Personal Finance 101 for Young Lawyers Forum

[Yugihoe]

Maybe consider changing your asset allocation for your lower risk tolerance. Can do 50% bonds and 50% stocks. Think you should keep invested and accumulating in the market sticking to whatever AA you decide is right for you though.

[Anonymous User]

Married 3rd year SF CA associate market-paying firm. I graduated law school with $10,000 of debt and my spouse (2nd year) was in public service utilizing loan forgiveness until transitioning to biglaw in April. Today we have $250,000 invested/cash (generally $125,000 in 401K, $45,000 in Roth IRA, $55,000 in 529 plan for kids' college, $15,000 HSA, $15,000 cash). My spouse's loan balance when she came to the dark side in April was $157,000 (total P&I). We have aggressively been paying it down, and should have it paid off in January (i.e., 10 months total). At the end of my 4th year and my spouse's 3rd year, we should reach $500,000 net assets (usual caveat about the markets), with about $200,000 unrestricted for a home, etc.

[Anonymous User]

What is the best move for refinancing? I am tempted to choose the 5-year plan because it offers the lowest rate, but my 100k debt equates to 2k a month payments. Should I opt for a longer-term payback schedule?

I can't decide between getting the best rate, and consequently paying a ton each month, or wanting to have more cash available at month's end but a higher interest rate

[Ultramar vistas]

^ can't time the market.

I just don't understand this sentiment. The market's been on a tear for almost 10 years now. What's wrong with wanting to protect your gains by moving your assets into other investments?

Damn. Smart enough to be in a personal finance thread, not smart enough to get out of your own way. This is painful to read - please understand that time in the market is always superior to timing the market. You are in the luxurious position of having money that you do not immediately need, and an excellent job.

A person with the ability to ride out 3 or 4 years of market reset, and whose returns therefore exactly mirror the market, is statistically far, far more likely to do well than someone who tries to pull their investments before a recession.

You are smart, but no smarter than the market. Unless you are trading in inside information; in which case, you’re in the right place to find a lawyer!

Hedge funds and active managers who spend billions in research, computers, quants and time consistently fail to accurately predict the market any better than index funds. If an imminent recession was so obviously coming in the next 12 months, the market would already have responded and crashed. By taking out money that you don’t actually need in the next few years, you are just robbing yourself of gains.

[Anonymous User]

...We also pulled all money out of the stock market because our country is being run by the dumbest people on the planet and the market was overvalued 3 years ago.

Edit: Retirement accounts are all stocks, didn't pull those out since we can't touch them for 30 years.

This is exactly what I did a few weeks ago - even moved about half of our retirement accounts to earlier target date funds (e.g. 70/30 stock/bond instead of 90/10).


What are the best places to park $100-200k for the next couple years while we wait for the market to drop a bit? Currently just put a bunch in a high yield savings account and have found some short term CDs, but obviously would like to make more than 2-2.5% with that amount of money.

The best place to park the $ is in the stock market. Your gut feeling of the market is not Nostradamus.

[minnbills]

Damn. Smart enough to be in a personal finance thread, not smart enough to get out of your own way. This is painful to read - please understand that time in the market is always superior to timing the market. You are in the luxurious position of having money that you do not immediately need, and an excellent job.

A person with the ability to ride out 3 or 4 years of market reset, and whose returns therefore exactly mirror the market, is statistically far, far more likely to do well than someone who tries to pull their investments before a recession.

You are smart, but no smarter than the market. Unless you are trading in inside information; in which case, you’re in the right place to find a lawyer!

Hedge funds and active managers who spend billions in research, computers, quants and time consistently fail to accurately predict the market any better than index funds. If an imminent recession was so obviously coming in the next 12 months, the market would already have responded and crashed. By taking out money that you don’t actually need in the next few years, you are just robbing yourself of gains.

I'm not stupid - I understand all of that. Obviously nobody can predict the market. But a) this is a profession in which people are laid off en masse whenever there is a downturn and therefore b) you may need that $$ sooner than you think. Liquidating stocks in a downturn is like catching a falling knife, and is definitely worse than parking some assets in other investments just in case. Also there is something to be said for holding some $$ to invest in the market when there is a downturn.

[Ultramar vistas]

I'm not stupid - I understand all of that. Obviously nobody can predict the market. But a) this is a profession in which people are laid off en masse whenever there is a downturn and therefore b) you may need that $$ sooner than you think. Liquidating stocks in a downturn is like catching a falling knife, and is definitely worse than parking some assets in other investments just in case. Also there is something to be said for holding some $$ to invest in the market when there is a downturn.

Respectfully, if you think you understand all that but still think the way you stated earlier, you don’t truly understand it.

Look - everyone should have a 6 month slack fund to tide them through crises. Making sure you have that liquid cash is a good idea, and if your perception of an imminent crisis is what spurs you on to do that, then great. Nobody should have more in the stock market than they can afford to lose in the short term, because in the short term, losses are likely.

I don’t know your financial situation, so I can’t advise you accurately. But unless you believe you are likely to go more than 6 months without work, and that if that happened you would be unable to downsize to a manageable level, you should keep your long term money in the stock market.

As someone said, people have been calling a recession for literally years now. Years. Those who tried to time the recession missed out on massive growth, and if they try to get back into the market now expose themselves to double damage - missed growth followed by exposure to the downside. They are stuck waiting for a dip that probably won’t even go back to the point they jumped off at. Almost no predicted trigger for the recession (auto debt, consumer debt, foreign loan crises similar to Turkey’s) would have implications as great as the whole housing market crashing. No doubt, we are “due” for a recession just like California is “due” for an earthquake. Knowing it is coming is not the same as knowing when.

Generalized takeaway for everyone, not just the person I’m replying to:

if, when you put money in the stock market you said to yourself, I don’t need this cash for 5 years, then you should keep it there regardless of what your gut tells you is coming.

However, if you put money in the stock market that you would be devastated to lose because you need it within the next year or two, you should never have put it in the stock market anyway, and you should withdraw it and keep it in high yield savings or specifically timed bonds.

[Ultramar vistas]

Liquidating stocks in a downturn is like catching a falling knife, and is definitely worse than parking some assets in other investments just in case. Also there is something to be said for holding some $$ to invest in the market when there is a downturn.

**Sorry, I just reread this and need to be even more sarcastic than my first reply. **

Ah yes, the old buy at the bottom and sell at the top strategy! Why doesn’t everyone do this? It’s so obvious! You just wait for a dip, buy in at the bottom, wait for the market to peak, sell at the top, and repeat! You’ll be a millionaire in no time at all, just like everybody else ever who has looked at one graph of the stock market and wondered why everyone didn’t just use hindsight to invest! You’re brilliant!

Seriously though - you aren’t going to know where the bottom is, when the recession actually comes. I genuinely worry about you, and people like you, because you have a tendency to hurt yourselves. I saw it with crypto just recently - friends losing thousands of dollars - in one very sad case literally hundreds of thousands - because they looked at a graph and thought the patterns were obvious.

Emulate this man:

https://www.washingtonpost.com/business ... facd234cc2

And this woman:


https://www.thebalance.com/how-anne-sch ... ing-357847


You can find many, many cases like this - the consistent factor is patience. All investors experience bad times and downturns. But if you invested for the right reasons and you are patient, you will see huge, huge returns via compounding that you will miss out on by withdrawing funds to wait for recessions that may never come.

[Anonymous User]

...We also pulled all money out of the stock market because our country is being run by the dumbest people on the planet and the market was overvalued 3 years ago.

Edit: Retirement accounts are all stocks, didn't pull those out since we can't touch them for 30 years.

This is exactly what I did a few weeks ago - even moved about half of our retirement accounts to earlier target date funds (e.g. 70/30 stock/bond instead of 90/10).


What are the best places to park $100-200k for the next couple years while we wait for the market to drop a bit? Currently just put a bunch in a high yield savings account and have found some short term CDs, but obviously would like to make more than 2-2.5% with that amount of money.

The best place to park the $ is in the stock market. Your gut feeling of the market is not Nostradamus.

What about money to be used for a downpayment. Presumably I wouldn't want that 200k in the stock market because i will want to pull that money out and use it when markets dip, whenever that is, right?

[Anonymous User]

.

[AVBucks4239]

Damn. Smart enough to be in a personal finance thread, not smart enough to get out of your own way. This is painful to read - please understand that time in the market is always superior to timing the market. You are in the luxurious position of having money that you do not immediately need, and an excellent job.

A person with the ability to ride out 3 or 4 years of market reset, and whose returns therefore exactly mirror the market, is statistically far, far more likely to do well than someone who tries to pull their investments before a recession.

You are smart, but no smarter than the market. Unless you are trading in inside information; in which case, you’re in the right place to find a lawyer!

Hedge funds and active managers who spend billions in research, computers, quants and time consistently fail to accurately predict the market any better than index funds. If an imminent recession was so obviously coming in the next 12 months, the market would already have responded and crashed. By taking out money that you don’t actually need in the next few years, you are just robbing yourself of gains.

I'm not stupid - I understand all of that. Obviously nobody can predict the market. But a) this is a profession in which people are laid off en masse whenever there is a downturn and therefore b) you may need that $$ sooner than you think. Liquidating stocks in a downturn is like catching a falling knife, and is definitely worse than parking some assets in other investments just in case. Also there is something to be said for holding some $$ to invest in the market when there is a downturn.

Your investment strategy and moving around money is objectively bad, and nobody should follow what you're doing. It's not defensible in any rational or objective sense -- it's purely emotional and based entirely upon personal and unprovable assumptions. You're assuming you will know when it's a downturn and when it's a peak, and that's comical.

How will you know when "there is a downtown?" Go back to fall 2007. Market flops. Time to buy -- stocks are low!!! You throw your money in. It continues to go down. And down. And down. When's the bottom? Is there a point you'll pull your money out? Because that went bad for two years. You going to ride that out? And when you get your investment back, do you take a sigh of relief and pull it out?

And look at the opposite now. Trump gets elected and a ton of people parked their money in bonds -- the market was great for 7 years, we're due for a down cycle. But it slowly starts going up. And now stocks are higher. Are you going to buy back in at a higher price? Maybe you should wait for a dip. Is February 2018 the dip? Maybe not -- it might go down even more, better wait a little longer. Oh shit, it's back up. You going to buy now or wait for another February 2018. And will you know it's a February 2018 while it's happening? Incredibly doubtful.

All in all, you can't time the market. To think you're going to know when it's downturn and when it's not is a joke.

Assuming you're not within 5-10 years of retirement, and assuming you have a 6-12 month emergency fund (depending how conservative you are), leave your investments in 100% stocks or 90/10 and call it a day.

Stop losing money -- what you're doing has the possibility to cost you tens, if not hundreds, of thousands of dollars long term -- all in the name of thinking you know what you're doing. So stop.

[SplitMyPants]

1st year biglaw associate without 401k option until next year. Any reason to not contribute $5500 to regular IRA this year?

[AVBucks4239]

1st year biglaw associate without 401k option until next year. Any reason to not contribute $5500 to regular IRA this year?

Check the income caps to see if you can even contribute and get the tax advantage.

[BrainsyK]

1st years can't contribute to 401(k)? Or is it firm-specific?

[Yugihoe]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

[Anonymous User]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Sorry- I’m a rising second year. I did the Roth last year. I’m wondering if I should do the normal this year... also, wasn’t the back door roth closed by the tax overhaul?

[Yugihoe]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Sorry- I’m a rising second year. I did the Roth last year. I’m wondering if I should do the normal this year... also, wasn’t the back door roth closed by the tax overhaul?

I don't think that is accurate and would have surely seen articles about this on the internet or financial forums I follow. Could you link me to where you've read this? Or perhaps someone else on this forum can chime in to confirm. I already contributed $5500 into a traditional IRA on January 2nd this year and "recharacterized it" into a backdoor roth a day or two later by calling Vanguard.

[Anonymous User]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Sorry- I’m a rising second year. I did the Roth last year. I’m wondering if I should do the normal this year... also, wasn’t the back door roth closed by the tax overhaul?

I don't think that is accurate and would have surely seen articles about this on the internet or financial forums I follow. Could you link me to where you've read this? Or perhaps someone else on this forum can chime in to confirm. I already contributed $5500 into a traditional IRA on January 2nd this year and "recharacterized it" into a backdoor roth a day or two later by calling Vanguard.

I was under the impression the conversion to backdoor Roth was possible directly on the Vanguard website, without needing to call a representative? Also rising second year, am planning to do traditional-->backdoor Roth at some point this year and early Jan 2019.

[Yugihoe]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Sorry- I’m a rising second year. I did the Roth last year. I’m wondering if I should do the normal this year... also, wasn’t the back door roth closed by the tax overhaul?

I don't think that is accurate and would have surely seen articles about this on the internet or financial forums I follow. Could you link me to where you've read this? Or perhaps someone else on this forum can chime in to confirm. I already contributed $5500 into a traditional IRA on January 2nd this year and "recharacterized it" into a backdoor roth a day or two later by calling Vanguard.

I was under the impression the conversion to backdoor Roth was possible directly on the Vanguard website, without needing to call a representative? Also rising second year, am planning to do traditional-->backdoor Roth at some point this year and early Jan 2019.

Yea think you can do it yourself -- the VG rep said that when I called.

[SplitMyPants]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Sorry- I’m a rising second year. I did the Roth last year. I’m wondering if I should do the normal this year... also, wasn’t the back door roth closed by the tax overhaul?

I don't think that is accurate and would have surely seen articles about this on the internet or financial forums I follow. Could you link me to where you've read this? Or perhaps someone else on this forum can chime in to confirm. I already contributed $5500 into a traditional IRA on January 2nd this year and "recharacterized it" into a backdoor roth a day or two later by calling Vanguard.

i'll bet i just read something about it being discussed then. there were so many iterations of that before the final version...

[Anonymous User]

Anyone here on these forums into FI or FI/RE? I don't see big law attorneys so much on those reddit forums, but thought this was pretty applicable for those of us trying to achieve FI:

"https://www.reddit.com/r/financialindep ... _quit_law/

[LHS17]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Could you contribute the full annual amount in stub year?

[SplitMyPants]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Could you contribute the full annual amount in stub year?

yes

[SplitMyPants]

1st years can't contribute to 401(k)? Or is it firm-specific?

Firm specific. We had 401k from our stub year.

Also poster above, yea you should contribute the 5500 to a roth IRA if you are below the income limit (which if you had no income besides your stub year income, you certainly will be). If for some reason you made more money throughout the year and will be above the limit, you could always put it into a regular IRA and then have it rolloever into a roth (back door roth)

Could you contribute the full annual amount in stub year?

yes

[AVBucks4239]

]I'm not stupid - I understand all of that. Obviously nobody can predict the market. But a) this is a profession in which people are laid off en masse whenever there is a downturn and therefore b) you may need that $$ sooner than you think. Liquidating stocks in a downturn is like catching a falling knife, and is definitely worse than parking some assets in other investments just in case. Also there is something to be said for holding some $$ to invest in the market when there is a downturn.

Just coming back to this. Market is down 5.3% in the past two days. If you're not in, you buying in now? Or do you think it will get worse, and you may be able to buy in cheaper? But what if it goes right back up -- did you miss your chance? Still going to be on the sideline?

And if you're in, are you going to sell to hedge your losses? Or maybe it will go back up tomorrow, and you should stay in to get your money back?

The active management strategy is just comically stupid when not applied in hindsight.