Let’s Talk About…Index Funds

ID-10043721One of the most beneficial items I discovered when I started reshaping my investing philosophy has been index funds.  For most of my investing life, I believed that the only true way to invest was to buy and sell individual stocks.  It didn’t help that I was overconfident that since I was an accountant by trade, I could easily analyze annual reports.  Once I was introduced to the world of index funds, everything I was discovering just made sense.  Index funds offered diversification that I just couldn’t match in my taxable account.

So what are index funds?  Well, according to Investopedia, “‘Indexing’ is a passive form of fund management that has been successful in outperforming most actively managed mutual funds.”  So an index fund is a mutual fund or ETF (exchange-traded fund) that is built to track a specific index, like the S&P 500 or Russell 2000.  So instead of investing in a single individual company, if you invest in an index fund, you will be investing in a much larger pool of companies.  For example, if you invest in a S&P 500 index fund, you will be buying a small portion of the companies that comprise the S&P 500.  This diversifies you into many different industries and can help off set losses that occur in others.

Advantages of Index Funds

  1.  Cost – One of the main advantages of using index funds is that since they are passively managed, their expenses are normally
    much lower than actively managed funds.  The lower the cost, the more investment is left to compound over the
    years.  Actively managed funds normally will have many transactions during a year which will lead to higher fees, thus lowering your annual return.  Many actively managed funds can have expense ratios north of 1% while many index funds are around 0.20% or lower (especially Vanguard funds which are normally some of the lowest in the industry).
  2. Regularly Beat Actively Managed Funds – According to “The Case For Index Fund Portfolios“, a whitepaper by Portfolio Solutions and Betterment, passively managed index funds outperformed comparable actively managed portfolios 82%-90% of the time over the period of 1997-2012.  The study also found that the longer investors held those investments, the better the change of beating the actively managed funds.  Index funds hold the advantage of being able to hold onto investments for the long-term and are able to take advantage of compound interest.

Disadvantages of Index Funds

  1. No Big Winners – Since you are investing in specific indexes, you won’t be hitting those big winners on individual stocks.  A big gain in one stock may not move the needle on your investment since you will be invested in a larger amount of stocks.  Investing in index funds means passing up those large potential gains (or losses) for lower, steady gains.
  2. Under Performance – Since index funds have costs, those costs will go against your gains, leading to a slightly lower return that the specific index your fund is targeting.  This under performance can be managed by searching our for lower cost funds, but you will always incur some sort of cost.

As you can see, index funds should be an important part of any portfolio.  With their ability to keep costs low so expenses don’t cut into your gains long term, you are better able to take advantage of compound interest and keep more of your gains.  I used to think that the best way to invest was by picking individual stocks, but I am realizing that using index funds is the more practical avenue to help grow my wealth.

Do you use index funds?  How do you incorporate them into your overall investment strategy?

Photo Source: Sujin Jetkasettakorn

Knocking Out Debt with Credit Card Rewards

When you think of credit cards, what is the first thing that comes to your mind?  Debt? Minimum payments? High interest rates?  Well
when I think of them, I think “rewards”.  Credit cards can be a great tool for helping build wealth for the every day person.  With creditID-100276682 card companies competing for your business, credit card rewards have continued to get better and better.  Whether it is airline miles, statement credits, or straight cash, credit cards can offer a variety of incentives when using them over cash on every day purchases.

Personally, I love getting cash back.  Why?  I’m earning extra money that in turn I can use to help pay down mine and my wife’s student loans.  I avoid using cash in almost all instances.  Besides the great rewards, credit cards also offer fraud protection that cash just can’t match.

So which card do I use?  I use the Amazon.com Rewards Visa Card as our every day card.  And what do I earn with it?

  • 3% Back at Amazon.com
  • 2% Back at gas stations, restaurants and drugstores
  • 1% Back on all other purchases

This card made sense for us because we found ourselves purchasing a lot of bigger items from Amazon and two of our other bigger categories are fuel and restaurants.  The main grocery store that we use doesn’t accept credit cards.  The other stores we go to didn’t fall under categories for extra benefits on other cards.  So we found that this was the most beneficial card for us.

As I mentioned above, our reward points have helped us pay down our student loan balances.  I am proud to say that since we began using credit cards exclusively for our purchases over the past couple years, we have been able to apply over $1,000 in rewards towards our student loans.  This is money that we otherwise wouldn’t have had if we had made our purchases in cash.  Never once during this period did we carry a balance, pay a cent of interest, or pay a fee.

Credit cards can be powerful tools when used correctly.  Whether they are used to pay for vacation flights or you earn cash to use to increase your wealth, credit card rewards are a great benefit for buying your everyday items.  Just remember, be responsible and let the payments start rolling in!

Do you use credit cards to earn rewards?  What sorts of things do you use your rewards for?

Note:  If you are looking to find a rewards card, I came across a great tool at  https://www.creditcardinsider.com/credit-cards/reward/.  It has good information on a lot of different cards and helps break them out by the type of rewards you can receive.  If you are currently looking for a rewards card, I would recommend you check it out as you look for which one is best for you!

Disclaimer:  This post is about using credit card reward points to help pay down debt and build wealth.  While credit cards can be a great tool, they are not for everyone.  This blog’s stance is that if you have credit card debt, are unable to pay off the balance each month, or have issues with overspending while using them then you should have them in your day-to-day financial toolbox.  They can be a great tool but they can be very destructive to your financial health if not used smartly.

Photo Courtesy of: stockimages


Consequences of Retiring Early?

I recently came across an article on Yahoo! Finance discussing the Unexpected Consequences of Early Retirement, which named multiple consequences that I didn’t necessarily agree with.  Today, I wanted to give my two cents regarding these items and whether they truly are “consequences.”

Your Career Can Still Feel Very LongID-100206724

The author tells us that even though you only worked until 45, it is still 20+ years of hard work, spending little, and saving lots.  The idea that you can’t have an enjoyable life while working, controlling spending, and saving is not factual.  Just from reading numerous personal finance blogs you find numerous stories and examples of people who possibly have a more enjoyable life by following these principles.  They have learned that spending doesn’t necessarily bring happiness, but life experiences does.

Working hard is not exclusive to people who are trying to save for early retirement either.  Whether you want to retire early, retire in your sixties, or maybe just not retire, the hard work you put in is more of a definition of you than what you are trying to achieve.

Working So Hard Could Make You Want to Retire Even Sooner

As stated above, hard work is not exclusive to people wanting to retire sooner.  However, for people who are implementing the strategies needed to retire sooner they will be able to capitalize on that want.  To state that working hard will want you to retire sooner is not a direct result of early retirement, it is a result of the often stressful, face paced jobs that many people go to every day. The people who do it have a plan laid out, however, will be able to move passed the want of retiring earlier and earlier, and actually be able to do it.

You Might Be Afraid To Quit

I believe that this point is a natural feeling.  I am currently no where near retirement, but hope to be able to retire early someday.  The decision to finally call it quits and no longer have that guaranteed income stream has to be a very hard thing to become comfortable with.  You will be taking a leap and hoping that the planning you did was correct. However, if you work hard, and trust your system and lifestyle, making the jump to early retirement will be much easier.

Other People May Not Be Happy For You

Ahh, the main issue I have with this article.  Retiring early is not about what other people think.  A person trying to retire early has been going against the cultural grain for their entire career.  We live in a culture where materialism and spending are commonplace.  To be able to get to a place where you can retire early, the need to keep costs down and save more are huge.  Why would a person change their opinion on what people think of them now?  They haven’t cared for their career, while they have passed up spending on status items and instead saved the money, why would they began caring what people think of their lifestyle now.

I personally believe that while people may be envious of you for retiring early, they still would be happy for you.  Retiring early and having the freedom of time is a big dream for a lot of people.  Unfortunately, some people aren’t willing to commit to the strategies needed to get there.

It’s Scary To Spend Down Your Life Savings

Passive income is extremely important when planning to retire early.  Whether it is dividend streams, income from side hustles, or rental income, it helps make income more predictable and help in not having to tap into principal early in your retirement.  Yes, it will be hard to tap into the principal when that time comes but if you set up good strategies, you can keep this amount to a minimum and make your retirement savings last a longer.

There Will Be Parts of Work You Will Miss

Now this is an item that I do agree with.  For most people, they don’t dislike every aspect of their jobs.  If fact, there are probably parts that they enjoy.  In a work environment, you are able to create and grow relationships with co-workers.  You don’t necessarily have this same experience once you retire. Maybe your job provides you with different challenges that you enjoy tackling.  This is something that everyone has to deal with whenever you retire.  It definitely is not exclusive to early retirement.


Overall, these are all things that might go through a person’s head when they think about wanting to retire early, but I wouldn’t consider them consequences.  If a person is dedicated and adapts their lifestyle to a frugal one, they won’t look back at these things as they pass on by to early retirement.

Do you agree/disagree with any of these?  Are you working towards being able to retire early?

Photo Courtesy of Stuart Miles, http://www.freedigitalphotos.net/

Car Payments: Just a Part of Life?

In June, I had the pleasure of finding out that my car of 5 1/2 years, and recipient of mountains of maintenance costs, had a transmission that was ID-10098865going out on it.  This led to the decision to purchase a new car a little earlier than we had been planning.  During this search, I was introduced to some “advice” from a car salesperson that I couldn’t believe and truthfully, was saddened to hear.

While looking at a couple vehicles at a dealership, we decided to get pricing on one.  As my wife and I were discussing what we were looking for and our price range, our car salesperson tried his normal tricks at trying to get us to buy more car than we were looking for.  He completely ignored the out-of-pocket cost range that we were looking for and tried to push us up to the longest term loan they could offer.  His reasoning for doing this?  Well, “A car payment is just a part of life.  It is another line on the budget.  I figure that I will always have that car payment sitting there so why try to avoid it.”  This was the point that I completely checked out of the conversation, gathered our items, and left with the wife.  I couldn’t believe what I had just heard and was frankly saddened that this was the type of “advice” that was being given out.

This type of mentality is something that I hate.  The idea that “debt is just a way of life” and “if I can’t afford something, I will finance it” are some of the most troubling ideas in our day to day society.  Just because the ability to take a larger loan and pay it over a longer period is there, shouldn’t mean that you now have the ability to purchase something you otherwise couldn’t afford.  According to Experian Automotive, in Q4 of 2013, the average new loan balance crossed over $27,000 for the first time, while the use of 6 or 7 year terms hit a record 20% of all new loans.  This data correlates perfectly with what I saw during our car search.  Between the audible gasps when I informed our salesperson that we would be putting down 50% cash and the “advice” that we should buy more car than we wanted since they could offer us more financing and a longer term, my eyes were opened to the types of challenges out there.  But these are challenges that can be avoided.  Saving money for big purchases and not taking out extra debt just because it is offered to you are great ways to set yourself up to succeed financially.

Debt is not a way of life.  If your goal is to be financially independent or wealthy, a “keeping up with Joneses” mentality is never going to work, no matter what terms a salesperson is willing to give you.  We might not be able to change the opinion of those around us, but we know the secret.  Debt brings us down, while saving opens up countless opportunities.

Have you ever been told that debt is a way of life?  Do you finance or pay cash for your vehicles? Or a combination of both?

Photo Courtesy of: Stuart Miles, www.freedigitalphotos.net

Linking up with: Friday Jet Fuel

*Part of Financially Savvy Saturdays on Femme Frugality and
Debt Discipline*

Side Hustle Series #1: Pact

Everyone wants to make some extra money on the side and I am not an exception.  With so many options out there, someone needs a place to start.  So welcome to the Side Hustle Series – a periodic review of new side hustle ideas that I have tried out to find out if they are worth the time.


Pact Logo

Pact – Commit to you.

For the first ever Side Hustle Series, I want to talk about Pact (formally GymPact ), an app that “rewards you for living a healthy lifestyle, using money from people who don’t”.  I’ve been using the app since December 2013 and so far have made $42.64, all for working out/going to the gym, logging the food that I eat, and for eating fruits and vegetables.

The goal behind Pact is simple, as stated on their website:

Getting fit and staying healthy are hard. Pact uses cash stakes to help you achieve your health goals, week after week.

The premise behind Pact is that you will wager on how many healthy activities you will do in a week.  If you succeed, you get a portion of the losses from members who couldn’t complete their pacts.  However, if you don’t complete all of yours, you lose the amount you wagered (minimum of $5 per activity).

So how does it work?

Pact currently has three types of pacts that you can take part in: Gym, Food Log, and Veggie.  Each pact has specific ways they can be completed.

My best week!

My best week!

For the GymPact, there are a few different ways to log an activity.  One option is to log in to your gym using GPS and working out for at least 30 minutes.  Don’t have a gym membership?  Well, you can also link certain apps (like RunKeeper or MapMyRun) or wearable devices (ex. Jawbone Up) to complete your pacts.  Each of these options  have their own set of criteria to complete an activity so make sure you know what is needed to successfully complete an activity.

Food logging is done through the My Fitness Pal app which links up automatically with Pact.  As long as you log 3 meals for a minimum of 1,200 calories in a single day, your food logging will count as complete.

And finally, the Veggie Pact works by taking a picture of the veggie or fruit that you are eating through the Pact app.  Once you take the picture, it is uploaded to the Pact review system where it is approved by users of the app.  This portion of the Pact is self-regulated by users of the app who will vote yes or no if what you have submitted is a serving of a fruit or vegetable.


One of the big questions I had when I first started using Pact was “What happens if something doesn’t count correctly?”  I knew that customer service would become important because no one wants to lose money because the app didn’t read an activity correctly.  So far I have had issues with 4 activities and I am happy to say that all of them have been solved quickly after submitting the issue to customer service.  The speed at which they corrected any issues has given me confidence in the company and their commitment to providing an incentive to a healthy lifestyle instead of just turning a bigger profit.

The only real issue that I have come across is the fact that if you wager more per activity, you do not receive more payout.  If you wager $10 per activity, you will get the same payout as if you wagered $5.  The only real reason to wager more is if $5 doesn’t motivate you.

Should you use it?

Now, you are not going to get rich by using this app.  In  July, I had my most successful week ever using the app, completing 4 GymPacts, 4 Food Logging Pacts, and 20 Veggie Pacts.  All together, I risked $140 if I didn’t complete any, and made $3.11 for a 2.2% return.  While the rewards will vary a bit every week, you also get the reward of extra motivation to live a healthy lifestyle.  If you are anything like me, the extra push from knowing I have money on the line is what I need to make sure I stay active and eat healthy.  It doesn’t hurt that you earn a little side hustle money while doing it.

Have you ever used Pact?  What are you experiences with it?  Do you use any apps to make extra money?

401k vs IRA: What’s the Difference?

With private sector defined benefit pension plans almost non-existent in today’s workplace, defined contribution plans have become the standard for retirement savings.  Since 1979, when 38% percent of private-sector workers participated in a defined benefit plan (either as the only option or combined with a defined contribution plan), the participation rates have declined substantially while the participation rates in defined contribution plans have risen (See Figure 1 Below).  This trend has shifted the burden of retirement saving from the employer to the employee.

DB-DC Trends 2011 Fig1(Source: Employee Benefit Research Institute)

So, what does this tell us?  It says that we are now responsible for our own retirement.  And the best way to prepare is to take advantage of two types of retirement accounts: the Individual Retirement Account (IRA) and the 401k.  Both types of accounts are geared towards retirement and offer tax advantages as long as you don’t withdraw the funds before age 59 1/2 (you can withdraw the funds but you may owe taxes and penalties on the withdrawals).

But which one of these is the best choice.  Well that, like most things personal finance, may depend on a person’s individual circumstances.  Today, I want to talk about some of the differences between the two to help figure out which one is the best choice. 


A 401k is a defined contribution plan that is sponsored through an individual’s employer; meaning that without an employer, someone can’t contribute to a 401k.  Unfortunately, that means the employer controls the plan and what investments are available to choose from.  So if the only investments in the plan are high fee mutual funds, the employee is stuck with high fee mutual funds. Another potential downfall is that the employer may only offer a traditional 401k (funded with pre-tax dollars) and not a Roth (funded with post-tax dollars) version.  Obviously, this is only a downfall if someone is interested in investing in a Roth 401k.  However, this disadvantage is beginning to disappear as more and more 401k plans are offering Roth.

Of course, there are advantages to these types of plans.  Potentially the biggest advantage of a 401k, is if the employer matches employee contributions up to a certain percentage.  Say my employer matches up to 5% and I contribute to that point, I am making a 100% return on my investment before the money is even put to work in my account.  There isn’t an easier return out there then contributing up to the employer match!  Always take advantage of an employer match, otherwise you are passing up free money!

There are also advantages in relation to the amount that can be contributed per year.  If a person wants to maximize their retirement contributions to the maximum, a 401k offers higher contribution limits compared to an IRA.  For tax year 2014, a person is able to contribute $17,500 into a 401k ($23,000 if the person is 50 or older) while with an IRA, a person is only able to contribute $5,500 ($6,500 if the person is 50 or older).  So if someone wants to put away more than $5,500 in a year, they will either need to go with a 401k or do a combination between an IRA and 401k.

Finally, with a 401k, it is incredibly easy to automate contributions as it becomes a simple deduction off a person’s paycheck.  This is one of the ideas behind why I contribute to my 401k because it is impossible to spend money if it doesn’t make it to you.  I am not responsible for transferring the money from my bank account to my 401k so I know I can’t change my mind and use the money elsewhere.  It forces me to contribute since I would actively have to go and decrease my contribution percentages to be able to get that portion of my paycheck.  Gotta pay yourself first, right?


Like a 401k, an IRA is a defined contribution plan.  However, unlike a 401k, the individual is in-charge of the account.  An individual can set up an account at a brokerage and invest in a larger variety of options.  But as stated above, a disadvantage to this type of account is that you aren’t able to contribute as much per year.  Also, with an IRA a person is unable to take a loan against the account, which can be done with a 401k.  However, if the IRA is a Roth IRA (funded with after-tax money), an individual does have the option to withdraw their contributions tax and penalty free since those dollars were taxed before being contributed.

So what are the advantages to an IRA?  Well as I touched upon earlier, the flexibility an individual has regarding investments is very much superior to a 401k.  Contributions can be put into a variety of investments, such as index funds, mutual funds, individual stocks, and bonds.  Due to this freedom, IRAs can be a cheaper option since an individiual isn’t locked into potentially more expesive options that an employer plan may restrict them to.

Another benefit, is if a person doesn’t like something about the company their IRA is with, they can move the account.  Don’t like the account with Company X, well roll it over to Company Y.  If a person doesn’t like the options and the company their current 401k is through, they need to complain to their HR department because there isn’t anything they can do.  Once again, an IRA offers more flexibility. 

Taking it Home

So how do you choose which one to use?  Personally, I’ve been exclusively using my 401k while I have been paying off debt.  It is more convenient for me to have my contribution taken straight from my paycheck as I can’t spend it if it never hits my bank account.  I am also lucky that when I joined the company, they were currently overhauling their investment choices and came away offering quite a few low expense options, such as a variety of index funds.  I do have some old, more expensive 401k plans from prior positions that I will be exploring rolling over within the next couple months.  As I am learning is the case with most things personal finance, there isn’t one correct answer one correct answer in regards to which retirement account is the best.  The best option out there for someone all depends on what they have going on.

Which type of retirement accounts do you use? IRA, 401k, or both?  What are your reasons for choosing your option?

*Part of Financially Savvy Saturdays on Femme Frugality and A Disease Called Debt*

Wealth Hike – The Beginning

Welcome to the debut of Wealth Hike – a personal finance blog set out to help educate others on the different aspects of personal finance.  I’m Thias and I will be your (hopefully) decently informed guide to wealth building.  I’m from Northeastern Wisconsin, where I live with my wife (Nikki) and dog (Murphy), and work as an accountant in the manufacturing industry.

Nikki and I-2

My Story

While growing up, personal finance or investing where never common topics in my home.  I was always encouraged to save money but was never told what to do once I saved it. In college, as most students these days, I paid for just about all of it through students loans and the little extra money I made while working at a gas station.  Upon graduating, I left to start my career with 30k in loans and little idea on how I should proceed.  On top of that, I was newly engaged with a fiance working at getting her Masters and her own set of loans.

So, long story short, we were your typical graduates – lots of debt, little in savings, and no idea where to go financially from there.   So I put away money in my 401k, started making loan payments, and saving what I could.  No real plan, just doing what I always thought I was suppose to.

How Did I Get Here

Blogging has always been sitting in the back of my mind.  My wife runs a healthy living blog (www.grabyourkicks.com) and always talked about how freeing it was to write down her thoughts and ideas.  So you can say that I have been surrounded by blogging over the past year.  The idea was there, but I wasn’t sure what I could add to the personal finance world.  Then, a couple months ago, I found a couple podcasts that changed my view on personal finance and helped inspire this blog.  I began listening to the Listen, Money Matters and Stacking Benjamins podcasts.  These two podcasts changed the way I had been viewing debt, investing, and overall wealth growth.  All of a sudden, the idea of investing in individual stocks instead of index funds lost its appeal.  I thought more about paying off debt and building wealth than finding the next hot small-cap stock.  Discovering these two new sources of information helped me focus on what I actually wanted and to work at starting to develop a plan.  What better way to hold one self accountable than by documenting their journey along the way?

Where Do We Go From Here

I hope that you will join me as I begin my journey of learning how to better manage and grow our wealth.  I hope that I might be a resource to readers out there that are also looking to do the same.  Feel free to send in questions/comments and connect with me on social media.  I see this as a great opportunity to learn new ideas and techniques and be able to pass along that information to others.  Now it is time to see what we can do to give our wealth a hike (see what I did there?!).

Follow Wealth Hike on Twitter (@WealthHike)
E-mail Questions or Comments (wealthhike@gmail.com)