We love getting listener questions and we’ve had a lot recently so it’s time for 5 awesome questions from you. We’ll cover bond ETFs, the books we love, transitioning investments, long term investing, and retirement planning.
Question 1: Bond ETFs
Can you explain how bond ETFs work? I know that bonds are a fixed income investment that pays a set interest upon maturity and that you pay a lump sum to purchase the bond.
I don’t understand how bond ETFs work. Specifically, how do they work with dollar cost averaging? For example, if there’s a bond ETF that is trading at $60 per share and I buy 2 shares each month, at what date does it start calculating the maturity date?
Bonds typically pay out twice a year but bond ETFs work differently. You’re buying a “basket of bonds” with various maturity dates so you get payments consistently. These ETFs act as a dividend investment in that regard.
In a long term bond fund like Vanguard BLV, the price fluctuates based on the bonds paying interest but the price largely stays consistent. You’re not buying for yields but for dividends.
To incorporate dollar cost averaging, you want to buy when there has just been a payout and the cost is lower but because it’s a basket of bonds, this averages out over time.
Question 2: Books
What books, not specifically about money, have had an impact on your financial education or perspective on money and wealth.
***Also, the other ideas you sent in were awesome too and we’re working on making them full episodes.
We were thrilled to recently interview Ramit Sethi because his first book, I Will Teach You To Be Rich was Matt’s gateway book into the world of personal finance. Others in that same arena include The Simple Dollar, The Richest Man in Babylon, and How to Get Rich.
Those are all specifically about money but Matt’s list includes Jim Henson’s biography. It details how Henson owned the entire creative process for his work.
Andrew loves books that focus on productivity. When you consider that he started LMM and grew it into a business that makes six figures within five years while working full time, you can’t argue that his reading list isn’t a good one.
First on the list is Become an Essentialist which teaches you to understand the difference between being busy and being productive. Getting Things Done shows you the process to implement in order to, well, get things done!
Good to Great analyzes what steps companies took to go from good to great, Walgreens being an example. Atomic Habits is a book by early LMM guest James Clear. It teaches readers to flip their mindset in order to become the type of person you want to be.
Andrew’s list also includes some kind of series about underwear gnomes because there is nothing wrong with reading only for pleasure!
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Rule 3: Liquidating Stocks
Really enjoy your show and beer choices. You make money matters easy to understand and fun. I have turned my two kid onto your show and hope they can get as much out of your show as I do.
Question: Investment strategy in converting an aggressive portfolio into a later in life portfolio. I’ve been investigating since I was in my 20’s and I just turned 60 after two retirements. One from the military and my second career as a PA in medicine.
I have invested mostly in stocks and now feel I should start converting into more conservative bonds and possibly metals. How would you suggest starting the conversion of stocks to bonds and metals, or should I?
When you buy stocks, their worth increases and you sell them, you’re taxed. The amount you’ll be taxed depends on your income. If you’re single and earning $38,600 or less or married and jointly earning $77,00 or less, you’ll pay 0% tax on your capital gains from stock sales.
Before you start converting, make sure the amount you earn including the amount earned from selling the stocks, is under those thresholds.
As you’ve recently turned 60, flip at least 30% to bonds or another less aggressive investment. Over the next 5 to 10 years, continue to slowly move things over.
Question 4: Betterment vs. Fundrise
I have both a Betterment and Fundrise account. My goal is long term growth. Which account do you recommend I contribute more to?
Real estate, excluding rental property, should only make up 30% of your overall portfolio max. And real estate is real estate, one type of investment. For the record, Andrew and Laura love Fundrise and are contributing 2 times the amount of money to that as they are to Golden Butterfly.
Betterment, on the other hand, has several different types of accounts including retirement and taxable accounts. Because of this and that you don’t want more than 30% of your money in real estate, for long term investing, concentrate on Betterment.
Question 5: Retirement Plan
I have worked at a couple of different jobs and accrued money in OPERS (Ohio Public Retirement System).
I have 3 years total and am currently working a part-time job that has money going to OPERS. It’s a great retirement system if you get to your 30 years or whatever you need.
My question is, I don’t plan on ever reaching that number because I am a farmer and plan to do that for the rest of my career. I don’t foresee getting more than 5 years in the system.
Should I leave the money in this system, and take it out when I turn 60 or whenever I can (I am currently 27). Or take it out, take the penalty and invest in land to farm? Or roll it over to a 401k or similar plan?
OPERS is a retirement plan for public employees. Andrew did some research and there is no option to do a rollover with the money.
Mathematically, it makes sense to leave the money where it is so there is no early withdrawal penalty. If you’re worried about keeping track of it, Personal Capital supports OPERS so you can add it there and keep an eye on it.
The other option is to take the money out and use it to invest in land as an investment as your future farming career. Find out what the penalty is and make your decision.
We really appreciate your questions. After nearly seven years of episodes, we sometimes feel like we’ve covered everything but you all always throw something new at us. And if you’re wondering about it, lots of other listeners are too. That’s why we do these 5 questions episodes, so we can address your questions to a wider audience. Keep them coming!
Little Sal: A sour aged with blueberries.
Fruh Kolsch: A fermented beer.