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hey everyone my name is jack welcome back to the channel i cover a variety of topics as they relate to investing personal finance real estate and all that sort of stuff so if you like that sort of content be sure to have a look around the channel and if you like what you see be sure to subscribe but today i want to go over a very simple retirement plan for those who might be getting started with retirement investing or maybe don't know where to start this should be a helpful guide for getting up off your feet and actually starting your retirement plan now i have to emphasize that i am not a financial advisor and this video should not be taken as financial advice i'm just the guy on youtube and you shouldn't trust guys on youtube now i call this strategy the five minute retirement plan because it really doesn't take very much time at all to set up now i understand that this video is longer than five minutes and that's because i'm explaining concepts and different rules with retirement investing and which i'll get into in this video but that's why this video is longer than five minutes otherwise it really should not take you very long at all if you follow the steps in this video but of course if you're unsure about something definitely check with a licensed financial professional to get their advice now before i actually get into the steps on how to execute this retirement plan i want to go over what an ira is an ira is an individual retirement account it's where you can invest for your retirement and you get a number of tax benefits depending on the type of account that you use one of those is the traditional ira and another is the roth ira now i have a video on my channel already going over the differences between a roth and a traditional retirement account so i'll go ahead and link that above right now but just the quick rundown is a roth ira is one where you pay taxes now contribute the money into the ira let it grow over time and then when you pull the money out in retirement you don't pay any taxes on anything that's because you already paid the taxes up front so you don't end up paying the taxes later so that's great when you have a low tax basis in other words if you're not making a lot of money now it makes sense to just pay your low taxes right now while they're low put the money into the retirement account and then hopefully if you're making more in retirement because you're such a diligent saver and you have a lot of money invested and you would be pulling out a salary that ends up putting you in a higher tax bracket later on then you won't be facing higher taxes because you already paid the taxes on the money that you put into the account now on the other hand is a traditional retirement account this is where you invest the money now into your account and then you get a tax deduction on that given tax year that you invested the money in but unfortunately when it comes time to actually withdraw that money from your retirement account you have to pay taxes on it so you're paying taxes later as opposed to now now which type of ira you choose a roth or a traditional totally depends on your specific tax situation you might want to talk to a licensed tax professional ideally to figure out which one makes the most sense but generally speaking if you're not making a lot right now and you have a low tax bill it probably makes sense to use a roth and that's usually a good option for someone in their 20s it might just be starting their career i have a roth ira and that's where i put almost all of my retirement investing that is the retirement investing within an ira it's in a roth ira for me but if you're making a lot of money right now and you're in your peak earning years and your tax bill is very high it might make sense to take the deduction now and then hope that your taxes are much lower further down the line and then you could use that tax deduction savings to invest into something else so you could even compound your savings that much further now annual contribution limits for iras are actually six thousand dollars per year across all of your iras so if you have both a roth and a traditional ira you can only contribute up to six thousand dollars per year for all of those so you could split it four thousand in one account in two thousand in another but you can't do six thousand dollars per account it's six thousand total across all of your iras now that you understand the basics between a roth and a traditional ira it'll be up to you to decide which one you actually want to go with but for now i want to actually go through how to open up an ira so you can actually get started with retirement investing so i'll jump over to my computer right now and i'll walk through the steps of opening an ira so this is m1 finance it's a free stock brokerage that i really like to use and you can actually open up retirement accounts in it so that's what i'm going to do right now i'm going to go here to add account after you open up a general account with m1 finance it's really easy to do it's free but you go down here add account retirement will be the one that i'd want to add so here it is retirement and and then it'll take you to your retirement account options and then you have the option between a traditional ira a roth ira sep retirement plan which is for self-employed folks and then you could also roll over a 401k if you happen to have one from a former employer then you can put that into an ira if you already have one with m1 finance so i actually don't have an ira with m1 yet the ira that i have is actually the vanguard and you can certainly use vanguard really any brokerage out there they pretty much all offer iras and basically all of them should be free if they're not free then definitely look into a free option since there's tons out there and it doesn't really matter too much what brokerage you use i just like him on finance because it's really intuitive and really easy to use so what i'm going to do here is actually open up a traditional ira since i already have a roth ira through vanguard and the investments that i would make in this wouldn't be really any different than vanguards anyways but i would like to have a traditional ira ready to go in the event that maybe i get a lump sum of cash from some deal or something where my taxable income is much higher in one year so it makes sense to take a tax deduction rather than paying taxes now like i would with the roth so just best i probably have one of each in my case since my income is probably going to fluctuate a good bit in the next handful of years if not the next many years we'll see but i'm going to open up a traditional ira now so you'd go here and then you would agree to all of these disclosures so i'm going to read through those now and i'll cut back all right but in general everything with m1 finance is free which is great so even if you don't actually want to use this ira if you don't have one already and you end up opening an account with them on finance you don't have to use it it's free so it's no harm to really have it open so i'm going to go ahead and confirm and it's ready to go i have my traditional ira ready to go they already had my information from my other accounts so it's a little bit quicker you're probably going to have to enter things like your social security number your address your name all that stuff but i have this thing ready to go so now i have to figure out what to put in this ira what am i going to put in here so you can actually do a few things on m1 finance you can create your own pies or portfolios and they call them pies but it's the same thing you pick the stocks or funds that you want to put in here you could also browse m1 finances expert pies that they put together themselves and then you can also do your own research to just pick individual stocks if you don't want to do a whole sort of fund but you can put together a few stocks into this sort of pie and then you kind of have your own little index fund in there if you want to do that so i actually already created one so i'm going to go to view pies and i have the five minute retirement plan right here is what i put together this is super super super simple it is not very complex all it is is two index funds it's the vanguard total world stock index fund and then the vanguard total world bond fund so what this is based here we can take a look right here vanguard total world stock index fund this is a small share of basically every single stock in the world that at least is publicly traded so that's over 8 000 holdings there are more stocks out there i'm sure but this is basically all publicly traded stocks in the world and that's great for diversification so diversification allows you to have a situation where if one stock goes down you would have thousands of others to make up for that loss but at the same time if a stock goes up you probably there's a high chance you're going to have stocks that go down as well so you typically get a fairly stable return compared to say putting all of your money in one stock like tesla for example it might do very great in one month and then do terrible in the next month and over the long run it's going to jump up and down really violently compared to something like this giant index fund which at least over the past few years has steadily trended upwards but like anything in the stock market it's going to bounce up and down um just it won't bounce up and down as violently usually as when you're just buying one stock because at any given point there's usually at least a few stocks that are doing well and there's usually a few stocks that are doing poorly and over the long run at least as it's always been with with large index funds is there are more stocks that do better or at least more value is created in the stock market than is lost over the long term that's usually what happens so what you're really doing with a portfolio like this is you're getting total diversification to where you should have fairly consistent returns if history is at all telling and history has shown that the world stock fund has made about six to seven percent per year over its existence for about a couple decades now so you have pretty good odds that things are going to keep going up pretty steadily now you're not going to have the biggest returns ever because again you're carrying very poor stocks as well you're carrying all stocks you're not doing any research into picking what stocks you're doing you're just getting everything you are betting that the world economy is going to be in a better place many years from now than it is now which at least through history has been a great bet to make since uh thankfully human innovation keeps pushing us forward companies keep getting better and there's more value created throughout the world as we move forward now the tweak you can make if you still want a really diversified portfolio but not this diversified geographically is you can get something like a total stock market fund for the us and vanguard has one of those that's on m1 finance as well it's you can pick all sorts of giant index funds that covers all sorts of things but if you did that you'd be very skewed towards the us which has done very well in the past few decades better than the world stock index fund but there's no telling that the us is going to continue leading the stock market in the near future we'll see what happens maybe it will and there's good chance that it will but if you want to really diversify geographically and don't want to put all your eggs in one country's basket you can do that by using this five-minute retirement plan and i should cover this other holding right here this is the vanguard total world bond etf if you don't want any bonds in your portfolio because let's say you're in your 20s and you got many years towards retirement and you don't plan on touching this for many decades then you don't really need bonds i don't think they do help with limiting your risk since they are generally less risky assets a bond is basically a loan that you give to a company and the reason that they're less risky than stocks is because in the event that a company goes bankrupt the first people who get paid are the bondholders or the debt holders of a company as opposed to the shareholders who hold the stock so because of that if a company goes bad you still have a much higher chance of getting your money back so that also means that your returns won't be as high over the long run but this is tons and tons of bonds it has a bunch of bond funds within the fund so you get all sorts of bonds from all sorts of different companies from all over the world so you get diversification in the bond market as well let me go back to this page here to build your portfolio i would hit view pies i click on this to add to the basket and then this would be added as a 100 allocation of this fund i'd hit save and then it should be in the ira once it finishes loading and yes it is so now all i would have to do is make an initial deposit you can deposit up to six thousand dollars per year in 2020 and that is always subject to change but it probably is going to be that for the foreseeable future so i can put six thousand dollars into this ira if i wanted to and then that would mean i'd get a six thousand dollar tax deduction on the year because this is a traditional ira but then with the traditional ira again i'd have to pay taxes on the withdrawal at the very end so i would eventually pay taxes on that theoretically and then roth with the roth ira you pay the taxes now and never pay taxes again so it depends on your current tax bill and what you think your future tax bill will be when you're making that decision but anyways that's it i have my ira ready to go and now what i would do is i would set up automatic deposits and you actually set up recurring deposits on m1 finance to where you can have 500 per month for example going to this account and never touching it again 500 a month would mean 6 000 per year and that would mean your retirement would automatically be getting funded and you wouldn't really have to touch anything until you retire unless you wanted to make adjustments for whatever reason but you wouldn't need to that's it that's the five minutes you set up your recurring deposits after you set up your ira and the holdings in it and then that's it you will automatically have money deposited into the account and then it will keep going from there and the cool thing about m1 finance is all the money going into it will automatically be rebalanced and that's because it's always going to try to maintain this allocation here this 90 percent target and this 10 target or whatever you adjust it to if you want more bonds or less bonds or no stocks at all it totally depends on what your preference is for investing definitely talk with a financial advisor if you're at all confused or want some advice but the cool thing about m1 finance is as new cash is put into this account it will go towards the underweighted section of your portfolio automatically without you having to do anything so it's a really cool brokerage for hands-off investing or really just for long-term investing without needing to micromanage everything to make sure that you're allocated correctly but again you don't have to use m1 finance i use vanguard for my roth ira you can use all sorts of stock brokerages to open up iras a lot of banks offer them as well so there's no limit on what company to use for an ira just make sure they're legitimate obviously and make sure that you're not paying unnecessary fees since it really should be a free option basically everywhere now so i'll go ahead and include a couple links in the description so you can set up this five minute retirement plan for yourselves so there will be a link to open up your m1 finance account it's an affiliate link through my account so if you end up funding it then i might get a small affiliate commission but it's of no extra cost to you so you'd set up your account through there then you would actually add this pie with the world stock and total bond index that you can actually copy directly into your portfolio without even having to do the research yourself you can actually just copy it right into your portfolio that if you want that again i'm not a financial advisor but it's at least a quick option to get started if you want to adjust that you can or add different stocks to it totally up to you and then you would actually just copy that pie into your portfolio and then you'd start funding it with a recurring investment and then you're all good so those two links are in the description below one to open up your account and then another to actually copy this specific pie into your new account and if you already have an m1 finance account you could still copy this pi it's ready to go and you could put it into whatever portfolio you want doesn't have to be in an ira they offer taxable brokerages here on m1 finance as well i actually have a whole series documenting my investments on m1 finance so if you're at all interested in stock investing or maybe you just want to learn more about different investment strategies definitely check out these series that i'll link above right now but that's really all there is to it if you want to use m1 finance the links are down there in the description you can use whatever brokerage you want to do but that's pretty much it you set up the ira you take some broad index fund or some sort of simple approach to investing then you consistently add money to that every single year thereafter and those consistent investments really add up when you add compound interest to this because if you start at age 25 or so and invest for 40 years adding 6 000 per year into the account every single year you're going to end up with well over a million dollars assuming you get about a seven percent return each year but you only contributed about 240 000 of that 1.2 million dollars it's a huge difference when you can invest early and consistently to really get those market gains now your ira and the investments in it really should serve as your backbone for the long term that is if you're going to be investing a lot of money you want to make sure you have your ira ready to go so in the event that your other investments fail outside of the ira then you still have this sort of backbone this sort of safety net already built up so that when you retire you're at least going to have a good sum of money to actually live off of and because of compound interest you can get that number pretty high but if you set up auto investments into your ira you're going to be in a much better position later on and you can take more risks into other investments because you'll already have this nest egg going use that as your foundation use your ira or your retirement account as your foundation for your long-term investing and then you can take steps from that foundation into other investments maybe you want to invest in some real estate or you want to do stock picking or options trading you want to get into more risky investments you can do your risky stuff on the side but let your ira be a more conservative diversified investment that will get you through retirement and actually get you to your financial goal without so much volatility and without so much stress that's what i'm doing i'm using my ira as a backbone i'm not using it as all of my investments quite frankly i'm going to be putting more money outside of my iras than in them but i'm always going to be contributing to those iras because i never know what's going to happen with my taxable investment accounts or if my real estate deals go sour or whatever i don't know what's going to happen with those but in the event that those fail at least have this diversified retirement account to lean back on even though it might not be the highest returns possible it should be enough to get me through retirement as long as i'm consistently contributing to them every single year anyways that's all i've got for today i hope this was a helpful guide for figuring out how to actually get started with opening and investing into an ira since it can be a big step for starting your financial journey towards financial independence and actually having a comfortable and prosperous retirement but if you like this sort of content definitely subscribe since i put out new videos every single week about investing retirement the markets real estate investing and all that sort of stuff so again definitely subscribe so you don't miss any of my new updates and if you haven't used them already definitely take a look at the links in the description below for weeble and robinhood if you open up accounts with those two brokerages you'll actually get some free stocks it's pretty much risk-free money so you might as well take it and then if you really don't want to use those brokerages you can sell off the stocks and take the money and run and maybe put it into your ira that you open up with m1 finance but please just take the free money it's free stocks on free brokerages so please just just do it but until next time take care [Music] you