Money Management

It’s important to fund your retirement savings consistently for future financial security. 

In 2022, IRA accounts maxed out at $6,000 for savers under age 50 and $7,000 for those 50 and over. But many people struggled to put any money in an IRA at all.

We can attribute some of that to inflation. Consumers were forced to grapple with higher living costs across the board last year, from food to utilities to rent. That no doubt forced many people to cut back on funding their IRAs out of necessity.

But while inflation may be the reason some people didn’t meet their 2022 IRA savings goals, for others, missing those goals may have come down to a faulty strategy. And one specific move could help you avoid a repeat scenario this year.

When you put your savings first

Last year, you may have decided that you’d fund your IRA with unspent money from your paychecks at the end of the month. But if that strategy didn’t quite work out, well, that’s not surprising.

Money has a way of slipping away from us, whether due to small unplanned purchases like the store-bought coffee you crave, or surprise bills that can’t be avoided, like car repairs or medical copays. That’s why you may have more success in funding your IRA this year if you put the process on autopilot.

Many people commonly set up automatic transfers to a savings account from a checking account. You can do the same thing with your IRA if your account allows automatic transfers, which it probably does.

This year, IRAs max out at $6,500 for savers under 50 and $7,500 for those 50 and over. So let’s say you’re aiming to max out and you’re 42 years old, which means contributing about $540 a month. Rather than tell yourself you’ll move that money over yourself at the end of the month, set up an automatic transfer so that the money leaves your checking account at the start of the month, before you’ve spent it. That way, you’ll be more likely to meet your savings goal.

Make up for 2022

No matter why you didn’t save as much in your IRA as you would’ve liked to last year, the good news is that a strong 2023 could help compensate. But you definitely don’t want to fall short of your IRA savings goal two years in a row.

Putting your savings on autopilot could make you more likely to stick to this year’s goal, and it will also give you one less thing to think about every month. And remember, you can automate your IRA contributions no matter how much money you’re putting in. Even if you can only afford a $25 monthly contribution, it’s worth automating it so you know you’re staying on target.

Funding your IRA consistently during your working years could make it so your senior years are more financially comfortable and worry-free. So it’s worth making that effort, even if it means giving up other things or limiting your spending along the way.

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That’s a really telling statistic. 

When your financial situation seems to be anything but steady, it can wreak havoc on you mentally. Maybe you owe money on your credit cards and you’re struggling to chip away at those balances. Or maybe you’re really having a hard time paying your mortgage and are worried about losing your home.

If you’ve been buckling under the weight of financial stress lately, you’re not alone. A good 75% of Americans say increasing financial stress is impacting their productivity at work, according to a recent survey by SecureSave.

Worse yet, nearly 30% of Americans say they spend one to two hours a day worrying about money. And if you’re spending that much time stressing about money, it means you’re probably falling behind on job-related responsibilities.

That can make for a pretty bad situation, though. If your productivity at work declines to a noticeable degree, it could put your job on the line. And that’s apt to only make your financial situation even worse. So if you’re stressing over money woes, a good bet is to do what you can to shore up your finances and start tackling your problems head on.

Start with an emergency fund

In addition to so many people being worried about money, SecureSave found that 67% of Americans don’t have enough cash in a savings account to cover an unplanned $400 expense. If money-related concerns are impacting your productivity on the job, one of the first things you should aim to do is build up some emergency savings.

Ideally, you should try to save enough money to cover a full three months of essential expenses. But if you’re sitting on less than $400 in the bank right now, it may take a long time to get to that point. And that’s okay. For now, try to save something, even if it’s just a few hundred dollars so you have a bit of protection.

Address your financial problems before they worsen

No matter what specific financial issue is getting you down, chances are, there’s some solution for it. Let’s say you owe a lot of money on your credit cards. You could try transferring your balances over to a single card with a 0% introductory APR so you get a reprieve from accruing interest as you figure out a game plan for paying off your debt. That could mean cutting expenses or taking on a side job to come up with the money.

If you’re having a hard time paying your mortgage, reach out to your lender. It may be willing to modify the terms of your loan, so your payments become more manageable for you.

It’s easy to see why so many people are stressed out financially these days. Inflation is surging. Borrowing costs are up. And there’s still the nagging fear of a possible recession.

You can’t just magically snap your fingers and make all of your financial problems go away. But you can try to build some emergency savings for peace of mind and tackle your specific issues individually to give yourself relief. Doing so might work wonders for your mental health — and even save you from losing your job.

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It certainly sounds delicious. 

Some people shop at Costco for things like toilet paper and bulk cereal. But I have a confession to make. One major purchase category of mine at Costco is none other than baked goods.

In my house, for example, we have “Muffin Saturdays.” And while I could spend $4 at my local bakery for a modest-sized muffin, my local Costco sells a 12-pack of mega-muffins for $9.99. So all told, opting for Costco results in a lower credit card tab. And they even let you mix and match your muffins, which is an added perk.

I’ve also been known to do things like impulse-buy Costco cheesecakes to satisfy cravings, or load up on Costco bakery cookies when I’m too busy to bake myself. These habits aren’t particularly good for my wallet or waistline. But I automate my savings every month to stay on track, so I can generally afford these modest splurges. And as for the waistline factor, well, that’s what exercise is for.

Meanwhile, I just got word that Costco has introduced a new dessert offering into its lineup. And while it hasn’t hit my local market just yet, you can bet I’m going to be on the lookout for it — and that I’ll be scooping it up the moment it hits the shelves.

How does almost five pounds of chocolate peanut butter goodness sound to you?

Costco is known to introduce new products on a regular basis. It’s one of the things I like most about the store.

Now, some lucky Costco customers can walk into the bakery department and snag the warehouse club giant’s latest concoction — a peanut butter chocolate pie that weighs between 4.5 and 4.75 pounds. The pie is said to have a buttery graham cracker crust with a chocolate and peanut butter mousse center, according to Laura Lamb, the brains behind the social media fan page Costco Hot Finds.

As you might imagine, Costco fans are eager to get their hands on this new creation. But it hasn’t reached every market yet, so like me, you may have to wait — which, I guess, is a good thing or a bad thing, depending on how you look at it. To spin it positively, I suppose I now have more time to finish up all the leftover Costco cheesecake in my freezer before bringing a new dessert home.

Is Costco’s new pie worth buying?

If you love chocolate, you love peanut butter, and you love pie, then you may be tempted to pick up this beauty from Costco. But before you do, think about your finances.

It’s a lousy reality, but right now, a lot of people are cash-strapped due to inflation. So if you’re barely covering your essential bills, you probably don’t want to drop a bunch of money on a giant dessert if there’s no particular occasion you have it earmarked for.

What’s more, if you don’t have an upcoming birthday or special event that calls for a large dessert, then buying Costco’s chocolate and peanut butter creation could actually mean throwing your money away. Even I, a self-proclaimed dessert fanatic, probably couldn’t take down an entire pie within a week without getting sick. So unless you have ample freezer space, you may want to either pass on this concoction, or otherwise wait for an opportunity to share it.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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Index funds just do better more often. 

Graham Stephan is an American real estate agent and YouTube personality famous for his personal finance and investing advice. He recently unveiled his 2023 investment plan, which includes a hefty allocation to the $SPY, a passive index fund that tracks the S&P 500.

The finance guru prefers passive funds over actively managed funds. Actively managed funds choose stocks based on research, analysis, and timing. They are not pegged to market indexes; instead, fund managers run them.

Stephan recently gave investors yet another reason to avoid fund managers.

Most active funds underperform the market

On Twitter, Stephan said, “Two-thirds of active fund managers were beaten by the index in the last 20 years. Of the remaining third, managers that win in one year don’t win in the next year most times.”

Independent research supports his claim. According to one report by S&P Global, actively managed funds have mostly underperformed index funds like the S&P 500. The report compares active funds to the S&P 500. Here are some 2022 numbers:

More than 50% of U.S. large-cap funds underperformed over one year.More than 86% of U.S. large-cap funds underperformed over five years.More than 94% of U.S. large-cap funds underperformed over 20 years.

What does this mean? Stephan may be understating how many poorly fund managers perform over the long term.

Why do fund managers underperform?

Fund managers may underperform passive funds for several reasons. They typically charge high fees, which eat into investor returns. Fund managers may make poor investment decisions or prioritize short-term returns. The list goes on.

Actively timing the market is risky business. Though a small percentage of active funds outperform the market, most don’t. Passive funds are less risky investments.

Where should you invest your money?

Stephan advocates pouring your money into index funds and forgetting about it. It’s a simple and profitable strategy. The stock market’s record speaks for itself: It has returned an average of 10% per year over the past 50 years.

Stephan recommends investors diversify their investments. Index funds automatically spread out investments among companies. As part of his 2023 investment strategy, the finance guru diversified some of his portfolio into real estate, Treasuries, and a tiny bit into Bitcoin and Ethereum. If a single market crashes (like the crypto market), his entire portfolio might not be down.

Another strategy for weathering a tough market is to build an emergency fund. You can pull from a savings account to cover unexpected expenses like medical bills or credit card debt. An emergency fund protects you from selling stocks at a loss — or taking out pricey loans.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Cole Tretheway has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.

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It’s a smart move that could help you gain wealth. 

Let’s face it — 2022 was a tough year for investors. Many people are now seeing losses in their brokerage accounts and IRAs, and stock market volatility is largely to blame.

But some people lost money in the stock market last year due to not having diverse-enough portfolios. The tech sector, for example, took a huge hit in 2022. Investors who had most of their assets in tech are probably now not so happy with how their brokerage account balances are looking.

If you’re not thrilled with how your portfolio did in 2022, then you may be looking to make some changes in 2022. And that’s a smart thing. But one change you may want to focus on is diversifying your holdings, and there are a couple of different ways you can go about that.

It pays to branch out

A diverse mix of investments in your portfolio can do several good things for you. First, it can set the stage for growing long-term wealth. Secondly, it can, to some degree, help protect you from losses.

According to New York Life’s latest Wealth Watch survey, among investors who are planning to make changes to their investment portfolio or strategy in 2023, a good 39% plan to focus on diversifying. And doing the same could get you much closer to your financial goals.

Now, when it comes to diversification, you have a few options. The first is to simply load up on stocks across a wider range of market segments. So, let’s say that as of now, you own a bunch of tech stocks, energy stocks, and bank stocks. With that setup, you’re really only hitting three of many stock market sectors. So in that case, you may want to branch out and start buying some auto stocks, healthcare stocks, retail stocks, and real estate stocks.

If the idea of doing that seems too time-consuming, another option is to simply load your portfolio with broad market ETFs, or exchange-traded funds. When you buy shares of an ETF, you’re effectively getting to invest in a bunch of different companies without having to go out and purchase their shares individually.

ETFs come in different varieties. It’s possible to buy ETF shares that focus on a single market segment. But if your goal is to diversify your portfolio, then you’ll want to focus on total stock market ETFs or S&P 500 ETFs, as those give you nice exposure to the broad market.

Fractional investing can help you diversify

You might assume that it takes a lot of money to build a diversified portfolio. But actually, these days, it really doesn’t have to. That’s because most major brokerage accounts let you buy shares of stocks and ETFs on a fractional basis. What this means is that if you want to own shares of a company that cost $200 apiece, but you only have $50 to invest with, you can buy a quarter of a share instead.

Fractional investing makes it easier to branch out on a budget. So if your brokerage account doesn’t offer this option, you may want to move your money over to one that does.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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If Silicon Valley Bank has you spooked, know that crypto is even riskier. 

It’s been a tough week for the banking sector. The collapse of several banks left us all wondering how safe our money actually is and raised questions about whether there might be better places to keep our cash. Indeed, it led some people to consider buying cryptocurrency instead.

Unfortunately, if you’re looking for somewhere that’s safer than a bank, crypto is not the answer. Crypto is fascinating. It could have potential. But even the biggest crypto enthusiasts would struggle to describe it as safe. Crypto is less regulated, more volatile, and ultimately, a lot riskier than traditional banking.

Here are four reasons not to put your savings into crypto.

1. Cryptocurrency is volatile

In November 2021, Bitcoin (BTC) was worth around $65,000. The following November, it had fallen below $16,500. Today, it is trading at almost $25,000. That kind of volatility is one thing in an investment that you plan to hold for the long term. But it’s quite another when we’re talking about the cash you need to pay your bills.

Let’s say you use your paycheck to buy Bitcoin today rather than keeping it in the bank. Next week, the price of Bitcoin falls by 10% (which is not uncommon in crypto). But your rent or mortgage are due and you can’t pay them in Bitcoin, you’d need dollars. In that scenario, you could be forced to sell your BTC at a loss in order to cover your expenses.

The same goes for your savings. Perhaps you’re saving up for a vacation or have built up some money in case of emergency. It’s completely understandable that you don’t want to risk losing that money in a bank failure. The trouble is that there’s a much higher chance of crypto declining in value than your cash being swallowed up in a bank collapse.

2. Cryptocurrency platforms can fail, too

Right now, we can’t escape headlines about the failures of Silicon Valley Bank, Silvergate, and Signature. But don’t forget, only four or five months ago, it was the collapse of FTX and other crypto platforms that dominated the news. Before that, there was a string of crypto closures and bankruptcies, triggered by the implosion of the Terra blockchain.

According to FDIC data, more crypto platforms failed in 2021 and 2022 than banks. And there’s a good chance that 2023 will bring more crypto exchange failures.

Putting that worrying fact aside, it’s true that one of the advantages of crypto is that you can self-custody your funds. Rather than relying on a crypto exchange (or bank), you can put your assets in a crypto wallet that you control. If an organization fails, it won’t impact your funds. But if you’re new to crypto, know that wallets can bring their own risks. For example, There are billions of dollars worth of Bitcoin locked in crypto wallets that people can’t access because they forgot or lost the security codes.

3. Crypto does not have the same protections

When Silicon Valley Bank collapsed, its customers were protected by FDIC insurance. Not only did nobody lose money, but the FDIC took over the bank so customers’ direct deposits, auto payments, and transactions continued to work as normal. It’s a similar story with Signature bank.

In contrast, it isn’t clear whether people who had assets on FTX, Celsius, BlockFi, or other failed crypto platforms will ever get their money back, nor how long it will take. Customers’ accounts were suddenly frozen and there was nothing they could do. The lack of consumer protection means they are now in the hands of bankruptcy courts, and in some cases, they’ll be at the back of the queue.

4. Crypto still has a long way to go

It’s true that cryptocurrency, particularly Bitcoin, aims to offer an alternative to the traditional banking system. One of the attractions of decentralization — essentially taking out the middleman — is that people can manage their money without relying on banks. This holds the potential of more inclusion as, for example, it could make it easier for people without credit histories to access banking services and credit.

Decentralized finance also promises faster processing times and lower fees, particularly when it comes to international transactions. That’s all very well, but it is still very early days and there’s a lot we don’t know about how crypto will unfold. SEC Chair Gary Gensler labeled the industry the “Wild West” because of the lack of protection and transparent information for consumers.

Increased crypto regulation will almost certainly come and it could eventually build trust and strengthen the foundations of crypto. In the meantime, authorities are using existing rules to crack down on cryptocurrency, eventually. Until then, increased enforcement and regulatory uncertainty will likely lead to more volatility. And that makes crypto a less than ideal place for your savings.

Bottom line

Savings and investments are two different things. Savings are for money we might need in the near term, and it’s important to keep them somewhere safe. Cryptocurrency is an investment, and a risky one at that. Even if you use a crypto wallet to protect yourself against platform failure, you can’t avoid the volatility and regulatory uncertainty. Put simply, it isn’t a place for your day-to-day cash or emergency fund because you could lose it all.

It’s understandable if the SVB collapse has made you nervous about traditional banks. However, consumer protections in traditional banking are much stronger than anything in the crypto world. Case in point: unlike the clients of several failed crypto platforms, SVB customers did not lose their money. Banks may feel risky right now, but they are still one of the safest places you can put your savings.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Emma Newbery has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.

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