401ks, FOREX, Cash, Rentals, and Leveraged Buyouts: Five Awesome Questions

five-questions-july-2018
Table of Contents
  1. Question One
  2. Question Two
  3. Question Three
  4. Question Four
  5. Question Five
  6. Keep Them Coming!
  7. Show Notes
Table of Contents  
  1. Question One
  2. Question Two
  3. Question Three
  4. Question Four
  5. Question Five
  6. Keep Them Coming!
  7. Show Notes

If you want to know about 401ks, cash, rentals, and leveraged buyouts, we’re covering it with five awesome questions from you.

We have awesome listeners, and they send in great questions so from time to time we like to do a five questions episode.

Listen to the show every Monday, for free:

Question One

Just found you guys a couple of weeks ago and have listened to several episodes. I am trying to increase my personal financial knowledge, and I have enjoyed your podcasts. Maybe my question will  make it onto a future five awesome questions episode.

My employer offers a 401k, and we have the option of either putting it into a Fidelity or TIAA account. Initially, I thought I would go 50/50 with each. However, in my mind, it seems that having it all go to one account will be better because there is a larger lump to gain interest on. However, if both companies perform the same, would the 50/50 strategy yield the same amount of gains over the long term?

Thanks,
Jason from Utah

We believe in keeping your finances as simple as possible and having two 401ks makes things more complicated than they should be. Take a deep dive into both funds. One may have a better selection of investments than another, but often you’ll see a lot of crossover.

The main decider should be the fees. Investment fees can eat up a huge chunk of your wealth over time. Personal Capital can show you exactly how much you’re paying in fees and the long-term implications.

Question Two

Hey guys!!! I’m a new listener to the show, and honestly, I love the content that I hear on every episode.

I met an individual who is involved in FOREX trading. He gave me a lengthy elevator speech about how it works and how he makes X-amount of money doing it, and I should come to his event that he hosts to further explain Forex trading.

Do you have any suggestions about this particular investment? Is it worth the time for me to go tomorrow or should I just skip it and do more research on how I can reduce my credit card debt?

I searched on your website and didn’t see this so maybe you guys could cover this on your show?

If not, it’s cool. Keep up the great work and look forward to hearing what you guys are drinking next!!

P.S- if I want to start looking into drinking beer, where would be a good place to start? Also, if I want to look into HEALTHY beer, do you have any suggestions?

Babatunde Shekoni

Paying off credit card debt should always be your priority. There is no investment that is going to make up in returns what you’re paying on credit card interest.

Anyone who invites you to a seminar is either a sucker or a scam artist. Do not attend!

FOREX means foreign exchange. You can buy one currency and sell another. This is the opposite of our set it and forget it investing strategy and almost a sure way to lose money.

If it's complicated, you shouldn't do it.

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If you’re new to beer, go to a brewery and order a flight. You’ll get several sample sized glasses of different beers so you can try each and start to get a sense of what you like. If by healthy you mean won’t get you drunk quickly, look for a low ABV beer. Founders All Day IPA is just 4.7% alcohol by volume.

If by healthy you mean a gluten-free beer, try Omission. All their beers are gluten-free.

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Question Three

Hi!

My questions lie in the fact that my business is teaching yoga and most of my income comes in the form of cash. When you look at my income on paper at tax time, it looks as if I am very very poor. I teach four classes a week “on the books.” In fact, my accountant asks me every year how I survive!

One day I would love to have enough cash to purchase a small building and become a landlord. It’s unlikely I can get a mortgage currently. Do I need to save enough cash to buy the building outright or is there another way to do this? I’m years away from it, but I want to plan NOW.

I love your show; it makes my commuting enjoyable!

Thank you,
Erin

If you don’t report cash income, it can be hard to spend. Al Capone was busted for tax evasion, not for any of the many other crimes he committed. You’re not going to get a mortgage if you’re not reporting your income.

Even when you do start reporting income (and we suggest you do), it can be tough to get a mortgage as a self-employed person. When the time comes, it may be worthwhile to seek out a credit union rather than a traditional bank. Banks only care about the bottom line while credit unions exist to serve their members.

Your other options, although they’re both probably long shots, is to find an outside investor to provide the money to buy a building or find an owner looking to get out who is willing to set up a rent to own situation that won’t require a mortgage.

Question Four

Hey guys,

I have loved your stuff on rental properties.

I have done my own research and definitely, think this will be a good option for me in the future (next year maybe 1.5 yrs). However, most of my money is in the stock market right now, and I really don’t want to touch any of it unless I have to.

If I am going to be saving for a down payment on a house or two, should I just keep that excess cash in my bank account? After listening to you guys for over a year that’s almost painful to imagine for me!

Is it worth it to put it into a Vanguard Fund where I have about $15K or into my Betterment account with $30K? I know you guys preach about NOT investing money you will need in the short term but just want to make sure leaving it in my bank account is the best way to go.

-Mike

We’re pretty risk adverse at LMM so always suggest that short-term money (money you’ll need in five or fewer years) be kept in a low-risk account. Low risk and high yield accounts don’t really exist, but you do have slightly better options than leaving the money in your checking or savings account where it’s making 0.00001% interest.

Check out CIT Bank. They offer a 13 month CD at 2.25% APY and an 18 month CD at 2.50 APY.

Question Five

Hey LMM Team,

I hope I didn’t miss this in your podcast stream in the past, but could you do an episode on leveraged buyouts? I would love to hear you guys talk about this “LBO” term that keeps getting thrown around with the 2018 retail apocalypse in full swing – RIP Toys ‘R Us.

Thanks,
Jenna

If company A wants to buy company B, there are a few ways to raise the money. They could sell off some of their own assets or go into debt by taking a loan. Or company A could buy a controlling stake in Company B, sell off Company B’s assets or take out loans in Company B’s name and buy it with that money.

This leaves company B without assets or drowning in debt. By that time, Company A doesn’t care. It’s extracted all the value it could from Company B and declares it bankrupt. It’s scummy, and that’s what happened to Toys R Us.

Keep Them Coming!

Thanks to everyone who sent in questions. Answering listener questions is our favorite part of the job!

Show Notes

In the Steep: A double dry hopped IPA.

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