Secret #0016

Happy Holidays🎅! This week’s newsletter contains a juicy secret about what to do with that extra holiday cash đź’¸ and a newsworthy story about investment fees. Read more to get the priceless tea!


If you’ve received a windfall of cash as a gift, bonus at work, or tax refund, what should you do? While it’s tempting to spend the money on something fun, investing it in your future could be better. Here are five ways your holiday money can help make life easier and more secure in the long term.

  • Pay down high-interest debt
  • What is high-interest debt? The term “high interest” generally refers to the annual percentage rate, or APR, of a loan. As defined by the federal Truth in Lending Act, a lender’s APR includes all fees and points (any upfront costs associated with borrowing) and interest. If your credit card has an annual percentage rate several percentage points above what you’d pay on a regular savings account, it’s likely considered high-interest debt. Some types of consumer debts have higher APRs than others; this often depends on what type of consumer product they’re used for (credit cards typically have higher APRs than mortgages or auto loans).

It would be best if you started investing in your retirement as early as possible and invested regularly. The amount you need to save depends on your age, income, and lifestyle. The benefits of investing in your retirement will differ for each person, but the general rule is that the earlier you start investing for retirement, the better off you’ll be later in life.

While you are taking a moment to think about how you want to spend your holiday bonus, take a look at the numbers. If saving for a down payment is something that’s on your list of goals, it’s important that you know exactly how much money it will take—and what kind of return rate will help speed up the process.

Let’s say you have $5,000 and want to save for a down payment. How long would it take if you invested in an index fund? According to NerdWallet Investing, it could take roughly three years (or more) if your interest rate is 0%. If your interest rate was around 3%, however, then investing would become more realistic: You’d only need two and a half years!

An emergency fund is a necessary precaution. It’s not fun to think about, but the fact is that even if you’re careful with your money, things can go wrong. Your car might break down and need expensive repairs. Your dog might get sick or have an accident on the carpet (and then blame you for it). You might get laid off from work unexpectedly and need to find another job as quickly as possible. The list goes on!

But having an emergency fund in place means these unexpected events won’t put a big strain on your finances—or force you into debt. You’ll still be able to pay rent or make payments on other bills while waiting for things like unemployment benefits or Disability Insurance payments to kick in (if applicable).

How much should go into an emergency fund? That depends on your situation—but generally speaking, experts recommend putting aside at least six months’ worth of living expenses. Keep this amount separate from any other savings account(s) so that there are no temptations to spend it before it’s needed! And remember: once you’ve built up enough cash reserves so that spending this money would feel like going through all of your savings at once, then congratulations—you don’t need anymore!

Consider setting up automatic transfers to a savings account or investing in your Roth IRA (you’ll need to do this by December 31).

Invest in a 529 plan if you’re looking for tax breaks on college savings. If you think that paying for your kids’ education will be difficult, consider funding a Health Savings Account (HSA) instead.

Consider setting aside some money for retirement—a 401(k) plan might be a good option!

It’s always a good idea to put some money into a savings account, even if it’s just an amount you plan on using for an emergency. When you’re looking for the best place to put your cash, ask yourself these questions:

  • Is it a high-interest account?
  • Does the bank have branches near where I live and work? If not, will there be easy access to ATMs in my area so I can get out cash when needed?
  • Is there a low minimum deposit requirement?

You might be surprised to learn that most investors are paying more in fees and expenses than they think. In fact, more than half of investors don’t even know how much they’re spending on their retirement accounts. And that’s a problem — especially because investing fees can have an impact on your bottom line.

When you invest in an individual fund, the money you pay to invest is called a “fee.” There are two types of fees: front-end and back-end. The front-end fee is charged when you buy shares of a fund, while the back-end fee is charged when you sell them (or redeem them).

Fees can also be charged by investment companies or fund managers — it all depends on how much work they do for you. For example, if they trade on your behalf and provide research recommendations, then there will be some kind of cost associated with this service (i.e., a commission).

The answer is a lot. According to a survey by Fidelity Investments, 21% of investors don’t think they pay investing-related fees. That may be because the fees are often hidden in the fine print or rarely explained by financial advisers and brokers, who receive compensation for selling specific investments or mutual funds.

The effect of these fees can be significant: For example, if you invested $10,000 at age 25 and let it grow until age 65 (when you’re eligible for Social Security), paying an extra 1% per year in investment costs would reduce your savings by nearly one third after 30 years — even with annual returns of 7%.

The problem with hidden fees is that they’re often inconspicuous. In fact, you may not even be aware of how much you’re paying in total until you take a look at your brokerage statement or log into your online account.

  • Brokerage fees: Fees charged by the broker who helps you buy and sell securities. These fees can vary based on the type of account you have (such as an IRA or 401(k)), and the size of each trade order.
  • Transaction fees: Individual charges associated with specific transactions within an account, such as buying or selling individual stocks or bonds within an investment portfolio.
  • Fund management fees: Expenses incurred by funds that invest in stocks and other assets, including administrative costs associated with running them (e.g., salaries paid to fund managers).
  • Account maintenance fee: A charge levied annually from some companies if investors fail to meet minimum balance requirements needed each year in order for their accounts to remain active—this could be anything from $50-$300 depending on what type of accounts are being held there!

In any given year, you can estimate your investment returns by subtracting your total investment expenses from your total return. This is your bottom-line return — the sum of all fees and expenses paid to invest in a particular asset class or strategy, after accounting for taxes.

For example: if you have an account worth $1 million in January and at the end of the year it’s worth $1.2 million, we would say that you made 20% on those assets during that time period. But if we don’t factor in what it cost us to make that 20%, then we’re selling ourselves short! If it cost us 1% of our assets each year (in terms of commissions and other fees), then after taxes are taken out and dividends reinvested, our actual net return would only be 19%. So instead of bragging about making 20%, we should say “We didn’t really make anything.”

If you’re like most investors, you don’t think you pay any fees and expenses for investing. But that’s not true. You’re paying something—you just might not be aware of it.

Investing fees are a drag on your returns and can quickly eat into your returns over time. But they don’t have to be a major drain on your portfolio: You can choose investments with lower costs, or simply move from one fund with higher costs to one with lower costs (or no costs).

“Hi Taylor, I am trying to build my credit and right now I only have 1 credit card I’ve had for about a year. My mom keeps saying I need more than 1 card to build my credit up high is this true?”

— Tim

Hey Tim!

First, having multiple credit accounts can help increase the amount of credit available to you, which can be a factor in determining your credit score. This is because a higher credit limit can lower your credit utilization ratio, which is the amount of credit you are using compared to the amount of credit you have available. A lower credit utilization ratio can be positive for your credit score.

Second, having multiple credit accounts can also demonstrate to creditors that you are able to manage different types of credit responsibly. This can be especially helpful if you have a mix of credit types, such as a credit card, a personal loan, and a mortgage. Having a diverse mix of credit accounts can show that you are able to handle different types of credit responsibly and can be a positive factor in determining your credit score.

However, it’s important to remember that the number of credit cards you have is just one factor that can affect your credit score. It’s also important to make sure you are using your credit cards responsibly, including paying your bills on time, keeping your balances low, and not opening too many new accounts too quickly.

Your finance friend,



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