Being Just a Little Smarter With Money

This post is for the past me, who thought that doing anything with my money was mysterious and honestly just fatiguing to think about. Past me kept everything in the bank, and maybe my house. Read on for a few tips to uncork more potential with your nest egg and retire sooner!

Tip 1 - Ditch the Big Bank

Big banks such as Wells Fargo, Bank of America, Chase, etc pay you next to nothing on the money you keep with them. Their business is making money with your money, so they need to share the wealth! At the time I wrote this, each of those big banks pay an interest rate of 0.01% for a savings account. This is equivalent to $1 per year for every $10,000 you have in the bank. Basically nothing.

By switching to a credit union or smaller bank, your savings can earn actual money. The credit union that I bank with currently pays 3.25% on all accounts, which is $325 per year per $10,000 in the bank. This is a real difference. Furthermore, I have not paid any fees for banking for decades.

If you are paying any fees and earning less than 3% on your money in the bank (2025) then you are throwing away easy money.

Tip 2 - Invest Your 401k More Actively

Most company 401k plans present a small menu of bad investment options. These options are almost always high-fee (> 1%), low yield choices that mostly benefit the brokerage that is managing the 401k, not you.

Most companies I have worked for offer the option of stepping outside of the preset menu of investment junk food.

Speaking from experience, facing all of those choices can feel like walking off of a cliff. There seems to be so much to learn and making a wrong choice feels dangerous to your financial future. But it's not that hard.

In my opinion, it is unwise to invest in single companies. A crazed CEO dictator (ahem, Tesla!) can wipe out significant gains in your investment. Very few people have the stomach or desire to ride the roller coaster of individual stocks.

This is where the Exchange Traded Fund, or ETF comes in. An ETF is something you can buy and sell just like a stock, but it is a conglomerate of many (sometimes thousands) of companies. The grandaddy of all ETFs is the SPDR S&P 500 ETF Trust and has the ticker symbol SPY.

SPY contains stock of the Standard & Poor's 500, or S&P 500. This is a listing of the 500 largest companies traded on American stock exchanges, weighted by total company value (aka market capitalization or "market cap" more familiarly -- which is the number of shares available times the share price). Apple, Nvidia, Alphabet (Google), Meta, etc are all represented in the S&P 500.

Since SPY is just based on known and defined criteria ("the 500 most valuable companies in the USA"), there are no PhD finance bros with expensive cocaine habits managing its composition, so it has a low fee (0.09%) compared with most 401k funds with fees 10-20x that. Historically it has outperformed nearly every bro-managed fund.

Through its lifetime, SPY has returned annual gains of more than 10% on average, which translates to over $1,000 per year for every $10,000 invested. Recent years have seen much higher yields, but this is a long-term game so look at long-term performance. Every brokerage will offer access to buy SPY, and most offer their own flavor of it, perhaps with a lower fee. For example, Fidelity offers an equivalent to SPY called "IVV" with a 0.03% expense ratio. Vanguard has "VOO" with the same composition and same 0.03% expense ratio.

There are thousands of ETFs out there. For retirement savings, I recommend less focused options. Along with SPY, other options such as Vanguard's "VTI" cover the entire stock market. There are more focused ETFs, such as those targeting specific industries.

In my opinion, SPY and its equivalents strike a good balance between spreading risk across many companies, and focusing on the most successful companies.

Tip 3 - Invest your Savings More Actively

Now that you have your 401k working better for you, now it's time to turn attention to your savings.

Most people will want to keep some amount of money in a savings account. The prevailing wisdom is to keep 3-12 months worth of expenses in cash, just in case you lose your job. You can decide for yourself what the right number is.

Money beyond that can be invested and earn more than what a bank or credit union will pay.

It's easy to open an individual account with a brokerage. I use Fidelity and have no complaints. Others like Vanguard and Schwab have good reputations and have been in business for a long time. You can sign up completely online and you should not need to pay any fees, ever.

Your brokerage account will have a routing and account number, just like your checking and savings accounts. So you can use your bank's money transfer function (it had better not have a fee!) to move money into your brokerage account.

Once your money is in the brokerage account, it will earn interest in what is called a "Money Market" account. Fidelity is currently (2025) paying about 4% interest on these accounts.

From there, purchasing shares of ETFs like SPY, VOO, or VTI is a simple process on the brokerage's website or app.

My advice is to just purchase and forget it. Again, this is long-term money so give it long-term attention. Looking at values on a daily basis is only good for a shot of adrenaline -- either good or bad. But in the long run, history shows that you will earn good returns on your money.

Note that the profits from selling stock in your brokerage account are counted as income at tax time, so it's best to just buy and hold rather than to try to play day trader games.

Bonus Round 1 - 401k Rollovers

Chances are you have several old 401k's from prior jobs "out there" in various brokerages. This is your money to invest. You can transfer, or "roll over" this money into a single account called a Traditional IRA. You can create this account yourself with your brokerage, and they usually make it very easy and automated to move money out of old 401k's.

So even if your old employer did not allow you exit the walled garden of their 401k junk investment menu, after you leave the company, you can move that money into your own Traditional IRA and invest as you please. You can sell and buy ETFs in your Traditional IRA account, and as long as the money stays in that account, you do not have to pay taxes on the gains.

You do have to pay taxes when you withdraw money from your Traditional IRA, since the money that your company put into your 401k was pre-tax money. You can start taking money out of your Traditional IRA at age 59.5. If you need it sooner, then an extra 10% tax is added on. But chances are, you will start taking money from your Traditional IRA after you retire, and so you may not have to actually pay tax depending on how much you are taking (it counts as income).

Bonus Round 2 - Roth IRA

A Roth IRA is an account that you can also create on your own with your brokerage. You are allowed to contribute up to $8,000 per year to a Roth IRA if you are single, double that if married.

Just like a Traditional IRA, a Roth IRA encourages retirement savings by penalizing withdrawals before age 59.5 with a 10% tax.

However, the cool thing about the Roth IRA is that since you are putting in money that you have already paid tax on, withdrawals are tax-free! So ideally your money has grown quite a bit through the years, and it's all yours to keep when it's time to use it.

Max out that Roth IRA contribution each year if possible, and use the same investment strategy as with the rest of your nest egg.

Wrap Up

I ignored all of the above until way too late in my life. Had I started with this strategy sooner, I would have been in a much better financial position now, perhaps even retiring sooner with more money. Live and learn!