Were we using Venmo incorrectly this entire time?
July 2, 2021 by The Q.ai Team
The educational portion of this newsletter focuses on whether you should invest in your 401(k)
In 3:34 seconds, you will learn:
- How to prioritize your money to fit in investing
- 5 headlines that pretty much sum up the week
- Why Megan Thee Stallion can now call herself an investing influencer
- Our rec of the week
Investing vs your 401(k)
- If your employer offers 401(k) matches, it often makes sense to set aside that much as a minimum because that is basically free money
- If you’re planning on using this money before retirement investing on your own may be a better idea because 10% fee is steep
- Ultimately, it’s the most ideal to do both. 401(k) typically see 5-8% in returns while the S&P 500 index has historically generated 8-10% in returns on average
The case for investing in your 401(k) – or not
When should you consider investing in the stock market versus your 401(k)?
If your employer offers 401(k) matches, it often makes sense to set aside that much as a minimum. After all, it’s essentially free money – and everything up to that matching point is a 100% return on your investment. Plus, 401(k)s offer significant tax benefits.
If your employer doesn’t offer a company match, it may make more sense to skip the 401(k) and go for a traditional or Roth IRA first. These investments often come with lower administrative fees than 401(k)s – not to mention, you may get more choice in where your money goes.
But what if you aren’t comfortable enough to max out your contribution and invest on the side? Alternatively, what if you want to set aside money for something other than your eventual – and for some, far away – retirement?
The case for investing on your own
At that point, it’s time to make a different set of decisions based on your lifestyle and goals.
For instance, consider your non-retirement plans. Investing in a 401(k) lets you plan for the future – in several decades. But if you want to buy a house in 15 years, or a new car in 10, investing some of your money in the stock market now may make more sense.
Furthermore, if you have reason to think that you’ll want (or need) some of that money before retirement, it might be worth stashing it in a high-yield savings account or the stock market to avoid the 10% tax penalty that comes with taking early withdrawals.
The case for investing in both
There’s a case to be made for investing in both your 401(k) and the stock market. And in fact, even if you don’t get to max out your contribution, it may be the best move for your situation.
For instance, consider the rates of return on your investments. While every plan is different, on average, your 401(k) should return roughly 5-8% annually, assuming that you have an asset allocation of roughly 60% stocks and 40% debts and cash.
At the same time, the broader S&P 500 benchmark index has historically generated an average of 8-10% annual returns. And while it’s typically safer than equities investing, putting money into long-term government bonds has returned just 5-6% in comparable time frames.
Source: The Motley Fool
As such, if you split your funds equally between your 401(k) and your brokerage account, on average you would earn just slightly less on your money in your retirement account – but over a potentially longer timeframe than your investment funds.
This would allow you to capitalize on some of your money now while still setting aside plenty for retirement later (and without incurring that hefty 10% tax penalty for early withdrawals).
The bottom line
Whether you want to split your funds wisely between saving for retirement and investing, it’s important to do what makes the most sense for you – and your pocketbook. Just know that there is a way to grow your money across several channels, in a risk-averse way, and still get to experience the thrill of investing in the stock market (and beyond).
Read the full Investing 101 article to learn how to make investing a priority while dealing with debt, savings and paying off a mortgage
Five headlines that sum up the week
1. Antitrust case against Facebook thrown out by federal judge
Before any pretrial proceedings have even begun, a Federal judge granted the dismissal of antitrust lawsuits against Facebook filed by the FTC and 46 states. The judge called the FTC’s case against Facebook “legally insufficient” in its claim that Facebook is a monopoly and completely threw the case out for states due to them taking too much time to file. Antitrust experts say this is only the beginning. The judge told the FTC it could file an amended case in the next 30 days after breaking down the objections they need to address.
2. Venmo will let you sell personal items – at a cost
Payment app Venmo is great for splitting checks, paying friends back and, if you dare, buy and sell personal items. The last bit is about to change, as Venmo is now allowing users to sell products and services, for a fee of course. The fee will remain the same: 1.9% of the transaction plus $0.10. Venmo has been expanding its offerings to much success. It saw a 32% increase in its user base in 2020 to 70 million users. Venmo reported $51 billion in transfers, a 63% increase over 2019.
3. Robinhood finally files for an IPO
Robinhood has set aside 35% of its IPO for users of its own platform. The normal allocation for retail is about 10%. This aligns with the new line of business Robinhood is introducing that allows users to trade shares in IPOs before they start trading publicly. Robinhood will be listed ion the Nasdaq under the ticker HOOD (lol). In the hopes this this demand continues to capitalize, Robinhood may penalize users that quickly sell IPO shares.
4. Wells Fargo compared to Mafia by previous executive
We all know that Wells Fargo has dealt with some serious compliance problems, but it was never too clear whether employees were in the loop about it. Turns out, according to a former top executive, problems were often “swept under the carpet” and that internal critics were silenced and that the “place is just a scheme.” This same former exec has compared how Wells Fargo deals with this criticism to the mafia.
5. Mobile payment app complaints are surging as more Americans go cashless
As more American go cashless, so has a surge in consumer complaints about mobile payment apps and digital wallets, according to a report by the U.S. Public Interest Research Group. More than two-thirds of digital wallet complaints focused on three companies: PayPal (owner of Venmo), Square (owner of Cash App) and Coinbase. Most of the complaints have to do with scams, customer service and issues with digital wallets.
ICYMI: Megan Thee Stallion is giving away $1 million in stock
In an effort to give back to supporters, rapper Megan Thee Stallion has partnered with CashApp to give away $1 million in stock. She explains that “buying stocks isn’t just for the rich” and that “you can start investing with as little as $1” before explaining that fractional shares are an option to investors who want to ease their way in.
This is not the first time that CashApp has worked with celebrities for cash giveaways – even with Megan Thee Stallion, who also recently gave away $1 million in Bitcoin.
Meg has been giving away money all year. Last March, during Women’s History Month, she launched a $1 million Women on Top campaign with Fashion Nova to empower women by supporting education, business, charities and organizations with donations, scholarships and grants.
If you want to enter to win cash from Megan Thee Stallion’s #CashAppForHotties promotion, comment on Meg’s latest Instagram post with your $cashtag.
Meme stock Reddit psychology explained
In this episode of Coffee with Katherine, MeetKevin’s Kevin Paffrath joins to discuss why you should not view “meme stocks” as a joke. Kevin considers stocks like GameStop and AMC to be momentum stocks and shares tips for setting up a portfolio that incorporates momentum trades.