you don’t ever have to pay taxes on investment gains even when you withdraw money in retirement


The disadvantage of these retirement accounts:


·          You can’t withdraw money prior to age 59.5 without significant penalties and potential tax consequences


The advantage of a traditional (taxable) investment account:


·          Access to your money at any time without penalty


The disadvantage of a traditional investment account:


·          Any investment (capital) gains you realize along with dividends and interest accrued are taxable events in the year and each year they occur


So it comes down your vision of what your near, medium and long terms needs are and what you expect them to be.  I keep a majority of my investable free cash flow allocated to retirement accounts (IRA’s and 401k allocations) with about a third of it going to a general taxable investment account for example. 


In terms of reading material…  Here are two places to begin:


  • The Motley Fool “You Have More Than You Think: The Foolish Guide to Personal Finance”

This particular Motley Fool book, which was released in 2001, is good for you to evaluate your current financial situation, create plan (including debt elimination) and to begin to invest.  It’s easy to read, fun in presentation and full of good information. 

  • "Beating the Street"

Beating the Street was written in 1994 by legendary investor Peter Lynch.  While much has changed in the investment world in 20 years the principals he outlines are complete relevant.  Among important topics covered:  How/when to buy and sell (the most difficult decision an investor has to make).  What types of companies to invest in as you’re getting started.  He also discusses some personal philosophy such as investing in companies with low debt, etc. that are mostly consistent with my philosophies regarding investing.

I hope that’s helpful & best wishes to you and your family!

If you have a topic or question you’d like me to address email me:

Audio Report:



It's not just for a car...  There is a new home premium as well:

Bottom Line:  We all know that there is a price you pay when you buy a new vehicle.  I’m not referring to whatever the purchase price is…  I’m talking about the instant depreciation that occurs the moment you drive your vehicle off the lot.  When buying a home I don’t think people look at accepting significant and instant depreciation but they should. 

From the National Association of Realtors – 40% of all interested home buyers want a new home and home builders are taking advantage of the opportunity.  I don’t blame home builders at all for getting as much as they can for their newly built homes.  The surviving home builders went years without turning a profit and see an opportunity to put themselves on solid financial footing given the high demand for new construction.  That being said the premiums that are being charged are the largest I’ve seen and it doesn’t represent good relative value. 

·          The average existing home price right now:   $198,500

·          The average new home price:  $290,000

More directly to the point… There is a new minimum premium that’s being built into new home construction.  Home builders are pricing at a minimum of 20% above the comparable existing home prices in similar communities.  On the average home sold that’s about a $50,000 premium!  In other words you’re in essence taking a 20% of so hit on your home the moment you close on it, not unlike driving off of a car lot with a new car.  The numbers are clearly just bigger.  Instead you may consider buying a like existing home and doing a little home renovation with some newer touches.  That would likely be a much better value.


Audio Report:




GM's unadvertised best pricing available for new vehicles:

Bottom Line:  The best pricing that is ever offered from General Motors is their employee pricing.  Allegedly it’s significantly below invoice price and below wholesale cost.  If you own a GM vehicle that is part of the myriad of recall notices issued this year you likely have an opportunity to buy a new GM vehicle at employee pricing.  GM is not advertising this but they are sending notices out to owners of recalled vehicles indicating the employee pricing option.  So if you want a new car and have one of these recalled cars keep an eye out of the notice and/or touch base with your GM dealer of choice to see about getting the best possible price on your next car. 

Audio Report:


If you want to upgrade to a new iPhone… wait … at least for a day or two:


Bottom Line:  Part of me feels guilty for even passing along a rumor, except that it looks like Apple is gearing up for a big promotion and you shouldn’t have to wait long to find out what it is. 

Apple has raised it’s in store inventory of iPhones and accessories and are rambling up staffing over the next week in much the same way they do with a new iPhone release.  Now the iPhone 6 likely isn’t going to be ready until late summer so it appears as though they’re getting ready to blowout a bunch of iPhone 5C’s and 5S’s.  So it’s worth waiting, at least a day or two, to see what Apple is gearing up for at their Apple stores before buying a new product.

Audio Report:



What we can all learn from a recent promotional experiment:

Bottom Line:   The popular food service for college campuses “Mr. Delivery” conducted a promotion and simultaneous experiment on Cinco De Mayo that I think is very instructive.  They sent out a coupon for 10% off  delivery service on Monday.  They also included an additional four lines of fine print (smaller font just below the 10% of offer code).  In the “fine print” they included another offer code for 15% off.  So of the coupons redeemed on Monday how many do you think were at the 15% off level? 

Only 12% used the 15% off code.  88% of customers used the 10% off which means they didn’t even bother reading through the additional four lines in smaller font.  There’s a lesson in here.  How often to we sign a contract without reading fine print.  Download programs with seeing what’s in there.  Opening accounts, etc.  Who knows what we are missing because we only absorb what’s fast and easiest.  We should all take the extra moment or two to truly take in the fine print.  Especially when we’re signing contracts…

Audio Report: