6 Common Reader Questions – Answered [Reader Mailbag #3]

As a junior, your son should absolutely get an internship this summer.

Focus on something finance-related. Lots of options, but anything with “bank” in the company name is good, and the bigger the brand name the better. The goal is to graduate with relevant finance experience on your resume with a solid GPA. Things get much, much tougher if you finish your senior year with no finance work experience.

IMO, the only thing early retirement changes is that it severely diminishes the value of an MBA. If I’m trying to retire in 10-15 years, using three of those years not earning income while spending up to $100,000+ on an MBA will set me back way too far. The MBA payoff usually comes when vying for upper management positions, and if you’re into retiring early, you’ll have one foot out the door by the time you’re old enough to be considered for those positions anyway.

Oh and one other note that may or may not apply. A lot of finance majors with an interest in personal finance naturally gravitate towards Personal Financial Advisor positions. It’s an okay field, but most are surprised to learn it’s really more of a sales position than anything. Which is fine if you’re into that sort of thing, but most finance majors aren’t. I’d also be a little concerned if that was my career, and I was seeing the massive trend to DIY index funds and robo-advisors.

3. Should I invest or pay down the mortgage? 

I have roughly $20k burning a hole in my pocket and want to either use it to invest or pay down my mortgage. I have no current investments outside of my 401k and a mortgage of about $525k. Would you invest in an index fund through Vanguard or chip away at the mortgage first?

Ah, the ooold dilemma. Probably one of the most common questions I get, which is why I wrote this guide on The Correct Order for Investing Your Money. 

In there, you’ll notice paying down the mortgage comes in at #10, right behind investing in index funds at #9. So, the textbook answer is to start building up an index fund portfolio. 

Beyond that, I’ll add that if you currently have no investments outside of a mortgage, and especially if your mortgage is rather new, those two factors tilt the scale further in favor of investing, in my opinion. 

Why? Because from a financial security standpoint, you’re unlikely to pay off your $525K mortgage any time soon. So if disaster strikes in the next decade or so, you’ll likely have the debt obligation either way. In that case, I’d personally rather have a big portfolio and dividends to lean on than a slightly reduced total loan balance. 

4. I’m worried my investment returns aren’t matching your investment returns… 

Just saw your recent portfolio update for January, [Editor’s Note: This is why I need to do these mailbags more often…] congrats on your results! That makes me wonder, though. My portfolio is similar to yours, but I didn’t earn as much in January as you did. 

In fact, my returns are still negative from when I first invested a few months ago. 🙁

Do you think I am doing something wrong? 

Hey there, 

I doubt you’re doing anything wrong, and I wouldn’t get too bummed about a negative return over a few months or even a year or so. December 2018 was a brutal month in the market, and if you invested just before that, it’s not surprising that your returns arestill negative as of January. They’ll turn around. [Editor’s note: They did – the stock market is up 7.5% between January and April 2019]

It’s important to remember that the stock market is a long term (10-30 year) play.

Two other things you should always keep in mind whenever making comparisons to my net worth updates: 

1. How did your portfolio do relative to a benchmark? For VTSAX, that’s something like the general stock market – the S&P 500 charts on Yahoo finance are fine. 
2. Ignore the dollar value of changes in my portfolio. The percentage is much more important since our portfolios aren’t identical in size.

5. Should I jump ship to the big ship? (Vanguard)

I’m 20 years old with $7K invested in Fidelity’s mutual funds. 

I’ve done lots of reading and am completely sold on being invested entirely in index funds, and I’m coming to realize that Vanguard is the best route to go. 

Do you think it’s important I switch from Fidelity to Vanguard? I don’t want to receive any withdrawal fees, or should I even be concerned about things like that?

First off, congrats on being a 20 year old with savings! Future money wizard right here!

Fidelity is a great company with some great index funds. In my Vanguard vs. Fidelity comparison, I do prefer Vanguard, but I also concluded there’s no pressing need to switch from one to the other. 

The main reason for that? Any time you sell stocks/mutual funds, there is one major fee to be concerned about – The Tax Man. 

In general:

• If you sell stocks prior to holding for a year, you’ll pay a short term capital gains tax. (Basically, you owe taxes at your marginal tax rate on however much your investments appreciated.)
• If you sell after holding for a year, you pay long term capital gains. (This is usually a lower percentage and much preferred.)

BUT, as a 20 year old, you’re in a great spot to make the move if you want to. If your total taxable income in 2019 is less than $39,375, your Long Term Capital Gains tax rate is 0%. At age 20, I’m betting you fit this description.

In which case, the only costs to switch would be any selling costs on Fidelity’s end. Most likely, that’s no more than $0-50. 

6. Awesome Bitcoin Investment Opportunity

Did you know you can invest $5,000 in Bitcoin once and get $7,000 passive income per month!”

Wow! What am I doing still working and investing in the stock market like a sucker??

(And yes, that one sentence is literally all this email said.)

Thanks for the questions everyone, and thanks for reading!

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Related Reading:

• 7 Reader Questions: Answered [Reader Mailbag – Christmas Eve Edition!]
• 10 Burning Reader Questions – Answered [Reader Mailbag]
• Vanguard vs. Fidelity: Which is best for index fund investors?